All Forum Posts by: Gregory Wilson

Quote from @Steven Goldman:

Quote from @Gregory Wilson:

Quote from @Steven Goldman:

Quote from @Blake Forrest:

Hey all, 

As the titles says i'm looking for any advice, guidance, and guidelines when looking for investor friendly generals contractors. 

This will be my very first fix and flip at the ripe age of 23 so all comments/guidance is deeply appreciated!

Thanks,

BF

 Hi Blake, I am an experienced rehabber. I concentrate on flips. I have found locating a competent trustworthy contractor is the most difficult challenge to success in flipping properties. Most contractors are trying to maximize profits from each job. As a flipper, you are trying to control your costs to maximize your return on each deal. Your goals are in total conflict. The key is to have a detailed scope of work itemizing the materials and grade of materials to ensure that the contractor will complete the job for the original agreed amount. 

I agree with the contributors who say get more than one quote. Your quotes will not be comparable unless you have that detailed scope of work so that you know everyone is quoting the same job.

You should not advance money to the contractor unless the materials are on site and the work is being performed. The number one reason rehabs fail is the owner advances too much money to the contractor who uses the money to complete other projects or, go on vacation. 

Before paying the contractor a draw visit the property and confirm that the work is completed in a workmanlike manner. This keeps the job moving and ensures that you do not get stuck at the end with a poorly executed rehab. Good luck!

Also note that from a contractor's perspective, the number one problem is flippers who are inadequately funded and who rely upon the contractors to fund their rehab. The assumption is that by the time the project is done and final bills are in there will be a sale which will fund the amounts due the contractors. This is not too horrible when the "days on market" are in the single digits. but it will put a small GC out of business if the flip does not go well. The contractor shows up on day one with 40% of the project cost in materials and fixtures that he has had to pay for.

Hence, a mobilization fee before the crew and materials show up on the job.

A flipper who wants the GC to fund their job will always be paying full retail.

 Hi Gregory in the many years that I have been in real estate I have never had a contractor show up on the job with 40 percent of the materials needed to complete the work. But if he did, I would pay him on the spot when they were delivered. A contractor should vet the owner to ensure he has the funds necessary to pay for the job. I appreciate good contracting but despise being delayed or ripped off by unscrupulous people. Most owners are paying interest on the funds so timing is everything. 

I only use contractors when required by the municipality I am working in. I would rather partner with an experienced builder than hire him. Nonetheless, I have had success with my contractors when I followed the simple steps outlined in my earlier comment. It avoids disputes. I use written change orders and pay everyone promptly. I advance sums to contractors who have proven through experience that they can be trusted. Even then I keep my ears to the ground because a good guy can go bad due to human problems. (Gambling, drugs, divorce and lust)

Good advice. 

It depends on the type of work, of course and what is included in the contract.
Some owners want to purchase the materials directly and this can be a good idea in that they will be in direct privity with the supplier for warranty and post install service requirements where the GC may be hard to get back involved. But, also to avoid markups and assure payment for lien purposes.

But, when a contractor gets discounts prepayment may not be avoided.  Recently, we had a 4 head mini split installed and as you may know, HVAC distributors typically refuse direct sales. They claim this is to insure proper training for installers, but I have my doubts.

But, you can see an HVAC install would almost always require a 40% advance purchase by the installer. Similar for a shower with a proprietary enclosure and a Schluter system and fixtures which bear an enormous discount to plumbers and installers.

Paying the GC on day one for these things does not reduce the risk to the GC unless it is established in the contract that materials are paid upon delivery to the site. A short cut for this is the mobilization payment and I think many GC's would be reluctant to disclose their materials costs with complete transparency.

Quote from @Steven Goldman:

Quote from @Blake Forrest:

Hey all, 

As the titles says i'm looking for any advice, guidance, and guidelines when looking for investor friendly generals contractors. 

This will be my very first fix and flip at the ripe age of 23 so all comments/guidance is deeply appreciated!

Thanks,

BF

 Hi Blake, I am an experienced rehabber. I concentrate on flips. I have found locating a competent trustworthy contractor is the most difficult challenge to success in flipping properties. Most contractors are trying to maximize profits from each job. As a flipper, you are trying to control your costs to maximize your return on each deal. Your goals are in total conflict. The key is to have a detailed scope of work itemizing the materials and grade of materials to ensure that the contractor will complete the job for the original agreed amount. 

I agree with the contributors who say get more than one quote. Your quotes will not be comparable unless you have that detailed scope of work so that you know everyone is quoting the same job.

You should not advance money to the contractor unless the materials are on site and the work is being performed. The number one reason rehabs fail is the owner advances too much money to the contractor who uses the money to complete other projects or, go on vacation. 

Before paying the contractor a draw visit the property and confirm that the work is completed in a workmanlike manner. This keeps the job moving and ensures that you do not get stuck at the end with a poorly executed rehab. Good luck!

Also note that from a contractor's perspective, the number one problem is flippers who are inadequately funded and who rely upon the contractors to fund their rehab. The assumption is that by the time the project is done and final bills are in there will be a sale which will fund the amounts due the contractors. This is not too horrible when the "days on market" are in the single digits. but it will put a small GC out of business if the flip does not go well. The contractor shows up on day one with 40% of the project cost in materials and fixtures that he has had to pay for.

Hence, a mobilization fee before the crew and materials show up on the job.

A flipper who wants the GC to fund their job will always be paying full retail.

I think I would write both of them one letter. They will know each other already. Say that you need to move in to one unit and raise the rent on the other. Tell them how much it will be. Then say, "do either one of you want to stay at the new rent amount? If so, let me know. If both of you would like to stay, I'll flip a coin."

That way you won't have to fill the vacant apartment.

I believe in transparency with tenants.

There is a size element. I might recommend one GC for a larger project and a different one for a smaller project. If its a single family house flip or a renovation of a multi-family shell. Two different GC;s Tell us what you are doing, please.

I agree with Alecia. In the immortal words of Lester Wallace (see Friday 1995 New Line Cinema), people have no vision. 

As for whether one has to get quid pro quo in increased rent for improvements, there is also a factor of the quality and longevity of the tenants one gets with an upgraded apartment even when rents are limited by neighborhood competitive pressures. 

In OTR, we see that it is possible to get $1500/mo for a 1 bedroom without meaningful upgrades but after spending $30,000 in a unit the rent might only go up to $1700. While it would appear to be a bad move, the tenant in the upgraded apartment may be happier, stay longer, tolerate rent increases and be less trouble. Two months of vacancy every couple of years translates to a lot of rental loss. 

I was thinking of the "live/work" use that came up earlier.

When commercial space is converted to residential there is the zoning and landlord/tenant issue on the one hand, and the Ohio Building/electrical/fire code on the other hand. I am not at all sure that a first floor formerly retail space like we have so much of in OTR can be converted to residential use without full code compliance even when the building is zoned for mixed use. So we tip toe gently through that area here in OTR.

No matter what you put in the lease, if you know people are living in the space you have to comply with the City and Ohio landlord laws.

If you are permitting mixed use, I would start with a residential lease tailored to the City of Cincinnati and add the permissions and restrictions on commercial use.

You are right at the edge of the end or our rental season. The sooner you post, the better. As long as you disclose that you don't have access or rights until closing you should be ok.

Putting aside the issue of whether the property continues to appreciate or levels out at the ~170k which we cannot judge, if you actually do the numbers, it will not work out to where a sale is a better option than continuing to enjoy the cash flow, reinvesting those funds in further upgrades or further investment. A 1031 is not a choice unless your you know something negative about your property not present in the target. You pay a bunch of fees, are under the gun time wise and have to reinvest the entire gain. What would the point of that be other than to unload the property at its peak. There are good reasons to do a 1031, but trading out an appreciating property with excellent cash flow without a predicate investment (one you have to have) is not one of them.

I'd suggest that you actually do the numbers to see for yourself.

I agree with Michael above that you should start with a commercial lease and have an attorney review it. For my part, before I retired, it took me more time to review and correct someone else's lease than to revise and publish one I had already done. So you might want to start with the attorney and see if he has a lease he already knows and likes.

One thing for sure, put the prohibition on living in the space in bold type with a nice little initial block next to it for the tenant to initial so the tenant cannot come back and say it was intended to be a live/work space. If they are living there you are going to have to comply with everything. From maintaining Winter and Summer temperatures to deposit alternatives, etc.