All Forum Posts by: Russell Gronsky

@Account Closed if you are asking about the up-front points to close the loan...don't pay any! HML's charge points plus interest but they play in the space where banks normally don't so points are the norm here, especially in your first few deals with an HML. Banks on the other hand, will offer you the option to pay down your interest rate up front but it's usually not worth it unless you plan to hold the property for a VERY long time.

@Daniel D., if you are under contract, you don't need any letters to send to the sellers, just get your GC to do as walk-through with you and tell you what you need and what permits will be required for it. If the walls you want to remove are not load bearing, you don't need a structural engineer for this project. Usually, your GC will pull any necessary permits but you can do it yourself if you want to save some money on your project. If you want to pull your own permits, contact your local building department once your GC tell you what permits you'll need and they will tell you how to apply for them.

Architects are useful if you are doing a full gut rehab or building custom homes. If all you're doing is moving/removing some walls and maybe adding a bathroom and finishing the basement, you don't need an architect.

As far as what items to look for in your due diligence...again, this is where your GC will come in. And anything you see that looks odd/weird/fishy, show it to your GC during the walk-through and they will tell you what it might be. There are far too many items to look for to list out in a forum. Since this place is in NJ, humidity is a factor, much like Maryland so you'll want to look for any discoloration (i.e. mold), especially in the bathrooms, under the sink, basement and attic. Look for carpenter bee holes in wood and termite damage. Look to see how many Amps are going to the electrical box. You want at least 150 amps but ideally, 200 amps for a modern house. Windows should be double pane, not the old, aluminum stuff. The aluminum stuff needs to be replaced. Look at the furnace, HVAC and boiler to make sure these items are in proper working order. If the house has an A/C unit, check it as well. These things can be old but should be in proper working order. 

Roof should be inspected as well. If the house has a basement, look for water stains on the basement walls or where the wall meets the ground. If you have water stains there, chances are, the house will need an indoor or outdoor french drain as you have water seeping through the walls and/or where the wall and slab meet. Also, if you do need to replace windows or doors, measure them to verify they are standard size that you can easily buy without having to special order all the windows and doors for the house as this will drive your costs up significantly (trust me). If you can remove a light fixture from the ceiling in a room (dining room is usually easy since there is a light above where the dining table should be) and see what kind of electrical wiring is used, this will be a great help. Depending on the age of the house, the wiring might have to be replaced so seeing the wires and their condition will give you and your GC an idea of what this will require. Re-attach the light fixture back how you found it after you are done inspecting.

I can go on and on but like I said, you can't capture everything in forums. I'd recommend picking up J Scott's book on flipping houses. He does a fantastic job of taking you through the big things you need to look for in houses you plan to flip.

@Alan Eisenberg, location, location, location. Take the most you can, in the best area that you can get it in. That's your best bet for stability, rent growth and appreciation.

@Mary Jay, An LLC is a legal structure. The way you elect to tax it is strictly between you and the IRS. It has no bearing on the legal status of your LLC. As long as you opened an LLC with your state, and are following the rules of how an LLC should behave throughout the year, then you will retain the legal protections of your LLC.

@Menal Khan, I second what @Josue Vargas said. Stay away from Wholesalers on your first few deals. Most of them are as new as you are and have no clue what they are doing or selling. Also, some of them will try to take advantage of you for being new.

Here is a more practical guide:

1. Get your financing lined up. Meaning, get qualified for a loan from a bank so you know how much you can afford and have financing as close to "Ready to deploy" as possible. You don't want to be scrambling to find funding when you have a deal.

2. Practice analyzing deals daily. As you search for properties online, pick 2-3 a day and analyze them. The more you practice this, the better you'll get at seeing what the market is offering, how far apart you are from the numbers being throw out by sellers and you'll have a better understanding of what a good deal looks like, when you come across one. 

3. Make offers. After you analyze the houses you find, make an offer based on the numbers you think the property is worth. You'll get rejected a lot but you may find someone who negotiates with you, or even agrees to come off their price/terms. Even if you don't end up closing the deal, this will be extremely valuable experience to you and you'll get familiar with the process of offering, negotiating and even some of the purchase process as you may end up under contract but it may fall out of contract during your inspection or financing timelines. 

Even if you haven't closed any deals, when you analyze many of them, make offers, go under contract and proceed through due diligence, inspections and lining up financing, you'll start talking like you know a thing or two and that's when you'll start attracting interest from the experienced investors as you'll have skills to look for deals for them in exchange for letting you shadow them on taking the deal from offer to actually stabilizing the property and filling it with renters.

@Monica Jones, you are very new, and you want to buy an un-inhabitable 4-plex, and you want to rehab all 4 units.

I hope you have A LOT of cash set aside, ready to deploy because you CAN do the above, but your trial by fire real estate education will be very expensive. Personally, I'd absolutely do it, if I were you. Just know you'll spend way more cash than you expected and this will take way longer than you expected to complete the work. You should be looking at something like a 203K loan on this AND having lots of cash available for emergencies.

You can approach the owner but if the property is listed with an agent, the agent will get their commission either way so you won't save any money there. However, you may be able to convince the agents to represent both sides of the transaction for a reduced commission. Typically, the buyer can request 1-1.5% back from the agent at closing. Many agents balk at this but some of the savvy ones love this scenario. It is normally just 1 document you sign saying you understand the agent is working both sides of the transaction and may not be able to provide you the best advice because of it. Super easy.

Don't bother looking at assessor websites to estimate value of a property. It is absolutely NEVER accurate...not even close...ever. Assessor sites are good for finding names of property owners and to get an idea of what the current property taxes are on a property. 

If the property is gutted, there is no point in having the house inspected. Take a GC with you to walk the property and if they refuse to do so until you have the house under contract (most will require this) offer to pay them $100-$150 to come for the walk-through. Tell them you want a detailed estimate with material and labor cost itemized so they know ahead of time. This avoids issues later when they email you an estimate with a lump sum or a draw schedule that doesn't break out the work at all. That's not going to be as valuable to you. This will serve as your baseline estimate and you can compare the other estimates you get from other GC's to see who gives the best value to you based on price, experience, etc.

The GCs you find....find them through your local REIA or other investor meet-up and ask the people who are the flippers in the group or the HMLs, they can get you solid names or leads to good GC's that are investor friendly. You can ask the buy/hold investors but they usually play with the "remodeler" level construction company. You are looking for a no-kidding GC who has experience doing full gut rehabs. This is a totally different type of construction company.

You'll also need to familiarize yourself with the building department of your city/county as it sounds like this place is stripped to the studs and joists or you will probably have to rip it down to studs and joists and rebuild the entire thing. You'll have to get every inspection done and get a certificate of occupancy at the end of the work so you can actually rent the units out, so you'll want to be on good terms with the city/county.

@Zachary Bohn, you nailed it. I'm a flipper and set up an LLC to be taxed as an S-corp for the services I provide to the company.

@Chase Louderback, that makes sense if syndicating. So the exit strategy isn't necessarily important, it just depends on how you are entering the deal. Whew....I am looking at a multi-family right now and my exit strategy is to ride it until the wheels fall off....so reading the first post in this thread, I was good with everything up until the point she talked about exit strategy....that made me sweat a little bit.

I'm a commercial RE newbie but why so much stress over the exit strategy? If it's a solid asset, wouldn't you want to keep it?

@Derrick G., how big is the job this contractor is doing? Unless you're talking about tens of thousands of dollars of work, taking them to court might not be worth the hassle.