All Forum Posts by: Ritch Bonisa

Realistically, (If I understand correctly) sounds like he's got a lot more skin in the game and you are gambling a little because you don't have much experience.  Kinda seems like he is taking the bigger risk.  Cash and risk would deserve the bulk of the return, the return on your time is experience and more understanding and knowledge. 

@Scott Rumsey  Feel free to reach out.  I can share what I know. 

@Caleb Clay  I do alot of rehab and look at costs on a weekly basis.  This looks reasonable to me.  Someone will jump on here and probably say it's high.  Truth is contractor will have some costs into this, so I think pricing here is justified. 

These are difficult for contractors.  There isn't enough going into it to make it look GREAT and the costs sort of dictate something "not too elaborate".  These can be the one's where no matter what - we end up not being happy with the rehab and the quality level.  

One of the problems here is that there is not enough detail in the estimate.  Hard to analyze costs when we don't know what is happening in which room.  And an example might be the difference between painting a wall and "touching up".  In our own homes, we would paint the entire wall to make sure we get a good match, on a rental "touch-up" and a job like this - we might end up with "blotchy-looking" sections.  So, it's all about expectation and translating that into instructions prior to rehab.  Overall, I would get more detail on what is happening and where it is happening. 

@Ryan Collins  Here are some of those photos:

I'm in a midwestern market and just found 2 great duplexes this week.  They need some work, but overall - extremely happy with what I've been able to find. 

Here is a sample scope of work I have saved in my BiggerPockets fileplace.

https://www.biggerpockets.com/files/user/RitchB/file/sample-scope-of-work

@Alan Jone Have you asked her how her estimation of rehab costs doubled?  Ask her to walk through those numbers with you?  

I would say you should have at least had a rudimentary scope of work prior to purchase.  I insist on one before I sign anything - even purchase agreement. 

Other question I would ask her "So you want me to pay 5k down on a 15k management fee to someone who does not have a scope of work on paper and more than doubled the cost of rehab from the numbers discussed pre-purchase?"

You simply need to get an explanation.  My guess is - there is no explanation. 

Next thing you could do is ask yourself the same question above.  Would you encourage your best friend to pay the fee and go this route?  

15% is a little high.  I'm sure it is likely high because she is inefficient and doesn't really have systems in place to manage a project like this.  She is doing things without a plan and shooting from the hip.  

If she's saying 100k now, wait til the demo happens and she starts pushing change orders at you.  It WILL happen.  Even the best contractors can't estimate what is behind a wall (what they can't see).

I assume she will be the listing agent. She may purposefully or inadvertently drive up the rehab cost. This might increase the sale price. It will also increase her commission on the sale. Also increase your budget. Will it increase your ROI?

I have alot of experience in rehab and based on what you've posted, this is my opinion. 

Evaluating your deal is the key to success. Here's how I do it:

• Get good comps on the property.
  • Don't use the seller's comps.
  • Make sure you consider age of the home and anything else that provides a comparable. Ex. You can't compare a house that has a garage with one that does not.
• Find a retail target (a few recent comps that you can emulate). Create a target value for the property.
  • Verify the retail probabilities with a trusted retail realtor.
• Work up the scope of work with the rehab costs.
  • Ask the question - what type of rehab will it take to hit the target?
  • How much will it cost?
• Add in any holding costs, selling costs, taxes, anything else.

• Now, add in the return you require to make it worthwhile.

• Now you know what the property is worth to you.

• Don't pay more than what it is worth to you.
• It's always ok to walk away.
• Your success is determined by the purchase price of the distressed property.
• Do Not depend on a glamorous retail sale at the end.
• Do Not think you can "make" the rehab fit, or force it to work. 

This is a great thread! Absolutely, you need systems to make quick evaluations and help you to understand true comps and ARVs for your exit. You have to understand the current state of a property, what your target numbers are, and how much it will cost to get there. And you have to be able to be realistic on every point. Many flippers buy what they think is a great deal and then they try to force the rehab to make their deal work. Reality is – you have to make your deal hinge on the initial purchase of that distressed property. You have to figure out what a property is worth to you and not let someone else tell you what it is worth. Another thing is that you really need systems to make the rehab a fluid process. You don’t want to have stoppages or a lot of dead time. Flipping can be very profitable! 

What Jen says is correct.  What you can do is identify a good contractor to do this, come to terms and agree how it will work. AND do this before you begin considering properties.  Also, line up your source for solid comps. You are creating the team before you have to make quick decisions. BUT dont jerk them around - they are KEY to your success.

Best wishes!