All Forum Posts by: Randall Brooks

Investment Info:

Single-family residence buy & hold investment in Moscow.

Purchase price: $219,000
Cash invested: $219,000

Found another dump in a great location. Purchased in cash far below listing price. I'll be doing an extensive full gut remodel which will include an expansion of living space by doing a partial garage conversion making this 2 bed 2 bath SFH a 3 bed 3 bath SFH, adding about 300sq feet of living space. This will eventually become another STR for us. With this house being bought in full the plan is to get a HELOC or HEL to purchase another property when finished.

What made you interested in investing in this type of deal?

As a GC, able to perform all the work myself, I saw massive value add potential with this property. We sent an all cash offer for far below listing which was accepted.

How did you find this deal and how did you negotiate it?

MLS

How did you finance this deal?

Paid in "cash" using funds from a HELOC obtained on a previously rehabbed property.

How did you add value to the deal?

I will be doing a complete gut, demo to studs to include replacing the floors. I'll be doing a partial garage conversion and will add a bedroom, bathroom, and large laundry/storage room which will increase the living space about 300 sq ft.

What was the outcome?

Just starting

Lessons learned? Challenges?

Cash is fast.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes. Traci Hacker owner of At Home Real Estate

Slightly different angle but I started out as you did, young and motivated. My best advice is to find someone who is doing what you want to do, and then offer to bring value to them (for "free") in return for mentorship, guidance, and knowledge.  What this looks like for you will be different than what it looked like for me. Im a GC... but I got my start by working in various trades for free... (often just job site clean up, or hauling boards or drywall around the job site) with the stipulation that the tradesmen would show me the tricks of their trade. This not only developed my skills but my network and the networking has been and still is my most valuable asset. It's how I built my team. I still work closely with many of the guys who took me under their wing and we kick each other a lot of work. Not to boost myself up but I'd put a lot of effort into a kid if he approached me as I once approached others.

I can't speak to the financing side of this question.... but as a GC I would tell you to reach out to reputable GC's/construction companies in your area for a rough estimate of what it would cost to build a 4 plex. I know labor costs are cheaper in the south than what they are where I am at in the NW.... see what they charge on average per sq/foot to build.

A couple positive aspects to new builds that are often over looked are very low capital expenditures for a 10-15 year time period after the build. New builds typically tend to appreciate faster and demand a higher rent than average for an area compared to older units (we often see a higher quality tenant(s) in new builds as well).

If you were to buy an already built 4 plex are you expecting any immediate or mid term rehab and what are the projected rent rates and rough estimate for annual appreciation. Compare that to low cap expenses of a new build and any higher rent rate associated with the new build as well as any anticipated higher appreciation and run your numbers over a 5-10 year period.

New construction may cost more upfront but may make more sense with an extended timeline.

How much of the rental income are you reliant on because $1600/month is some decent cash flow for a SFR. If you're worried about losing tenants.... I'd seek to have them re-sign the lease and let them know you will be marketing the place as available to rent if they don't... and if they don't then I'd do just that, I'd start marketing the house as available (at the date the current tenants lease ends) to get some early interest from potential renters. We listed on facebook marketplace for a higher than average rent rate and got multiple messages within a week and signed a tenant within two weeks. I wouldn't suggest lowering rent, but if the market does cool off, you have more than enough wiggle room to lower the rate and you'd still be cash flowing. I'd do my best to hold onto the asset, let the house appreciate in value, and have someone else pay your mortgage down.

If you take the rough national average of 4.8% appreciation and consider the $1200/month mortgage payment being paid by someone else.... you're looking at an equity increase of over $38,000 a year..... I'd hold.

Tony,
I'm up north from you in Vandal country. Our state has seen quite the bump since covid. Couple of questions for you to consider your current position and what options are available to you. Is your primary residence paid off and if not how much equity do you currently have in the house. Also, if you were to rent it, how much do you think it would rent it for? Maybe try and find some comparable houses that are renting and what they are renting for to give you a rough idea.

There's not a lot of multifamily units available in your area, or mine, that will cash flow out of the gate given the current rates without a substantial down payment. Appreciation seems to be the play and I believe Nampa has seen an 8-9% increase since last year. Not overly familiar with your market but buying distressed and rehabbing to force appreciation and increase rents could be an option as well.

Quote from @Jesse Holsapple:

Quote from @Patrick Flanagan:

Quote from @Jesse Holsapple:

As a lender with a big focus on multifamily construction loans I can say I've seen both approaches being taken A LOT recently in various states. The biggest similarities I see are what is my total project cost vs what the demand will be when it's completed. How long will it take me to get there? Is it soon enough that we can expect either the same numbers we started with for rent roll accuracy and sale value or an increase which would be even better? 

Both GC's doing these projects themselves, and market savvy investors utilizing general contractors have come out on top in both arenas for renovations of existing builds, and new all together whether they're sold or Built to refi and rent out long term. 

It's probably only just to say I have seen many deals built with courage that were not fundable because the numbers didn't make sense. 

Research Research Research.

 So is your advice to go see a lender once you have all the numbers in front of you?? 

 yes. If you come to a lender and say hey I need financing triggered on this construction project asap! Then they dig a little deeper and find out you aren't shovel ready then you'll basically be placed on hold until you are. Financing is the last step. I should be able to review your construction budget, proforma for performance for when it's built, who the GC is, see the approved site plans and permits etc. Otherwise what happens is someone is asking us to do a loan but they have to wait X amoutn of months for this or for that within the loan. We don't want that level of exposure. If the loan defaults, you never built the building, the permits never came, what's the lender going to do to recoup? 

This is a great point. Regarding permits- expect 1-2 months,if everything goes smooth, to get through the review process and sometimes much longer than that. The ADU I'm currently building was a 5 month back and forth process with the city. Depending on how you finance... you wouldn't want to be stuck making payments on a delayed project. Get your ducks in a row, be ready to build, secure financing, and get rolling asap.

Quote from @Leilah Davis:

Quote from @Randall Brooks:

Most likely area dependent... My area is booming and multiple apartment complexes are being built right now. Labor costs are high though- as a GC I'm in the process of transitioning from building for others to building for myself. Just finished up a my own duplex and will be tackling my first spec home this year doing all the work myself except electrical and plumbing. I can build a brand new home cheaper and bigger than what I can buy used- far more equity in new construction than in remodel/repair... but again that's doing most everything myself with a small crew and a couple of subs.

My mentor builds spec homes and 2-4 unit MF. He does very well- very little maintenance cost on a new build, they appraise well, and you can demand a higher rent and typically get a higher quality renter and thus less wear and tear. Something to consider in your cost analysis.

My end goal is to build and retain apartment complexes, I'm not there yet.

I'm a GC as well who also focuses on spec home building. We wind up doing a lot of the work ourselves, although we'd really rather not! it's just that certain things are VERY difficult to find anyone who wants to do it. Or the prices are astronomical and it just makes more sense to do it ourselves. But for the major trades it's always been worth it to have tradesmen who specialize in that area. Although we *could* do a lot of this ourselves, neither myself or my husband are quite as skilled in any one area as the subs we hire, and it would take way too much time. Our projects always move at lightning speed because I'm focused on supervising and managing the project rather than getting my hands dirty and doing the work myself. 

Not to say your method is wrong. I'm always curious to know more about how others operate! When you say you do everything yourself except plumbing and electric, what do you mean? You really do the concrete, framing, flooring, cabinets, trim, drywall, paint, landscaping, etc?? How many people are on your crew and where the heck do you find skilled laborer?? And also, just out of curiosity, how long does a single SFH take you to complete?

We're also thinking about doing build-to-rent at some point, but not there at the moment either. We were fortunate to have been able to do all of our spec builds with cash (we had enough to build the first, and then we rolled our profits from one into the next to scale it up). We made quite a profit in just a few years ... then spent pretty much all of it on a 6 month sabbatical traveling around the world (worth it!) and a new home (the biggest and best home we've built to date) for ourselves. So we've got a decent amount of equity and net worth, but not enough cash to do another build right now without taking out a loan, and as long as interest rates are as high as they are it doesn't seem like it makes sense for us to build, whether on spec or build-to-rent. We're kind of just sitting and waiting at the moment, which doesn't feel great! I'm anxious to get building again, but having a hard time seeing a path forward. Are you currently building? If so, what market are you in and how are you making it work with interest rates being so high? 

Hi Leilah,
Yes, I do everything myself. Foundation to finish work including landscaping. I even plumb and wire all my own personal residences where I can legally pull the permits as the owner. My father built custom log homes and renovated every house we lived in growing up so I've been around it my whole life. First job in HS was landscaping then on to general laborer. I also offered to work free for various tradesmen under the condition that they'd show me their tricks of the trade. This was the greatest thing I did and it not only developed my skills but my network. I'm still close with many of the guys who showed me the ropes across various trades- two of them are like brothers to me and we kick each other a lot of work.

When doing it all yourself, having the right equipment makes a world of difference and we have reinvested a LOT of money into tools, trucks, dump truck, tractor, backhoe, mudmixer, scaffolding, trailers, etc...

I'm extremely fortunate to have a 3 man crew that is very efficient and we've learned to "dance" together on the job. The guys are highly skilled and require very little if any management. I tried bringing on more hands but it was more of hassle than it was worth. We have focused primarily on large scale remodels over the past few years as there was a large demand for this work. The few crews available in town have been hammering away on new construction. Skilled labor is hard to find and expensive...Painters in my area are charging $85/hr and they stay busy.... I'll save 20k and paint my own personal projects. However when doing larger builds for others I do use a couple close subs rather frequently, its not technically me paying their wages. Quality of work has also gone down hill substantially over the years and it can be a risk to try out any new outfit.. so not to sound arrogant but we are our own skilled labor. There is a shortage of tradesmen in my area and nation wide... and that's only going to increase as most reports show for every 100 tradesmen retiring there's only 20-30 entering the field. Not to bag on my own industry or cause any offense but a high number in the industry are ex-cons and felons and not always reliable.

I am currently building yes, right now for someone else, we have about 6 weeks left on an ADU for a client in town (North Idaho). I'm still building for others and will continue to for some time as that's the lifeblood of my company at this point but slowly shifting work load over to more "personal" projects and will be diving into spec homes this year to build capital to the point we can build to rent multifamily units. Lots of variables in timelines but I'd say typically 6-12 months if focused on full time. I recently finished up a large house hacked duplex we declared as our primary residence- complete demo and rebuild including the addition of a second story. I did pause work for a little over a year and a half when material prices soared post covid but all in all I was just over 13 months working primarily solo in my free time. The last 4 months of that was really consistent as I put company projects on hold to finish the duplex by the end of last year.

As far as financing... I leveraged my company to build the duplex. We came out quite well on it... bought for 145k (22k down) and appraised over 400k after 70k in renovations. I have a HELOC to access the equity and will use it to purchase a lot to build on. Rents will more than cover the HELOC and I'm planning on leveraging company profits and rent to fund a large portion of the build, using the HELOC only as needed. I hope to have a lot within the next 6 weeks and build finished by years end.

Most likely area dependent... My area is booming and multiple apartment complexes are being built right now. Labor costs are high though- as a GC I'm in the process of transitioning from building for others to building for myself. Just finished up a my own duplex and will be tackling my first spec home this year doing all the work myself except electrical and plumbing. I can build a brand new home cheaper and bigger than what I can buy used- far more equity in new construction than in remodel/repair... but again that's doing most everything myself with a small crew and a couple of subs.

My mentor builds spec homes and 2-4 unit MF. He does very well- very little maintenance cost on a new build, they appraise well, and you can demand a higher rent and typically get a higher quality renter and thus less wear and tear. Something to consider in your cost analysis.

My end goal is to build and retain apartment complexes, I'm not there yet.

We went through a local credit union. I have a relationship established with one of the loan officers and he has helped me quite a bit with all my financing questions.

Pay them asap and pay them well... there is a shortage of tradesmen and there will continue to be an increased shortage moving forward. Not only is there not enough of us doing the work the quality of work is also declining. Data is showing that for roughly every 100 tradesmen retiring only 20 are entering the field. Find some younger GC's/tradesmen/handymen and develop a solid relationship with them as you're absolutely going to need it moving forward over the next 10-20 years.