All Forum Posts by: Frank Chirkinian

Always good to hear from our South Florida biggerpockets sisters and brothers!

Hi Josh,

You know I'm a worst case scenario kind of guy, so I'm always suspect of any contractor or subcontractor I use unless I really know them well.  I always split the contract with the materials on one side and labor on the other.  I then detail each job (flooring, cabinets, bathroom, etc) and each gets a line item cost for both labor and materials.  I pay the contractor or subcontractor based on jobs completed (typically in three draws), and I make sure the materials are chosen by me or by a designer (low cost) if high end.

Once everything has been detailed, I send the contractor to home depot to pick up the materials as needed (home depot usually calls for my credit card when the contractor is checking out) and the billing for materials is handled through my home depot card.  Make sure to ask the home depot checkout clerk what exactly is being purchased.  You never want to give a contractor an opportunity to steal from you.  They will if you look the other way.

The above allows me to control the materials going in to my project, and allows me to eliminate a bad contractor or subcontractor without missing a beat.  They're paid at the satisfactory conclusion of each job in the agreement and anything not completed is not paid.  

Stay in control of your contractor and subs at all time!

@Charlie DiLisio Charlie if you're looking for a buy and hold I may be able to help.  Are you a buy and hold investor?  If so, what are you looking for in terms of return?  

As far as finding decent cash flow deals, we need to speak to about 50 or 60 sellers to find something that works in terms of CAP rates in Palm Beach County and points north (8-10 % after management, vacancy, taxes, insurance and capex is what I'm referring to). They're around, you just need to know how to find them (read: our special sauce), but they are definitely harder to dig up now. A year ago, we were shooting fish in a barrel. Now we have the nationally know gurus sucking in the masses at precisely the wrong time to enter the market as an investor, and they're inundating the market.

@James Syed Why Miami. I'm here in Palm Beach County and I'm looking at multis from here to Sebastian. That's where you'll find cash flow, not Miami. I compare Miami with Southern California - LA, where prices I would assume are out of line with CAP rates (probably sub 5%). I'm closing on a duplex in Vero next week with a cash flow of $1,400/Mo and a purchase price of $77k. Nice concrete block with new roof and central air units with two - 2/1s. Right downtown. Doing a light rehab of about $8k and put it on the market for $120k or I'll keep it. Undecided at the moment.

@carlos diaz 

1.  How did you market the property to buyers once you had them under contract? 

2.  Did you have the right to assign?

3.  When you say "fell in to my lap,"  nothing falls in to anyone's lap in this business.  You've got to market and negotiate for equity in all your deals. How are you marketing for sellers?

We track our performance, and our numbers use to be a close rate of 1/50 contacts.  Now we're closing 1/60 contacts with the big difference coming in not only response rates to our marketing, but margins as well.  I'm here in Palm Beach County and we're in a seller's market at the moment.  I've been an investor since 2009 and competition has never been heavier.  Doesn't mean there aren't deals to be had...just means you've got to work harder or spend more to find them.  The low hanging fruit is long gone.

In a good market like S Florida, we need to speak to between 40-50 sellers to find one deal.  So while you're phone may be ringing off the hook, you've just passed the first hurdle in finding a deal.  But getting that phone ringing consistently though is critical to your success. 

@David Weis I'd like to chime in here having been an active investor in South Florida for the past 6 years. You are not alone my friend. This market is overheated with new investors and deals are extremely sparse. This is NOT the right time to be investing, wholesaling or rehabbing in my opinion. Our prices have topped out and are starting to retreat. If we're hit with a large correction in the stock market (witness today's 300 point drop), home buyers will probably take a blow to their consumer confidence. This market is like any other. One day the buyers are everywhere, the next minute they've disappeared. You don't want to be caught on the wrong side of that curve (see @Giovanni Isaksen comments and graph above).

For the past 7 months my deal flow has dropped off a cliff. I'm also seeing inventory building once again which is a red flag for any investors. Newbie investors abound and property owners are demanding higher and higher prices. I've elevated my direct mail campaigns and online advertising to stratospheric heights with little results in Palm Beach and Broward markets.

Being licensed, I also have access to the MLS, and the below chart showing inventory tells the story. I've published this on more than one occasion in the BP forums in an attempt to warn my fellow investors from being too aggressive in this market. And by the way, I take this data directly from the MLS each day and chart it myself.

Now I'm not saying abandon ship, just warning about market changes and how quickly they can happen. I watched and warned in 2004. I'm seeing the same behavior from investors again. I'm fascinated to see how the memory of 2005 has faded from consciousness.

Ok, let me give you lads (and ladies) something to chew on. The below graph is the level of inventory (available home on the MLS) for our tri county area of South Florida (Palm Beach, Broward and Miami/Dade). As you can see, the number of homes for sale has been increasing since last June, with the graph rising exponentially each day. That means we should be seeing an ever increasing rise in the angle of the chart as we get more parabolic (steep).

I'd caution all my investor compatriots out there from being overly optimistic about prices rising, at least in my neck of the woods. If we could lay over another chart showing the number of new investors, I'm sure it would line up pretty nicely.

I tried cautioning everyone in 2003-04 about the reversal in prices, but very very few listened to what I was trying to tell them. One guy actually told me they were going to pave the Everglades!

By the way, I personally take the number of homes on the MLS every day and paste them in to a below chart. I not about to trust the realtors association to give me an accurate read. Just my two cents.

@Brian Mathews I absolutely agree. A quick story about one of my deals I did with a partner. I had no money at the time (just starting out), but found a great deal in 2004. A vacant lot in the heart of boynton beach. My partner funded the deal and was 51% owner in a TIC (tenant in common). We didn't have an operating agreement. We purchased it for $200k and within months I found a buyer for $575k from a developer. I thought we hit a home run, but my partner wanted to hold out for more money! Can you image that. I knew the market was getting overheated and ready to crash, but my partner couldn't be convinced.

Long story short, my partner refused to sell, the market began to roll over and I thought we were screwed (by that time she had come to her senses). Luckily I was able to sell it to the city for $475k and we just got out in time. The value of that lot is probably $20k today or less.

If you do a deal with a partner, make sure everything is spelled out in the operating agreement. A mutual take-out clause is probably a good idea too.

@Ervin Alex I'm focused on the palm beach county market but have done deals in other counties (Broward and Dade). As for the DM, there are many doing DM at this time, so response rates are way down there. When i started DM, we were getting at better than 10% response rate, and many were motivated. Now every investor in the country is using DM, so the ROI has dropped with response rates and you've got to spend more for longer periods of time (campaigns) to be successful. I think the best course of action for a new investor is begin looking on MLS for deals. The market has topped in our SF market and inventory has been building since June 2013. Save your money and network with realtors you find on the MLS. Then network with buyers and your local real estate investment assocations (REIA).