All Forum Posts by: Trevor Gaal

@Heather Schmidtknecht I'm honestly a little bit relieved to hear you're looking for a different deal. My very first property I had to do an eviction and a 20k rehab to fix the damage and it nearly turned me off real estate for good... that's not the kind of negative experience you want for your first deal. You're much better off having a nice boring investment than the bag full of problems this property was going to give you!

@Kay Khan had a fantastic suggestion. Do a joint venture partnership with someone who has the knowledge and experience. You bring the financing, they bring the deal, knowledge, time and hustle. Split the profits.

Best of luck on the next one!

Cheers,

T :)

Hi @Tab Teehee

Sorry to hear it's dragging out. I've had a similar experience and it's definitely a stressful situation. 

Here's a couple ideas that might help:

- Consider a contract that outlines specific completion timelines with bonuses or penalties for hitting those targets (if you decide to get a new contractor, as I assume you don't have this agreement with the current contractor).

- Complete the common areas first, and then have your contractor focus on one unit at a time. That way you can begin renting out one unit at a time. By the time you're getting into your final months you'll be collecting 80-90% of your rents to help offset the continuing cost of your rehab. That's not peanuts! 

I assume your current contractor wants to do one thing in all 20 units (for example, do ALL the flooring in ALL the units) before moving onto the next phase. You'll need to let them know this method won't work for you, and you need to completely finish one unit at a time... they won't like it because it's more work organizing and bringing back subs multiple times, but you're the one paying the bills and that's how you want it done.

That being said, you'll want your rough-in work finished all at once, which you likely already have done at this point (ie. your roughed-in plumbing and electrical).

I wish you the best success with this project! And congratulations for taking this leap outside your comfort zone!

Cheers,

T :)

Great points by both @Frank Wong and @Maxwell Fontaine here.

I'll just add that scary neighborhoods attract scary tenants and nasty houses attract nasty tenants. 

- If you're okay with no rent for a month because the tenants just vanished, and oh, they took the refrigerator with them...

- If you're okay with replacing every door in the house every time you turn over tenants...

You get the picture!

If it's a war zone neighborhood, forget it. 

If it's a C to C- neighborhood and you can fix it up just enough to get some great tenants in there AND you don't mind spending the extra time on property management then these kinds of house can cash flow very well. But consider your mental health dealing with a property like this first!

I hope that gives you something to think about and helps.

Good luck my friend

T :)

@Matthew Paul yes! 

Also, unless the plumbing was upgraded you could be looking at 50k to replace the old cast iron pipes. If you miss the opportunity to do this while you're doing your initial renovation it will cost double... problem is they corrode from the inside out, so they may "look" good, but they might be close to the end of their life.

I think what we're trying to say is that as beautiful as this property is, it's going to be a money pit. Great investment decisions are made only on the numbers, so please review your analysis with your real estate team. Your realtor and mortgage broker can give you some great advice and really help you out on this decision.

Your real estate agent will make sure you can back out. You can certainly use the inspection with some of these things we've talked about. Backing out because of windows would be questionable because you should know just by looking at them during your viewing, (even though you're going to have sticker-shock when you get the quote, you still should have known better). However, if your inspector discovered there's knob and tube electrical or asbestos or plumbing issues those are all very costly and not obvious during a viewing and you could easily back out of the deal. Again, just work with your realtor to ensure you can still back out even if the inspection doesn't turn up anything hidden and major.

I'm sorry if you've been discouraged by our feedback on this property. If this isn't the right one, that's okay, there's plenty more out there so don't give up!

T :)

That's a beautiful place @Heather Schmidtknecht

A common mistake is over estimating the ARV. I don't know the area, but looking at that property you're probably correct that it would be worth 300k after the rehab, but the proper due diligence would be to find at least 3 comps (your agent will do this for you)… just make sure they're actually comparable (location, units, bedrooms, square footage, etc)

A lot of the info you'll need for the calculator is in the listing, but if the building expenses and gross rents have been omitted just ask your realtor to get that information for you.

It's not a problem to view the property more than once. When people are house-hunting they'll view a dozen and then go back and view their short list a second time, so that's pretty standard and any real estate agent wouldn't mind. Since it's been on the market for so long you won't need to pounce on and write an offer while you're still on the front lawn.

You should have a scope of work ready for your contractors. If they're not all on the same page then you won't be able to compare the bids. You need to be sure what you want done and what you don't. If you're not 100% sure if you want to replace all the doors and trim (as an example) then ask them to break that job out and price it separately.

Last tip from me on this post: 

I like to have the property under contract before I give any trades people the address for a walk through. Many contractors are either investors/flippers themselves or they already work with an investor who they'll give the lead to and end up doing the work on the property anyway. You can lose a great property that way... but like I said in my previous post you can always back out of the deal if the quotes for rehab come in too high.

Sorry, I'm being so long-winded. Just trying to help you be more informed. It's a big decision!

T :)

Hi @Heather Schmidtknecht

Have you run the numbers on this property using the BP Calculator? I'm willing to bet you'll eliminate this property and won't need to worry about booking anyone for a site visit. You can play around with the rehab cost value in the calculator to see how that effects the outcome.

From my modest experience with rehab projects you're looking at a minimum of $70,000, (The windows alone will be 40k). But with an older property you can count on running into extra expenses, so if you can't make the numbers work with an $100-110,000 reno you'd be taking a big risk. 

How long has the property been on the market? If it's up past 120 days and the seller is in fact motivated you might be surprised what they'll accept for it. So when you're doing your analysis find the purchase price that makes the numbers work (with plenty of cushion room). Offer that number subject to inspection and financing, you can always back out if the quotes come in too high.

Then get at least 3  from each trade to walk through the property at the same time. Contractors will likely go a bit lower if they know they're competing for the job. Besides the obvious (roofers, painters, window guys, etc) don't forget to bring electricians and plumbers too. If your electrician finds knob and tube wiring you might as well forget about it... easily another 30k to rewire a big place like that!

I hope that gives you something to think about and I hope it helps.

Please repost what your results where, the BP community would love to learn from your experience with this property.

Good luck!

T :)

Hi @Christopher Lee Johnson

Welcome to Bigger Pockets!

Have you watched any of the webinars by @Brandon Turner ? That's going to be one of the best places to start! He does them once a week, usually on Wednesday and you'll learn a tremendous amount. Take notes, re-watch the replays, take more notes, and listen to his advice about learning how to analyze properties using the BP calculators. After a month of doing that and reading articles on BP you'll have a much better idea how to find and execute on a deal.

I hope that was helpful, and good luck my friend!

T :)

Hey @Mike Wheless good to have you on BP. A lot of great advice here and as with anything "trust but verify" as some advice may not fit your personal situation.

If you're doing a flip, especially as a rookie investor you definitely want something local so you can drive out and keep close tabs on things and your contractor's timeline. That being said, I wouldn't worry about waiting to invest as long as you have the knowledge to make a great decision. 

With flips, most of your money is made up front on the purchase, not on the sale... so my best advice is analyze a ton of properties with the BP calculators and when a GREAT deal pops up you'll know it, and you'll be ready to pounce on it quickly. If you're not really good at analyzing or you don't do it very often you'll take a day or two to consider it some more, you'll ask people on the BP forums what they think, you'll sleep on it again just to be sure... man, if that's a great flip it already sold to someone else yesterday!

*Disclaimer: Always leave plenty of room for error in your analysis! If your reno goes over budget by 10k and you sell it for 10k less than you had hoped that's a $20,000 swing in your profits which can easily turn into a loss in the blink of an eye!

I hope that gave you something to consider and was helpful.

Good luck my friend!

T :)

Hey @Steven Smith,

Good for you for taking the leap and taking action on something! Many people don't get past the fear of taking the first step. That being said any successful real estate investor needs at least two of these three things: knowledge, hustle, money. Getting into the right deal depends on a lot on your knowledge and how well you can analyze a property. My investment style is that it NEEDS to have strong cash flow (at least $150/door/month) in order to get a decent cash-on-cash return. Personally, I would never invest in this property unless it was making money from day 1.

If you re-read what @Ned J. said in his original post there's a ton of great info in there!

My next point, is why be afraid of losing your current tenants to make more money with new tenants? If it's done correctly you shouldn't even miss a single month of rent. Our local laws require that we give 4 months notice of a rental increase and the tenant must give 3 months notice before ending a year-to-year lease. This gives the tenant 1 full month to decide if they want to stay and pay the higher rent or give you their 3 month's notice to quit. This gives you plenty of time to advertise and find new tenants who ARE willing to pay fair market rent.

Last point, there's 4 ways to make money at real estate (5 if you count tax advantages).

1) Cash Flow (from rent, storage/laundry/parking)

2) Forced Appreciation (through improvements and renovations)

3) Principle Recapture (increasing equity as your mortgage is paid down)

4) Passive Appreciation (property values increasing, this is not something you want to count on as they can and will decrease in value at some point)

You're trying to make this property work as in investment, but you only have one (maybe two) income streams available to you right now. I'd rate this as a poor investment that could potentially turn into a disaster if property values fall and you're forced to sell at a loss.

If you really want to go through with it, don't take the slow route of increasing your rents. If you don't have rent controls I'd jack those right up to fair market rent immediately, and get new tenants if you have to. 

I hope that gives you something to think about and was helpful. Good luck my friend!

T :)

Hi Sean,

Like @Robert Newcombe, I'm giving a 2nd recommendation for Igor Geshelin. The guy is a work horse and knows the business inside and out. He's worked with us on six mortgages now (and counting). He's a broker, so he's not limited to one lender and he'll get you the best mortgage product for your individual situation. If you're looking to hold multiple mortgages in the future he's smart and strategic.

Definitely set up an appointment to discuss your needs even if you've already met with other specialists or brokers.

Cheers,

T :)