All Forum Posts by: John S.

@Mark Updegraff - This isn't a rate I am quoted. It's what I pay them. I stop by from time to time and check progress on rehab work, but mainly the contruction manager is monitoring the crew and worrying about supplies. You have to reliquish a certain degree of control to expand, and trust your team. An experienced rehabber knows how long certain jobs take and what they should cost.

@ J Scott - This is more of a contract vs. time and materials billing question. Each model has its merits depending on what needs to be accomplished, and we can swap examples on merits of each until we are blue in the face. There are some jobs that are better on a contract basis. Time and materials tends to be more flexible than a contract. For instance when you are renovating one apartment in a building and a pipe bursts in another, you can redirect the crew to the emergency. In a contract suituation the emergency wouldn't be the contractors problem.

In my case I am comfortable paying my primary crew on their time for the majority of their work. They have proven themselves over and consistently come in cheaper than third party contractor bids when I occasionally get them. I'm sure everyone trusts their attorney and accountants to bill proper hours and work in good faith. Why not your labor team? How do you expand if you can't delegate the more detailed work?

That's just their asking rate and I think they are very content with the current situation. If they did crap work they would be getting paid 0 dollars an hour to sit on their couch. Higher $/hour doesn't always mean more quality work; I've had much lazier contractors charge me more. I did start out with some sub standard and overpriced contractors in the beginning, I just kept switching them up until I found a construction model that worked.

My go to guys are non-union and very experienced. Between myself and a few other property owners/managers they have steady work that keeps them going full-time. They also have a strong work relationship with my construction manager who I trust very much. I don't know what keeps them personally motivated but their work is solid quality and they have a strong work ethic. You have a take some chances on people and if it doesn't work find someone new until the fit it good, another benefit of the sub contractor model.

I sub out. Employees are a waste of money unless there is no other way. Payroll,taxes,benefits,and paying salary during slow periods is all wasted resources.

1 Virtual assistants in the Philippines for all back office -$3.13/person/hr no taxes or benefits or payroll to worry about.
2. One in town assistant to run around the city, research not available over the internet, and coordinate my virtual ones - $12/hr
3.Experienced gc/labor crew(s) of 3 - $2250/wk/crew
4. Construction management 10% of Materials and Labor cost. I also let her list the properties as she has a brokers license and is very competent and shrewd.
5. Property Management - 6% of gross rents plus monthly cleaning fees.

From your posts it sounds like you are thinking more like a homeowner than an investor. Homeowners don't know the value of money they just want stuff their way. In your case you want the best.

Investors think about what's required and their budget and the bottom line and their exit, amongst other things. Getting things done cheaply and spending less money aren't necessarily the same. I would advise against starting your REI career on home projects and blowing your whole bankroll on your first project. I think some experience doing value-add rehabilitation and studying the economics of grip it flip it ops (if that's your plan) is in your best interest. Why not use 25% (example) of your bankroll in a pilot rehab to see how everything works and test your nerves and skills? What's the rush to fully commit your funds? You should never feel rushed while investing, rushing causes mistakes. No one runs before they walk.

You should be looking at getting below market value deals and marking that property to market, not over-improving you primary residence and hoping the 'right' buy comes along in 15 years. Still how many Sq Ft is your home?

Jumping into a $250k rehab project and fully committing your capital stack doesn't sound too good me without more discussion. Have you factored in the carrying costs? What about acquisition/disposition fees and broker commissions? Without wrapping your head around an entire project and understanding its risks and yellow flags that $250k 75% complete renovation might become an albatross rather than the liberator your expect it to be.

Many folks 'dream' about real estate because it seems so easy looking in on. But there is a lot to consider, and to the novice, a lot of that is easily glossed over. You wouldn't expect a fresh grad to come into your office and be handed the highest $$ value project available to run off the bat. What insinuates you can do just that in the real estate office? You don't win the REI game by spending and borrowing the most money. You win it by spending the least to get your projects done correctly and maximizing profit.

I would recommend writing your objectives down and sharing them with the group. We are happy to critique and refine your ideas.

Btw, retail contractors will sack your bottom line. For example, out of curiosity on a rehab I recently got two contractor quotes, they came in at 34,000 and 37,000. My crew did the same exact job for 17,500. I would recommend backing out any contractor estimate or ask them to itemize and then think through what % of their bill is cost and what % is profit for their families. Everybody and their mom is trying to make a nickel off your deal. Control the situation and the costs or you'll be under quick.

Don’t risk youfor deals that fit into the $150k of cash on hand, before you bet the house.

Also, how many sq ft is your home? $100,000 for upgrades sounds over the top unless it’s a mansion. Do you have an experience rehab crew at yor depot and get familiar with prices. I run a 3 man gc crew for about 2250/wk in labor. Dn’ny sq ft is your home? $100,000 for upgrades sounds over the top unless it’s a mansion. Do you have an experience rehab crew at your disposal or are you getting retail quotes? I would take a walk around at your local home depot and get familiar with prices. I run a 3 man gc crew for about 2250/wk in labor. For $100k I could run the guys for almost a year.

$1B in Real Estate Interests Owned with ~30%Equity/70%Debt

Model out each real estate investment and check the IRR and equity multiple on each deal. Take the one with the optimal balance between the highest IRR and equity multiple.

And don't trust realtors, they just want to list your place. Only working the numbers on each investment properly will uncover your gains.

Let’s hypothesize: Split your RE operation into two distinct lines of business 1. Profit from Rehab/Grip It Flip It operations to generate gains in more favorable economic areas leveraging your rehab team. 2. An NPO LOB focused on community improvement.

Donate your profits to the NPO. This will make your gains tax free and fund a 501(c)3, there is some arm’s length stuff you'll have to get around but a slick lawyer/accountant will set it up right, I know mine would string a baby up with a lamp cord for enough billable hours.

There is a lot of funding available to a 501(c)3 that isn't made available to for profit entities namely the 203k rehab loan by FHA. For example, qualifying NPOs can take out as many 203(k) rehab loans as they want at 5% down, unlike an individual who can only have one FHA insurance loan at a time.

Try picking up an NPO on the verge of being defunct in your area that’s been in operating at least two years, a big requirement for grants and 203k. See if you can find one with a similar mission that busted out and reach out to the 'owner' of it and ask to take over the paperwork. The NOP history along with you rehab experience may get you qualified.

Be sure to start meeting with your alderman/councilman regularly once you have some traction and pay him........visits, and fill him in on what great work your NPO is doing for his district. This will come in handy later.

Something else to consider: Maybe seperating RE investing from wanting to help will be more effective. Consider making clean dollars on investments with stronger economics to fund an NPO that will achieve the desired social goals. Investing and charity are two very different things to me and combining them may be less than optimal for both.

-Be prepared for every story in the book on the first of the month. See my comments on evictions in the second bullet.
-Track you hours, you may find that after all the running around, repairs, gas for car etc., you’re only getting paid $2/hour (example) and a whole lot of stress. These types of properties just require more commitment by design.