All Forum Posts by: Steven Goldman

Quote from @Katelynn Malivert:

Hi All,

My significant other and I recently bought a duplex with the intention of house hacking back in August of this year. We knew that the unit we were going to occupy needed significant renovations. After interviewing several contractors in our area, we thought we chose the best fit. We were terribly wrong. In the beginning, the contractor was very responsive and attentive to our requests. He said he was going to have our renovations done by the end of October 2023 (he started in Sept). Instead, he has been dragging his feet, dodging our calls and honestly has stopped working on the unit all together. I have already incrementally paid him a total of 36k (w/ credit card)  and I don’t know what to do. At this point, I’m considering disputing some of the payments with my bank as he has not provided the agreed upon services. We want to settle this amicably but at the moment this contractor isn’t picking up our calls. As you can imagine, we are racking up expenses as we have to rent elsewhere because the unit is uninhabitable. I greatly appreciate your advice. Thanks in advance!

 Unfortunately this is a very common problem. I think you can come to the conclusion that the contractor is not going to finish your project. So you must act on two paths. First, as was previously suggested, try to reclaim money form your credit card companies. Also, contact your local law enforcement department or local prosecutors office. Many states have adopted laws specifically for contractor fraud. While one hopes that might mitigate some of your loss, you still need to finish your project.

Please do not consider this piling on just constructive criticism. You should not be rehabbing a property from your credit cards. The interest is too expensive. Also, when you go to refinance your high DTI and credit card balances kill your credit score. I would immediately convert your adjusted credit card balances to a fixed rate personal 5 year loan. That helps your credit and stops the bleeding.

Now you need to take stock of what is required to complete your construction project. Once you have a good estimate of the expenses you should prepare a scope of work and ask contractors to bid on them. Do not take the cheapest take the best price from a well qualified contractor. You may have to get a second personal loan or some other type of loan to complete the job. When you are finished you can try to roll up as much of the loan balances into a new mortgage but you are definitely going to pay the price for your bad contractor decision.  Sorry look at it as a great learning experience and do not repeat the mistake when you do your next project. 

In my opinion avoiding a bad experience with a contractor requires good due diligence, preparation and a carefully written contract. When you find your property and begin your contractor search, you should make sure you get recent references and actually speak with them. If you are doing a full gut rehab. you should have plans drawn with specifications. If I am spending 75k or greater on renovations I want to make sure that I have plans and specifications detailing the quality of the materials and the fixtures. An architect adds an expense to the job but as I have learned is essential to getting the finished product you are expecting. If you are using a good contractor than he should take the architects plans and specifications and give you a quote that is binding unless you change the scope of work or materials.

If you are buying light rehab properties you must be familiar with the cost of replacing a bathroom and kitchen, painting, drywall and flooring. Your contract should specify the grade of the materials and on the important stuff actually designate what you want. All of this takes time but it prevents the inevitable dispute at the end of the job when the contractors view of what was required differs greatly from yours. Make sure your original inspection and scope of work covers all of the renovations. You will always come across unanticipated problems. Make sure you understand what needs to be done and enter into a written change order with the contractor before he does the work.

If you agree to a fixed price quote based based on a detailed scope of work, you should not care how the contractor makes his profit.

On smaller light rehab. my partner who has a full time job and extensive general contracting experience runs the job and he splits the profits. He provide receipts for all of the materials' and we use tradesman at night and on weekends who want to pick up spot work. That is how we control the costs on those jobs. The more you know the less likely you will be scammed by a unscrupulous contractor. Good luck!

I have good and bad news for you. The bad news is Stacy Raskin is correct, the lowest currently available loan program from a D.S.C.R. lender is 75k value 50k minimum. The good news is local banks and credit unions will do small loans. They will shorten the term to 10 or 15 years. Here's the catch, no out of State investors. So you must be local to avail yourself of those programs. Good luck.

No. the voucher could exceed the actual fair market rent in the area. We have various borrowers who are collecting more rent then an appraiser indicates is the fair market rent for the property. the reason for this is that the amount of the voucher can vary depending on the size of the family receiving it. 

Quote from @Michael Hayes:

Question for anyone investing in Memphis and focusing on section 8. I've managed a couple of section 8 rentals before, but I don't believe I was actually maximizing the rent. I'm planning on doing some BRRRR's but with a focus moving forward of accepting housing vouchers. I'm seeing that the HUD fair rental prices are increasing pretty good going into 2024. I never paid attention to this before and only focused on what the rent was for the particular area. When you guys are pricing your rent based on accepting housing vouchers, are you always marketing it based on what the fair market rent is per HUD? And how often is HUD paying 100% of this? Also, does https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2024_code...

From a lending perspective you should use the fair market rent because that is the formula that lending institutions use. Obviously if the HUD voucher is more than your income will be higher. If you are going to borrow against the property the lenders will use Fair market rent as determined by the appraiser or in place lease whichever is lower. Good luck!

Quote from @Tabitha Alvarado:

@Stuart Udis,@Carrie Matuga, @Jay Thomas, and @Greg Kasmer thank you so much for your quick response. I really appreciate your insight. I was able to connect with a Philly RE attorney yesterday and he shared, "The city used to let owners apply using the Properties LLC. However, they recently made a change where all rental licenses in Philly need to match the name on the deed which, would be the holdings LLC." I hope this thread helps future investors in Philly :)

I can tell you from experience that in the City of Philadelphia you are best to always research the city ordinances as they relate to your project before you decide to purchase a turn key, rehab. or ground up.  If you are going to do any significant renovations and you are not an owner occupier you are required to use a contractor who is licensed in the city. Many negative practices have been spawned by this requirement. Some contractors use other contractors licenses. It is important to build a team of experienced and licensed in Philadelphia.  I recommend that you use a architect any time you are going to make a significant change to a property and make sure you select the architect not your contractor. The architect should assist not only in the planning but also in the contracting to avoid unnecessary disputes. We recommend they perform periodic inspections of ground up construction to insure the contractor is building in accordance with the specification. L & I in Philadelphia strictly enforces their code and if your as built is in variance with your submitted plans a torturous procedure requires you to submit modified plans and have them approved before the next necessary inspection. Time consuming and expensive. Your success will depend on your research, planning, execution and efficiency. 

Quote from @Aaron Freeman:

There are so many loan options out there, that I need help focusing my education to the most important ones, and that raises the first question I am having a hard time understanding.

For the experienced BRRRR investors, are there typically three loans in play or just two?

1) Loan to purchase the property
2) Loan to rehab the property
3) Refinance loan

Or are the experienced investors typically seeking to combine steps 1 and 2 into a single loan (e.g. fix-and-flip, or some alternative)?

1) Loan to purchase and rehab the property
2) Refinance loan

Good Morning! Very few lenders will lend you rehab funds, after you have acquired the property. Rehab. lenders want to lend you the purchase price and the rehab funds based on a formula which takes into account the ARV and then calculates a loan to cost approach. Three factors effect the rate and LTV. Credit score, previous experience and the spread between the total loan and the ARV. If the spread is wider than the amount you need to contribute becomes smaller and the reverse is true as well. You should also plan to fund the beginning of construction as few rehab lenders will not advance you money prior to the conclusion of the first phase of the construction. So you need funds to get started. Also be aware some lenders charge you interest on the entire holdback amount others, only on what has been advanced.

Many borrowers look for private funds for rehabs. A private lender will usually charge you a higher rate and also will charge you for the entire rehab amount form one month on. Some private lenders will not hold back the construction funds, allowing you more flexibility and the ability to access the construction funds immediately after settlement. A good mortgage broker is an essential part of your team. Your mortgage broker should have options for you and advise you on your financing decisions. Good luck and keep moving forward!

Quote from @Susan Tan:

Hi All! I have a seller with a fixer upper 2plex property on MLS that needs at least $100k rehab including full gut work and the seller is offering seller financing because he wants a high above-market price. How does one combine seller financing with a fixer upper? I usually offer all cash with HML financing and private money as the gap funder. I intend to flip or BRRRR this 2plex.

I do not recommend buying a full gut property at above market prices. I suggest you figure out the value of the property and negotiate an increased interest rate with the owner. Higher interest rate lower purchase price. You can refinance out of the rate but you can not get back the exorbitant purchase price differential. Make sure you have a good handle on your rehab. costs. A full gut rehab. for 50k per unit, sounds low to me. Just finishing a SFH 3BDR entire interior cosmetic rehab medium to high grade with some demolition including  new windows, kitchen, new appliances, 2 bathrooms final rehab costs 43k. If you are gutting it will be more. We did very little plumbing. That included new exterior electric cable and box and a little rewiring. We do a good deal of our own work. Add 20 percent for GC. if you are not doing the majority of the work yourself. As to financing, this sounds like a project to take on a capital partner for the rehab. Good luck and keep moving forward!

I agree with Carlton B. either your family members are equity stake holders or, they are holders of debt. I would ask your accountant his opinion on what structure will have the least tax implications. The LLC route has just been made more complicated by new legislation requiring the disclosure of all LLC members annually. The Corporate Transparency Act: While its stated purpose is to prevent terrorism and money laundering. It has the effect of making previously undisclosed LLC ownership information accessible to the Internal Revenue Service and other enforcement entities and reduces the anonymity that some LLC members used to enjoy.

While hard money loans require more capital in  the more challenging lending environment. I still believe that its is harder to find a good deal than to find capital. If you find a good deal it will attract money if you look for it. Good luck and keep moving forward. 

If you put together a team in the area you are targeting and, are willing to pay some reasonable wholesale fees, the wholesalers will find the distressed property owners. They are off market deals. If you do not want to pay a wholesale, fee you can find properties which look distressed, locate owners info and, call or, door hang them. I have had a lot of luck in Delaware County just outside of the Philly limits by teaming with a rehabber. He organizes and performs the construction. I provide the capital and we split the profits as members of an LLC. When he is working in those areas he has signage on his truck, on the property, advising the neighborhood we are buying. We get off market estate and distressed properties. Often, from older households, who are more negotiable because of their acquisition price. It is not a formula for everyone but you need to think outside the box, if you are going to operate in a high price, high material cost and interest rate environment. Looking forward to better market conditions in the future! Keep pushing forward.