All Forum Posts by: Pete Harper

@Pete Harper

I thought I would post an update on the situation. We are two months further into the project with little progress to show. At one point he called asking for more money. He was having trouble making payroll and wanted me to pay to keep more guys on the job. According to our contract I had already paid more than I was required. It also bothered me that there were several big ticket items that were not on the job site; HVAC units and plumbing fixtures. I asked to see invoices which really pissed him off.

He finally put one guy on the job doing Sheetrock. I think this was mostly to placate me and keep me off his back. The Sheetrock guy has gotten as far as he can waiting for plumbing inspection. We’ve been stuck at this point for over a month. The plumber has been super busy after the Texas deep freeze. I finally have a date from the plumber for April 12. I had to call the plumber myself as my contractor is no longer talking to me. He refuses to answer phone calls, txt or email. The only way I know he is still around is the plumber said they spoke. Needless to say I’m at my wits end.

Looking for another phone number I ran a background check on him. We only recently had the service to screen tenants for a new apartments we purchased. Oh boy! I wished I had done this earlier! The guy is a convicted felon, pedophile, forgery, drug charges, failure to register as a sex offender..... all charges dating back 2008-2012. He comes off as a born again Christian; company name is MAGIC. Man And God In Cooperation. Never would have guessed his checkered past.

I’m done! I started looking at new contractors today. Full background check and all.

Looking at the original contract I’m $8000-10000 in the hole. If I can get the HVAC units and plumbing fixtures from him I’ll about break even. His excuse for not bringing them to the job site is it is not secure. During the demo they broke the front door frame and a few windows. In my most recent communication I said I would have this fixed myself and even offered to move the stuff to the job site. I’m calling his bluff on actually purchasing these items.

Any advise on terminating the contract? I’m worried he has not paid his subs; electrician and plumber. Are they going to come after me? Put a mechanics lien on the property?

I need some help with a strategic question. As you grow your rental portfolio at what point do you look for geographic diversification?

We are in our third year of growing our real estate rental business in central Texas. Our strategy is buy and hold for cash flow. Appreciation is a secondary consideration. From the beginning I have tried to diversify the location of our purchases so as not to become too dependent on any one local economy. We have six properties with a total 28 doors spread over three different markets. We have been doing our own renovations/maintenance so we try to stay within a 2hr radius of home.

That being said, our last three properties have been in a very small local market. Looking on the county tax records we are the #4 ranked landlord in the county. I have the opportunity to buy out the #3 guy making us #2, gulp. From a cash flow standpoint this market can’t be beat. We are buying solid 1-1.5% deals adding value through light renovations pushing towards 2%. Local demand for apartments is super high, just yesterday I had three people calling on a 1BR unit and I wasn’t even advertising.

My question is am I getting over exposed in this tiny market? The local economy is depressed. The largest local employer closed 4 years ago. My current tenants are working class folks; waitress, cashier at gas station, local cop.... target income is only $2100/month for 2BR; $1600/month fir 1BR.

@Geetha R.

There are plenty of 1% deals in central Texas. Dallas and Austin are super hot but if you look in some of the smaller markets along the I35 and I45 corridors there are still good deals. Waco-Temple-Killeen or BCS.

@Benjamin Bennett

I think I know which property you are talking about. It has been on MLS for months walking the price down. I wondered what was wrong with it.

I had a somewhat similar situation. I purchased a primary residence with 58 acres of land. Fortunately it was already platted as four separate parcels. When it came time to refinance the bank would not loan on it. The appraisals were all too low mainly because of a lack of comps. It was upside down with value with an older 1600sqrft house sitting on a bunch of land. I had to search around but I found a lender willing to loan on just the house and the parcel of land it sat on. Now with a single family home on 3.3acres had plenty of value, in fact more than with the all the land. We did the refinance. The result was I had a loan on my primary residence with 54 acres owned free and clear. It always pays to package the deal to what banks are used to seeing.

The other route you could go is to try for commercial financing. Get a multifamily family loan on a “tri-plex”. Commercial loans will consider rental income when underwriting a loan.

Good luck.

@Anas Athar

It would be really hard to justify financially buying land for cattle production. We used to live in Lucas just East of Allen and have retired to an 85 acre ranch in Streetman. We raise Dexter cattle mostly as a hobby and to supply ourselves, three daughters and four grandkids with beef. Our beef is primarily Grassfed/grass finished. Initially I looked at this as a business but the costs always exceeded the income. I’ve sold a few Grassfed steers at a premium. The Dexter is a small breed of cattle, yields about 400lbs, about right for a single family. Best beef you will ever try.

You know what the say? “You know how to make a small fortune in ranching? Start with a large fortune.”

Great tax write off if you have other income.

@Daniel Parnell

I would agree that rents are depressed in the Killeen market compared to the rest of central Texas. We own a 4-plex in NE Killeen near Harker Heights boundary. When we purchased in 2019 rent for a 2/1.5 townhouse were $600. With updated flooring, paint and lighting we are now getting $675. Compare that to an older 4-plex in Bryan where we get $750 for a smaller 2/1.

The other side of the equation is prices are still lower in Killeen. Despite recent jump in pricing you can still buy 1% deals in Killeen if you look around. Personally I would focus on the newer parts of town to the East and South avoiding old town.

@Michael Garofalo

I’m comfortable stepping in as GC. My wife and I have been doing our own renovations for a while now. We renovated six units last year. Two of which were taken down to bare studs and redone. Hiring the contractor was part of our plan to start hiring out more work. If he had worked out I have plenty of other jobs lined up. As for the permits, I pulled the permits with the city and had to straighten out the plumbing question with the inspector.

My plan now is to get as much of the building supplies moved on site. He said he has been storing the HVAC and plumbing fixtures elsewhere. I’ve asked for invoices to prove that he has indeed bought them. I don’t know all his subs but I’m going to try and find out who he was using. I’ll see if I can get them to work for me directly. The contractors own crew were doing the framing, Sheetrock and etc. I plan to call the inspector today to see where we stand.

@Michael Garofalo Yes we have a written contract and have made adjustments to the contract as needed. For example we added the electrical change order to the contract. Legally I don’t have to pay him any more money until the job is complete.

He doesn’t have a foreman or anyone who can finish the job while he recovers. That has been a big part of the delay, his guys are wasting time and materials on the job with out his supervision. We had countless framing issues that needed to be torn out and redone. Walls in the wrong place, shower enclosure stepping out into the toilet etc.

My fear now is he is not going to be able to finish the job. I think between Covid and heart condition he has burned through my initial payment and his personal savings. I talked with the Plumber and he complained he hadn’t been paid. I suspect the Issue with the HVAC guy is no money to get him started. At this point my biggest fear is he will go bankrupt and not finish the job.

Do I step in and become the GC and pay subs directly to finish the job? Then sue him to recover as much of my money as possible.

I have a dilemma with my contractor on a duplex flip. The current situation is he is off the job because on a health issue. He called earlier this week asking for more money in order to meet payroll. My fear is he will not be able to finish the job. Not to sound too unsympathetic but he was been a problem since the beginning of the project back in September. First issue was during demo, he and his crew all came down with Covid in October. We lost three weeks right there. Then in November after they recovered I noticed little progress on the duplex. They were in the framing stage and I didn’t see anyone on the job site. I live locally and stopped by on a regular basis. I started hounding him and finally he finished the framing. Next he underbid the electric, he didn’t notice it was a two wire system and needed to be upgraded to three wire. I cut him an add on check and finally got an electrician on the job. The electrician was the slowest guy ever taking six weeks to wire 2400 sqrft. Meanwhile I start nagging him on plumber. He tells me Plumber can’t work at the same time as electrician? Then plumber comes out and wants a $11k add on because the inspector wanted something. I follow up with inspector to clarify code and he said the add on was not required. Contractor didn’t bother to tell inspector this was slab construction. I paid $7500 for plumbing fixtures but don’t see them on the job site. WTF? I asked for invoices for plumbing and HVAC, no answer. That brings us up to date. I’m about 2/3 through spend. We are two months late on the project. The house is still bare studs, slab is jackhammered up for plumbing, plumbing roughed-in still needs to be inspected. He is off the job recovering from heart stints, his crew have been taking advantage of him drawing wages and not working. He doesn’t have a good foreman to fill in.

I was already frustrated with the guy before the latest health issues. What options do I have?

@Ashish Acharya Thank you