All Forum Posts by: Lou Farese

Mario - I am a general contractor that manages flips and turnovers for others. Everything that I am about to say is all agreed upon prior to engaging in the project and written into a contract that is signed by all parties involved.

The way that we structure our payment schedule is that upon acceptance of a bid we receive a 10% kick-off deposit and then we operate on a draw schedule throughout the project based on project completion milestones. The draw schedule and milestones vary based on the scope of work for any individual project. We take photos/videos with explanations on a daily basis to send to the flipper/investor, unless they ask for us to not update them as frequently. Our completed work is oftentimes validated by a 3rd party inspector that is sent to the property from the HML/Private Lender when they go to do the draw inspection. Sometimes we buy the materials, sometimes the flipper/investor buys the materials. If we are buying materials - we mark them up to protect our margins. If the client is buying materials - we ask that they have all materials delivered to the property or we have to charge a "Trip Fee" for us to get the materials from the store and bring them to the property. The flipper/investor typically holds back 10% from us at the end of the project that we do not receive until after 100% of the scope of work is validated as complete and satisfactory.

Aside from using a payment structure that incentivizes your contractors to get the work done efficiently - You should really think about what the purpose of your "kind of project manager" is. If you are still checking on the project 2x a week and questioning whether you should outsource/sub-out different pieces of the project, then you are negating the need to have a Project Manager. Either have a legitimate PM or don't have one at all. You are just going to end up creating confusion over who is supposed to be doing what and you're opening yourself up to waste more time and money.

Also... "Waiting on paint to dry" shouldn't really be something that is holding up an entire fix&flip project.

@Alecia Loveless I couldn't believe what I was seeing when he told me that. To me, the biggest problem at hand is the lack of preventative maintenance and upgrades that have been performed over the years, but he's asking me - not the HOA or PM - to compensate him or his tenant. I even brought it up to him that we should be on the same team here to prevent similar issues moving forward for other unit owners.

Ok, so one of my BRRRRs is a condo in a complex that consists of 16 buildings that each have 4-5 units within them. There’s a long, twisted road of lack of communication, a “property manager”, a tenant (not mine), a landlord, and 2 plumbing companies upon which the destination is my current dilemma. This will be long-winded, but I want to convey that there is a lesson to be learned here: what transpired could have been prevented with better questions from me and better communication from a property manager and plumbing contractor.

- The plumbing in these buildings is very old

- For every big piece of renovation I have been doing in the unit, I notified the property manager via email and asked if there would be any objections because I know that HOAs can be difficult to deal with.

- PM gave me the OK to schedule my own plumber (reputable, licensed, insured) to perform work on my unit.

- My plumber notices that many common area shut off valves are seized and almost all shut off valves in my unit are seized.

- After testing the shut off valves in the basement storage room, one of the hot water valves started leaking. My plumber notified me that he would recommend a whole building shut off to replace valves and I notified PM.

- PM thanks me for the update, schedules time for COMMUNITY PLUMBER (NEVER mentioned to me before, but, to be fair, I never asked) to meet my plumber to shut down the building.

- From the time I notified PM about leaky valve to the time she scheduled the work was 5 days. A tenant in the building lost hot water for that whole timeframe. This was NEVER communicated to me from anybody, but the PM knew about it.

- On the scheduled day to shut down water to the building, the community plumber shows up 35 mins late only to say that he cannot accommodate the shut off because it would require 8 buildings to be shut down and PM only notified 1 building because she didn’t know better. Why didn’t this plumber tell PM this before? No clue.

- My plumber and community plumber spend a few hours in the building going over issues. They solve the hot water issue for the one tenant and strategize how to get the shut offs done in my unit without shutting down 39 other units.

- With game plan set, my plumber returns the following day to perform my work. He completes work. No leaks. My granite guys come after and put in new countertops. They don’t report any leaks.

- 2 hours later my phone is blowing off the hook. PM gave my personal phone # to tenant who had lost hot water, who gave my number to his landlord. Apparently there is a small leak of water coming through ceiling behind kitchen cabinets into his unit from my unit above. I understand that water in any amount is an issue, but I am met with resistance when saying I am sending my plumber over ASAP. They no longer trust my plumber. He has been there 2 times and they perceive issues being his fault both times. Ok, whatever. I’ve used this company before without issue, but maybe this particular employee did something wrong. I don’t know. I’m not there. And even if I were, I’m not a plumber. My main concern is getting the problem fixed fast.

- I allow PM to send community plumber to solve the problem, which he says was shotty work on the part of my plumber, and with the way that he explained it, I think he is correct.

- PROBLEM SOLVED, well, temporarily. The whole 8 buildings will need to be shut down for more extensive fixes within the next week.

- NEW SET OF PROBLEMS! Now the tenant below my unit AND his landlord have my phone number. The tenant is a cool enough guy and I have talked to him in passing on multiple occasions. The landlord is an irate “the sky is falling” type. I get it, his tenant has now complained to him 2 times in a week about water issues and he will have some very minor water damage. I really do understand. That sucks. None of it was his fault and it was the plumber that I hired that caused the leak issue. I take full responsibility for that. I’m not trying to be dismissive, but it’s not the end of the world. I have insurance. He has insurance (I would hope). My plumber has insurance. It will all be fine.

- I hit the same talking points with tenant and landlord on phone calls: I take my business very seriously. I value relationships and reputation. I will only use community plumber for this unit moving forward. I am disappointed in the work that my plumber did.

- The tenant is totally fine at this point. The landlord has seemingly returned his blood pressure to a normal level. The PM is nowhere to be found.

- THE CURRENT DILEMMA: Now involved in text convos - I told the tenant that I will personally come to the building on Monday to see things and smooth things over with him. I was thinking along the lines of a $100 Amazon gift card to apologize for the role I played in his week of inconvenience. The landlord later texts me that he told the tenant that I should give him an ENTIRE MONTH OF RENT ($1300) and also said that he was going to sue me for whatever he could if I did not do that. I am not worried about a lawsuit in this instance. The tenant seems like a reasonable guy, but there is now a $1200 discrepancy in what I think is fair vs what he was told is fair by his landlord.

- So, after an unpleasant 4 hours of phone calls on a Friday afternoon/evening and what I am sure will be over $1000 in emergency plumbing service, I am now looking forward to an unpleasant Monday morning of Me vs. Lunatic Landlord & Tenant.

All this to say.. ask more questions and communicate better!

What do you guys think? Am I being fair? Is my $100 gift card on track, way off base, or something that most people wouldn’t even consider doing? I really don’t know. I do feel bad for the role that I played in his week, but there are many other factors at play here. What I do know is that there is no way I am covering a whole month of the tenants rent

@Ethan Garrett I want to start by saying that I am not a wholesaler so this is from a POV outside of the wholesaling space. In order for the situation to be a "win" for all parties involved, we would have to define what a "win" is to each party.

In general (and in an ideal world): The "win" for the seller is that you are solving a problem for them that they do not have the time/resources/wherewithal to solve themselves. The "win" for the wholesaler is helping the seller solve their problem, providing the buyer with a profitable deal, and then earning a fee for their efforts.  The "win" for the buyer is that they are getting a deal that they likely would not have found on their own and that they will make a profit on. 

It's good to keep in mind that these "wins" for a wholesaler and a buyer can and will vary on a case-to-case basis. I have seen experienced investors purchase property from wholesalers where I'm looking at the numbers like "There's no way that they're making any money here." and I have come to find that the reason is.. they don't plan on making any money on it! They plan on just having that project to keep their crews busy until the next profitable project. So the buyer's "win" in these cases wasn't buying a deal with great margins, but buying a "good enough" deal in a competitive market to keep their crews employed.

For a wholesaler to be effective, the formula will always be the same.. Solve the seller's problem and provide a deal to your network that they are also able to profit on. If the deals you are providing to your network do not have great spreads (ARV-Purchase Price), you will not have many return customers. As for YOUR "win", that's for you to decide. Are you mainly interested right now in building relationships and your network? Do you plan on spending thousands of dollars on marketing to find these deals or will you be dedicating hours upon hours of your time to Driving For Dollars? Or a combination of both? Or somewhere in the middle? How do you value your time? Would you be happy assigning a property for a $6k fee or do you need to assign it for $20k to compensate yourself for your time and pay for your marketing?

My suggestion would be talking with RE investors in your market and asking each of them who they believe to be THE BEST wholesaler in your market and then learn as much as you can from that wholesaler. Since you're only 20, you have plenty of time ahead of you. If you don't have a lot of expenses (rent/mortgage/kids/cars/etc.) find any way possible to get on that wholesaler's team, even if it's strictly commission on acquisitions... the experience that you can gain in just a year or two of working for a high-volume wholesaler could be invaluable for you. Added bonuses are that you can make sure that you enjoy it, make sure that you are good at it before getting yourself into any situations, and can make a nice living off of it!

@Niko Lyons Great post, congrats on a successful first investment! I'm currently in the middle of a fix & flip in the Philadelphia suburbs where my partner & I provided the finances for a deal found by another investor in the area who was overextended financially at the time. This is our first go-round at a partnership and so far it is going well. The project is a much larger project than anything we have taken on before in terms of purchase price, renovation budget, home size, lot size. This is a deal that we never would have found or taken on by ourselves. As a result, we are learning new things and making new connections that we would not have otherwise and our new partner was able to secure a deal that he otherwise would not have had the finances for. The terms of our partnership from expected duties/responsibilities, timeframes, interest rate, etc are all outlined in an OA. Even putting the ROI on the money aside, this deal has proven to be a goldmine in terms of learning to navigate a partnership, meeting new contractors, and overall experience gained.

Also following for info on partners in the Pinellas County area.

@Luke Rorech, I was originally looking at STR, but legality/zoning seems to be wildly different from area to area, even within the same municipalities and then again within HOAs. I am very open to SFR value-add in St Petersburg, but do not know the neighborhoods well enough outside of what I have read online. Does not need to be in a strong cash flow area, but low crime rate or a crime rate trending downwards is a priority as it could become our primary residence within 5 years (in an ideal world, lol).

@Vincent Garman thanks! I see we have a few mutual friends on Facebook, Drew, Steve, and John came to a few of the meetups that I used to host at my restaurant.. great guys! 

@Matthew Ferguson do you have any updates on your search? Will be down in Clearwater Beach next month for a few days and planning on driving some neighborhoods in Pinellas County.

@Paul D. Do you have any updates on your search? I will be down in Clearwater next month. I have been doing extensive research on St Petersburg since last March and plan to try to meet with some real estate pros and go driving around the neighborhoods while down there.

Dan & Rich, thanks to both of you for the congrats and for connecting with me! Looking forward to building relationships with you guys and the rest of the BP community :)