All Forum Posts by: Tony Pellettieri

Quote from @David Zimcosky:

Hi everyone my wife and I are from the Cleveland, OH area. We have 1 single family rental under our belt. For our next investment, we want to use the BRRRR strategy. Does anyone have any tips on building a rehab team from scratch? We currently do not have a contractor or rehab team to work with. Thanks!

If you're interested in executing the BRRRR strategy, there are a few books I'd highly recommend reading/listening to on audible(my preferred method)

1. Buy Rehab Rent Refinance Repeat

2. FLIP

3. The Book on Estimating Rehab Costs

These books will talk about the ins and outs of finding contractors and other members of your rehab team, scheduling any many of the other aspects involved in the processes or Rehabbing and BRRRRing,

Quote from @Drew Carpetner:

I'm interested in executing my first rehab but thinking it might be best to partner with someone with experience. My question is, what are some ways to structure the deal that are a win win for both parties?

I'm a licensed but inexperienced broker and own a small portfolio of STR's but I don't have any experience with a rehab. I'm open to a flip or BRRRR and would be comfortable investing ~$100K in the first one. I also have excellent credit.

Are there some common deal structures that work well to join a capital partner with someone with rehab management and estimating experience? I'd like to ride shotgun on the rehab to learn and happy to help under guidance, as needed. (Just the management, not hanging drywall). I'm in Denver, if that helps. 

Thanks in advance for any insight! 

 The structure often depends on how involved you are/want to be, and in addition, what % of the capital required you're providing. Some investors like to provide 100% of the capital but don't care to do any of the work and be as uninvolved as possible in the process, and they work out a 50/50, 60/40, etc. Other times they invest 50% of the capital and help out with some of the aspects and may be satisfied with receiving 25-40% of the return. It all depends on the arrangement you and your partner can come to terms on.

Quote from @Drew Carpetner:

I'm interested in executing my first rehab but thinking it might be best to partner with someone with experience. My question is, what are some ways to structure the deal that are a win win for both parties?

I'm a licensed but inexperienced broker and own a small portfolio of STR's but I don't have any experience with a rehab. I'm open to a flip or BRRRR and would be comfortable investing ~$100K in the first one. I also have excellent credit.

Are there some common deal structures that work well to join a capital partner with someone with rehab management and estimating experience? I'd like to ride shotgun on the rehab to learn and happy to help under guidance, as needed. (Just the management, not hanging drywall). I'm in Denver, if that helps. 

Thanks in advance for any insight! 

 Hey Drew,

Our current business model is acquiring/rehabbing houses with various exit strategies. Learning the business by myself primarily through books, as well as practice, failure, mistakes, and consulting with others, was a process that required an abundant amount of time/capital.

I would definitely recommend the option of partnering with an experienced rehabber on your first project. The amount of insight and knowledge you'll gain by not doing it yourself and learning from the MANY mistakes you WILL make is invaluable. Do your due diligence on whoever you decide to partner with. Take a look at how they're managing their current projects and see if they're someone you could see yourself working with.

More to the point, there are many ways to structure the deal, it just depends on the deal itself. Perhaps a good method to start with is getting to know a recommended local RE attorney through referrals that has experience in the area in which you're looking to invest, be that now or in the future and have legal contracts prepared to make sure the capital you invest is protected.

We have our 3rd Property under contract and plan to close in a week. The house is in a high appreciation area. Trying to figure out what the best exit strategy is. We are open to suggestions for different strategies than we're currently considering. We've been told seller financing may be a good option and we're open, just don't know how it would all play out, please advise.

We plan on paying cash for Acquisition & Repairs. This would be our first DSCR loan, and while I believe I have an idea of how it will all play out, looking forward to seeing the process.

Initial thoughts when putting property under contract were [repair, Rent, DSCR c/o, hold]. We will be taking possession with renters in place that are currently paying $750 a month. The plan is to wait to give them notice until day of closing, as requested by the seller. Rehab timeline less than 1 month after they vacate.

Now considering letting them stay, raising rent to $900/mo, completing minimal repairs as the house is currently in acceptable shape to them & good condition overall, DSCR c/o on a lower ARV. Will need to increase reserves going this route to account for future repairs. This will require less cash invested, shorter time frame to complete, and more cash we take from the deal.

Exit Strategy 1 - Have current Renters vacate, complete SOW, get new renters @ market rent, cash out on max ARV, HOLD.

ARV: 126,000

Acquisition: $60,251+ Closing $925

SOW Budget: $15,750

Rent after Rehab: $1,000

DSCR c/o $100,600 Loan @ 7.5% 30yr LTV80%: $840 PITI + Fees +/- $4000 (2pts+undw/orig/leg)

Cash Flow: $160 before Reserves

Cash Out - Cash In - Fees: $19,674 (100,600-60,251-925-15,750-4000)

Exit Strategy 2 - Have current Renters stay, complete light SOW, raise rent, cash out on lower ARV, HOLD.

ARV: 110,000

Acquisition: $60,251+ Closing $925

SOW Budget: $2,500

Increased Rent: $900

DSCR c/o $88,000 Loan @ 7.5% 30yr LTV80%: $752 PITI + Fees +/- $3800 (pts+undw/orig/leg)

Cash Flow: $148 before Reserves

Cash Out - Cash In - Fees: $20,524 (88,000-60,251-925-2,500-3800)

Quote from @Joanne Gonzalez:

Hello everybody! I finally got my first wholesale deal,  finding a buyer has definitely been difficult. But I really like this property I am considering keeping it for myself and doing the rehab. I wanted to see if someone is willing to give me feedback, possibly run number and hear your expertise or just briefly look over it and give thoughts on the Ad. 

Hey Joanne, how did you go about finding this deal? Is it under contract already? What is it you like about the deal? Have you created a scope of work, ran comps, calculated ARV, ROI, RoR?

I’d be happy to take a peek and offer some feedback.

Quote from @Chris Seveney:

Quote from @Tony Pellettieri:

Quote from @Ned Carey:

@Tony Pellettieri

My advice is sell and try to rcoupe as much as possible or to at least minimize the loss. Your frined took on a a very risky project and sadly failed. She has shown that she doesn't have the ability to manage or budget a project. Even thought the project looks viable that doesn't me she has the ability to pull it off. 

An alternative is to find a partner who does have the ability to pull this off. The risk there is she may not know if the partner is going off schedule or budget. 

Basically she has the deal but needs the skill of manageing the project and the money to pull it off. She apparently has neither.  I don't say that to be mean. I don't have project managment skills either - even with 20 years experience in Real estate.        

Just becasue a deal makes sense does not mean it makes sense for you and your skills and resources.                        

 Unfortunately for her, this is Great advice. After consulting with a new colleague today, this is the determination we came to as well. Thank you Ned. Case closed.

 where is the deal, I know someone who runs some development companies in NC

 Lancaster, SC

Quote from @Ned Carey:

@Tony Pellettieri

My advice is sell and try to rcoupe as much as possible or to at least minimize the loss. Your frined took on a a very risky project and sadly failed. She has shown that she doesn't have the ability to manage or budget a project. Even thought the project looks viable that doesn't me she has the ability to pull it off. 

An alternative is to find a partner who does have the ability to pull this off. The risk there is she may not know if the partner is going off schedule or budget. 

Basically she has the deal but needs the skill of manageing the project and the money to pull it off. She apparently has neither.  I don't say that to be mean. I don't have project managment skills either - even with 20 years experience in Real estate.        

Just becasue a deal makes sense does not mean it makes sense for you and your skills and resources.                        

 Unfortunately for her, this is Great advice. After consulting with a new colleague today, this is the determination we came to as well. Thank you Ned. Case closed.

Quote from @Matthew Crivelli:

Quote from @Chris Seveney:

Quote from @Tony Pellettieri:

A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.

A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.

So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.

HML Loan Payoff $72,000 + Builder owed $30,000

Purchase Price of the two acres of cleared land & small house $93,000

Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre

Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre

The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.

I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.

Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.

Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close

Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+

- $102,000 - Cost to payoff HML & Previous Builder

- $154,800 - Estimated Cost to complete House #1

- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000

= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2

+ $686,000 - Total Future Market Value

- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation

- $2,538 - Real Estate Transfer Taxes

- $1,500 - Settlement Costs Paid at Closing

______________________________________________

$234,212

- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)

= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc

I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.

BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.

dumb question but why did she only take a HML for $72k when construction was $300K+

She is probably better off just selling this or letting it go to foreclosure. Reason I say this is she appears to not have any construction experience in managing contractors and schedule so for an investor or new lender to come in, its a tough sell. 

Hopefully she can find someone. Good luck

The money is typically dispersed as you go with hard money. She took out a larger loan but likely only drew the 72k. That's why the number is so low. If the work isn't completed the HM lender is not letting you draw the funds. 

 Exactly Right. The work was not completed. The Term was for 1 year. The term has come to an end. She hasn't completed the project and has not been able to sell the land as is. Here she is.

From my understanding, her initial plan going in was to use a HML to finance the land purchase/construction costs to build on the lot. Unfortunately, for any number of reasons, her plan did not go as she expected.

As of now she has about 20 days to pay off the HML or they will take the property back.

She currently has the whole piece of property up for sale trying to generate the money to pay what she owes and get rid of the land, but at this point she has ran out of time.

I've considered just paying off the HML and builder for the foundation. If I'm able gain ownership of the 2 acres, foundation, and small house for $102,000, that is a great deal by any means. After doing so, the problem I am faced with is how to fund the remainder of the construction of the new house/houses.

I looked into getting a HML for the costs associated with completing the Construction. The lender I spoke with wanted to see a Builder/GC with 5 builds under his belt that was a member of my LLC. Unfortunately my GC is not able to provide that.

At this point, I'm trying to figure out what form of financing I can possibly obtain, to fund the costs associated with building the houses. My GC is capable of completing the New Construction, and has the License/Insurance in place to do so.

A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.

A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.

So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.

HML Loan Payoff $72,000 + Builder owed $30,000

Purchase Price of the two acres of cleared land & small house $93,000

Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre

Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre

The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.

I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.

Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.

Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close

Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+

- $102,000 - Cost to payoff HML & Previous Builder

- $154,800 - Estimated Cost to complete House #1

- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000

= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2

+ $686,000 - Total Future Market Value

- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation

- $2,538 - Real Estate Transfer Taxes

- $1,500 - Settlement Costs Paid at Closing

______________________________________________

$234,212

- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)

= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc

ROI: 45.3% RoR: 68.9% PM: 30.07% Acquisition/Exit: 8 Months

I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.

BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.