All Forum Posts by: James Pearson

I would make them renew the lease, for another year and add on to the deposit.  You have to cover your *** and profit from your labor.  

There are alot of generalizations in this post by several.  Not all electrical work is the same.  While most electricians don't need deposits for general sorts of electric work, some work requires specialty materials, or bulk materials.  Investors need to stop expecting tradesman to finance your projects.  Thats not the way it works.  Perhaps in the New Construction market, it does to an extent, but even then 90% of materials are covered upfront, especially in spec houses.

The Texas forclosure market sucks. Wells Fargo and Citi Bank have a huge market share of mortgages and really suck at selling their forclosed homes. They pretty much have cut out the investor takeover of these properties. They sit on their books for months. The HUD forclosures are even worse. I just looked at one that needed 70K worth of work, ARV would be slightly north of 210K and asking 155K. These homes sit for a long time. Its becoming toxic.

Benjamin, not all contractors are like that, but the good ones are.  First thing to realize, is not all materials are the same.  Second, I include profit on materials for several reasons.  Time spent figuring materials, having an account in good standing with a vendor wherein I receive a discount for doing good business.  Covering for jobs where I have to eat materials, and it happens to even the best of contractors.  But the biggest preference is so that I get the materials I prefer to work with.  There are situations where me purchasing the materials isn't the proper thing to do as well, such as granite countertops, or tile that you have to select.  If I paint, I give you options on the paint, and tell you the price.  I don't paint with certain box store paints.   Cheaper is not better, and sometimes cheaper cost the contractor extra time.  

Your mechanic is probably the same way.  I used to sell truck parts. Brakes can be very different in installation, so can seals.  Some materials perform better over time and maintain their look over time.  And we put our name on these jobs.  

The old addage you get what you paid for applies to contracting more than anything I have ever known.

FYI, on the contractor side, I generally wont do less than 100% materials plus 20% of the labor upfront.  I also make a profit on the materials, so you cant just write a check to the hardware store.  I wont do business any other way.  Generally, my business is cabinetry, so once I'm done with the building of cabinets, I collect another 50% of the labor before I do the install.  This ensures me that I get paid for my time.  Of course, contracts are a must and everything is in writing.  Im starting to get away from showing the materials cost to customers, because most of them think the labor is too high, until they get a quote from another cabinet shop, then I get a call with a check for what I ask for.  I have been burned by allowing customers to purchase their own materials from their own vendor.  Never again.  If I touch the materials other than on the jobsite, I make a profit from them and I should.  

It does sound like you got in with a bad contractor in this situation.  

As someone who knows what it's like to be on the other side of this deal, there is probably a better way to arrange this.  I would start with finding an attorney that could draw up a contract.  500k home in Cali is much less than a 500k home in other areas.  

As far as how to set up the deal, I would just ensure there are contingencies and you are protected.  A 50/50 split is reasonable, and you simply need to ensure that your money and credit are being put to good use.  Make sure this person has the skillset and knowledge to properly do the work.  Trade references are a good starting point.  I would think a smaller amount to start would be completely possible.  You want to find the worst home in a good neighborhood that needs to be updated.  Simple stuff like flooring, cabinets, paint, appliances.  You don't want to get into a project that needs things like walls moved, adding and removing plumbing and electrical.  Dont get an older home.  Something built in 1985 or after.   Try to stay away from things like drywall where matching texture would be involvled.  Anything past scraping popcorn off ceilings can be tricky, especially if this is your first venture with the person.  He needs to have connections with other trades in the area, vendors, etc.

Last piece of advice, make this person get all supplies, materials in his or her name, not yours.  That is where this person getting 50% of the profit takes risk away from you.  At the end of the day, if something goes wrong, you don't want to owe a bank, hardware store, subcontractors.  You're basically partnering with this person to be the general contractor for what your money can buy.  A few other things you will need are an established realtor that will list the house at the right time and sell it fast and check comps before you buy, a backup contractor in case this other person doesn't follow through or needs help finishing in a timely manner and possibly secondary financing in case you need more money just to finish and protect your initial loan.  

Best of luck.  No risk, no reward!

I am really looking to work directly with a broker if that is possible.  One who is keen on real estate investing and perhaps looking to expand on opportunities in the area.  The market up here is much smaller with less competition than in DFW, but it is growing very fast.  

I am looking to work with a RE Agency as I get into investing.  I am currently searching for properties available in the Sherman area.  Looking for a long term partner in this that will help me find the type of properties I desire.  I will be doing flips and holds.  I am a contractor/woodworker with my shop located in Oklahoma and live in Sherman, TX.  

James

Please forgive my ignorance, but is hard money the same as private lending??  I was under the assumption there is a little difference.  I knew "hard money" had an effective interest rate near 15%, but I was under the assumption private lending was significantly lower.  Basically looking for people that want better rates than bank CD and take a slight risk.  I wouldn't consider this high risk as the payment history from her is good and there is roughly 15-20% equity in the home.  My goal over the next year is to build over 30% equity to get a cash out refi so we can have funds to flip a house.  Thanks for the replies.  They do help give me info that I am in the grey area on. 

We are already working with an attorney, and the mortgage company.  It just doesn't seem the mortgage company is willing to release him from his liability.  Not until the note is caught up.   I am also talking with the local bank, but going that route is quite expensive as well, if even possible.  We are either looking at paying all new closing costs, reassignment fees, etc and likely higher interest through conventional means, sell the house (which is not an option at this time), private lender, or keep paying with him on the lease.  What sucks is we have been planning on some updates because I'm moving in before the year ends, and this hanging over our head is not something I'm looking forward to.