All Forum Posts by: Michael Hayworth

 I've owned the fourplex for many years. Shouldn't be any issue on that end. My entire model seems like a good fit for 1031. We rarely buy flips. We buy rentals, always intend to hold them for awhile, then evaluate between each tenant whether we should sell the property or not. 

I have a mid-size mult-family unit under contract. There is an opportunity to sell one of my existing 4plexes quickly through a wholesaler to help with cash flow. Is it possiible to 1031 that money into the purchase of the larger property? My understanding is that I can't have taken title to any part of it, which wouldn't be the case, but it's my first 1031 Exchange and it seems worth checking. I hear about having to identify lists of properties for potential purchase, does already having a property under contract affect that?

This is one reason my company stopped doing investor work. There's tons of business out there at higher profit margins and lower stress levels. We give a lot of detail in our fixed-bid contracts, but it's broken down by area. When a client (investor or homeowner) comes back asking us to break down labor & materials, we will try to see if they have a particular question we can answer, but will politely decline. It's not our model, and there's too much work out there to spend time arguing with someone about our markup on sheets of plywood. We also pretty well insist on using our own contract. We crafted it for a reason.

As @Waylon Zook said, get 2-3 bids and go with the one you trust the most based on references and perceived competence.

You are giving incorrect advice. This is a commonly known exception you could easily have found with a quick search, but here's straight from the text of the Fair Housing Act:

Nothing in section 3604 of this title [which is the section dealing with all forms of discrimination) (other than subsection (c)[which is the section dealing with advertising]) shall apply to—

(1) any single-family house sold or rented by an owner: Provided, That such private individual owner does not own more than three such single-family houses at any one time:

As I noted, state laws are sometimes more restrictive, so the OP needs to check the laws of his state, but if they're doing their first rental and did not use a broker, they are, indeed, exempt from the Fair Housing Act.

They are cheating you.

It sounds like you handled the screening/rental yourself, without use of an agent. Is that correct? If so, you are not bound by the Fair Housing Act and can tell them to pound sand. (Unless the state where you own the rental has a more restrictive fair housing law.) If you did use an agent, you're pretty well stuck with their crap, except for the bit you mentioned about being able to challenge the declaration.

"The best way to get over a man is to get under another one." - Betty White.

Best way to get over a deal you lost is to go find another one.

I used to think like that. "Amazon doesn't have the fundamentals to support this $400 price point. Wait for it to fall." "Tesla has never turned a profit. How are they worth $300/share?" Thank God I got over that when investing in real estate.

Truth is, many markets simply don't cash flow much anymore. They will eventually, as rents rise. But in DFW, rents aren't keeping up with home prices. If I wait for a deal that meets the 2% rule, or even the revised version, the 1% rule, I'm not going to buy anything but hood houses. Meanwhile, appreciation has built real wealth for me.

"What goes up must come down" is not a real thing. In the 2008 crash, the average drop nationwide was 20%. Here in DFW, it was more like 10%. People who had been consistently buying for appreciation still were way ahead, even post-crash. In today's market, we have 2000 Californians and New Yorkers a day moving into Texas with big cash positions from selling their high-priced homes. (And they're going to vote for political positions that'll ruin our economy, just like they did back home, but that's another topic.) Every one of those people moving in needs someplace to live. If I tell myself to stick to "every house must cash flow $200/mo", I won't buy much of anything. But if I buy as smart as possible given market realities, I'll grow more wealth over the next few years, even in event of a market correction.

Join local REI groups. Contractors will often be a part of those groups, or other members may have contractors they recommend. But finding a good contractor is difficult. There are lots of bad contractors out there; fewer good ones. And many investors may not want to give you the name of their best contractor - they don't want him to be too busy next time they need him - so they'll give you their #2 or #3 guy. Some things to think about:

1. Good contractors are busy. They probably don't have time to run around with you to a bunch of houses you're thinking about making an offer on. You need to learn to estimate reno costs on your own. There are multiple books and resources here on BP.

2. A good contractor should be able to provide multiple references, or let you walk their current job site to see their work. Everybody says they're great. They may even show you photos that look good. But you don't know if those photos are really their work, or if the shower looks great in pictures, but the shower pan leaks. As Reagan said, "trust, but verify".

3. The ideal contractor is also an investor himself and understands the price pressure of REI. He'll know where to save money and where it's not safe to cut corners. Admittedly, there aren't that many of those guys out there, and the ones who are stay busy.

4. Understand that good contractors view newbie investors as a pain in the ***. There are always huge promises of how much business the investor is going to do, and requests to cut corners where corners shouldn't be cut, and when the contractor can't cram $50K worth of reno into a $30K budget, it's somehow the contractor's fault. Don't be that guy. If you're fortunate enough to  find a good contractor, value his time and make yourself a pleasure to work with. You literally need him more than he needs you. Even terrible contractors have more work than they can handle right now.

5. Going back to "trust, but verify"....you probably don't want to get to where you only ever have one contractor bid your jobs. Then it's easy for the contractor to take you for granted and let his margins creep up and up. Ideally, you'll have two good contractors bid each job, and you'll let them know up front that you're always going to do that. Keep it professional and they'll respect you. But don't do the BS of having a dog and pony show where you have a house open for an hour and invite 15 contractors to come bid. They're all going to look at that and decide it's not worth their time.

Good luck with your journey.

Your profile nor your post say what market you're in, so I don't know anything specific about your market, but those don't seem like difficult standards. It may depend on what class of unit you're marketing. I have some multifamily in lower-end areas where better-qualified applicants don't want to live, so my pool of applicants does tend to struggle sometimes to meet criteria.

Things I would consider are the economic health of your market (is she likely to stay employed, can she get a better job as needed to cover rent), how far off is she from meeting the 3x, and how long has she been at her current job. If she has good references from previous landlords, that means a lot to me. But are you sure they're actual landlords and she's not putting down her best friend's number?

I like the auto-pay requirement. We do that with all our tenants. We use eRentPayment.com, which has a feature the tenant can turn on (unfortunately, the landlord can't activate it) that makes eRentPayment report to credit bureaus. Maybe use that and make it a requirement of the lease that she use that reporting feature? It costs like an extra $3/mo or something like that. 

Good luck.

Firing a contractor involves a couple of things: the laws of your state, and the contract you have. Your profile doesn't say where you're investing, so I can't comment on the laws of your state. You said you had a completion date of January 23. What does the contract say about missed deadlines? Or termination - a good construction contract should spell out what happens if one side chooses to terminate.

In reality, though, contract and laws only come into play if there's a lawsuit or threat of one. If he's saying he underbid the job and is having trouble finishing, he might be happy to have you fire him, unless you owe him a lot of $$. Have a conversation with him and tell him you no longer want him on the project. He may be fine with it. Depending on your locality, if there are permits involved, they're probably under the GC and you'll have to go through a transfer process, but it sounds like it's worth it.