All Forum Posts by: Mark G.

@Manolo D.

GC's are an interesting bunch but I'm now more armed with information on how to quiz them prior to the job which is great. I definitely will keep the supers and subs in the loop on the major items (framing/foundation) during the design phase and get their input regardless of the experience of the GC.  

I'll do whatever it takes to find that magic way to bridge all the languages... As I think the whole spectrum of real estate people need to do! 

When the framing and foundation is totally done - end of May/early june, I'll see what's new. 

@Manolo D.

Those architects are a funny bunch. A season developer told me that they speak their own "language" that is impossible to get them to come to "our language" which is a funny way of looking at it. The best you can do is blame the budget and value engineer the **** out of it if that is the case. 

Changing the structural engineer just wasn't going to work for us. Really it was a mistake of the architect first and foremost because the engineer can just do math on anything that is given to him but still problems occur. Being knee deep with the "architects choice" is drama waiting to happen. Lucky our construction guys can still value engineer the best they can. That guy was at least 60 years old though.. Lesson learned and we at least know what tough questions to ask for future reference.

@Manolo D.

The Diary is ingrained in my head lol. Here is how I see the "management" picture in not too much detail:

Investors/Owners: Manage everybody, push the timeline extremely hard, brings the big picture to every situation and conflict, actually pays for everything lol. 

Consultants/GC: Architect designs something amazing and gets permits, Structural Engineer gets it to last 1,000 years, GC ORGANIZES the construction. 

Superintendent/PM/Laborers: Actually builds the house

I've had my superintendent say that his Boss (GC) is a behind the desk guy. That was surprising to me because I imagine the GC as somebody onsite, buying materials, talking to subs and running around doing "job site" work. Really that is organization. So when you have a GC at the table with the owner, architect, engineer they don't "really" understand the assembly of the bricks and sticks as well as you think you do. The PM/Super/Subs/Laborers actually USE THEIR HAND AND MIND TO BUILD IT INTO PHYSICAL REALITY. I thought that was an amazing idea therefore bring those guys to the table when you can could really help on cost and efficiency. Obviously some GC's have that PM/Sub/Laborers experience (as it was the case with our GC) but there is still a noticeable difference as they move more towards the "organizer" role (P.S. that is where the money is anyways...). 

I'm sure I'll write something different as more deals come along but from this job that is was something amazing that the super said and that I learned. (he has 35 years experience..) 

@Mark Mathews I'd be happy to have a quick chat. At first glance I agree with Manolo from an experience perspective. You need to understand honestly where your expertise is in real estate renovation and development and be prepared to bring on partners to meet the gaps (for a share of the deal as usual..) That's just to get the deal done!

From a financing perspective you won't be able to get bank debt unless you or a partner has to net worth to secure one - you will be going the hard money route (aka expensive) but even then we would look at the experience quite seriously and you will need a fat deal.

I think people underestimate the permitting process, time, fees, and qualified team you need to actually build a brand new house - and that is just from a permit perspective. Figuring where to start on that homework is hard enough but it must be done. 

If the house is anything but condemned then you can fix it as-is - LOL, just comes down to the numbers. 

@Eldar M.

It has been a while I apologize. I don't know anything about starting my own column if you could expand. I think the project I'm doing is so damn hard so its good to get the lessons out there because even with a super seasoned team things go wrong. We all need to be realistic in our approach to costs, resale, margins and so much more.. and I sure am learning a lot. 

Hopefully people can reach out and we can do deals together. Wholesale, hard money lending, equity capital, JV's we are all about it.

@Vilson Nikollaj 

About us: We are just starting up in high-end space and this is our first deal. We are doing other ground-up construction and have a few other high-end rehabs we are working in escrow which we expect to close. We specialize in raising a large amount of equity and going after complicated and high-end deals with resale over $2M. 

I did mention some facts and lessons learned in my previous post so check it out. 

The high-end niche is a world of its own. The people who buy these homes are rich. They are not as impacted by a drop in the market and La Jolla consists of 35% foreign buyers which is another world of its own at this level. The going in margin (18 -20%) always protects you from downside that's why we do a few deals with high dollar amount and big numbers because it is the same as doing 18-20 $500,000 homes with 10% margins - literally. 

Hello,

I was actually going to post an update this week so great timing. To start:

Budgeted permit timeline: 2.5 months

Actual permit issuance: 4 months

Budgeted construction timeline: 5 months

Actual expected timeline: 6 months

The reason permits took longer was because:

1. 1. Architect made multiple incorrect drawings and elevations for the underground basement
2. 2. The structural engineer therefor made incorrect calculations
3. 3. Our contractor was not able to use the structural engineer of his choice
4. 4. Rather than going through 2 plan checks we needed 3 to be done. 

The Lesson:

1. 1. The difficulty in building an underground basement cannot be underestimated even with a very qualified team. 
2. 2. When choosing a structural engineer make sure they have the right "attitude"  - this can be very tough because of the "engineer personality". The final choice was a little unresponsive, arrogant and not the contractors choice
3. 3. In hindsight we wouldn't have done a basement, it would have made permits much easier for approval. To give the city fairness they were doing their job from an engineering perspective to ensure a solid building. 
4. 4. Try to get the "as-builts" problem is houses in 1960 usually don't have them on file at the city. 

Construction:

1. 1. The scope of work for the basement is really extensive, slow and time consuming therefore bumping our timeline 1 month
2. 2. January - Surgical demo of the existing house and site work preparation takes 1 month.  The total demo bid is around $50,000 for all the heavy work required. 
3. 3. February - Framing of existing home and problems with basement plans after excavation cause a delay in the basement to be 1 month - slow and frustrating
4. 4. March - Beginning of foundation work and garage addition 
5. 5. April - Heavy duty progress on the basement, Finish first week of May.
6. 6. May - Now we anticipate it will go fast. Framing addition and finishing roof
7. 7. June - Everything Else, may creep 1-2 weeks into July. 

The Lesson:

1. 1. Have a fantastic contractor who really understands scopes of work this big and complicated - we are lucky to have an amazing contractor
2. 2. Keep it simple. In hindsight it would have been easier to demo the pool, build a new one and expand the entire addition above grade but from a cost perspective it could be the same. 
3. 3. Conduct more value engineering during the permit period, unfortunately we didn't do as much up front as we should have
4. 4. Control the architect and structural engineer and push them to do something more cost effective even on the little things. Remember it is the architects job to create the most amazing property at any cost and the structural engineers job to create the strongest building imaginable and up to "code".  There are better solutions to design (such as spray accents versus wood accents and organizing beams and hardware in creative ways rather than creating everything heavy duty) There are always options, ask the subs if you have to becuse they actually DO IT. 
5. 5. Remember the difference between people behind the desk and the people who actually build houses - they are 2 totally different perspectives, get them on the same page
6. 6. Always have a contingency. ALWAYS
7. 7. Best lesson so far: I'm only as good as the information you provide me. This trickles down to everybody involved. Take that one in..

The deal structure: You may be thinking about the cost of debt and how it is impacting the deal right now. 

1. 1. Our going in margin of 20% allows us with some room without impacting the deal veyr much
2. 2. We aren't using hard money, we have a creative structure where the cost of debt isn't a huge expense in the deal and everything else is mostly on budget
3. 3. Also every month of appreciation helps us resale the property. Every month that goes by we feel more confident we will sell for a high price.
4. 4. Case-Shiller said San Diego increased 70 basis months in March. That is an extra $35,000 in our hypothetical pocket. 

Lots of information let me know what you guys think. 

@Brandon Sturgill

I see what you are saying. I would say the lot owners direct is the best approach. Developer would be long gone given your 1950 statement and the county at best can possibly provide a mailing address for those lots. If you can get that then hopefully you can walk up to the owner's actual home and talk to them direct about the lots. (maybe some of those adjacent lots are rentals)

If you can't seem to find the mailing address perhaps asking your title rep in the area would help. 

Chris,

Because we have the existing 3,700 square feet we do not need to go through the entire process. We use a loophole to expand 2,300 to avoid the coastal commission. It changes a 8-12 month permit timeline to 2.5 months. 

Any time you tear down a house or have a vacant parcel or you are expanding outside the loophole parameters (slope review, cantilevered expansions, sight blocking, etc) you need to go through coastal. Del Mar and Solana Beach are the 2 worst in the county.

So 2.5 months permits, 5 months construction.

Mark Gottschlich

Hello,

I have not seen much in terms of case studies of $2M+Rehabs in the Bigger Pockets Forums so I wanted to contribute a little bit:

My partner and I primarily organize joint ventures with developers on ground up construction of small subdivisions and rehabs/specs of multi-million dollar coastal homes.

We recently closed on a $2,500,000 ocean view home in La Jolla, San Diego with a 17,000 square foot lot. We recently went through plan check for a 2,300 square foot expansion of a 3,700 square foot home and plan to have permits in hand over the next 2 weeks. We are gutting the entire property and adding an amazing basement, huge master and outdoor amenities that will rival some of the best homes on the street.

Rehab numbers came in at $1,000,000 including supervision and a $85,000 contingency. 

We anticipate a resale value between $4,800,000 and $5,200,000 for 6,000 square feet.

Lessons:

At the high-end market (when including additions) estimating costs is more difficult because of structural designs and final approvals from the City along with the general pricing of the very high end finishes - it takes time. 

It is critical that the general contractor is highly skilled and experienced. We have one of the best single family contractors in town who has had experience building over 5,000 homes so you get the idea.. (yes, 5,000).

The quality of the team organized must be unsurpassed at this level. Our architect, engineer, contractor, Realtor sales team and investor are all over 55 years of age.

I hope this short case study gave you some idea of what its like in this price range.

Feel free to ask questions!

Mark Gottschlich