All Forum Posts by: Zach Westerfield

I have mixed opinions on inspectors. Most are NOT contractors. They simply take a test and become an inspector. I have seen a wide range of inspectors. What an inspector typically does bring is piece of mind. Most have company backed guarantees that will cover the cost of repairs for major items they miss. how difficult it is to actually get them to pay up could be another story. 

I still use inspectors on my primary residence purchases, since most lenders (and insurance companies) will require an inspection report. For investments, I recommend using a good general contractor. A good, experienced contractor will have more knowledge and experience when it comes to rehab. Another reason i dont use inspectors for investment properties (rehab projects) - investors are tailored to the traditional home buyer, and frequently are used as a negotiation tool. I dont need to pay an inspector $400-500 to go see a total gut rehab property and then send me ten pages detailing that it needs to be painted and their are dirty outlets. i am more concerned with the big ticket items that affect a rehab budget. Plumbing, electrical, roof, mold, foundation, etc. In addition, most inspectors will say "looks like the roof needs to be replaced, but recommend getting a licensed contractor to evaluate". skip the middleman and get the contractor. 

The trick is finding a quality general contractor to come out. If they are good, they are most likely very busy. I have a few and it takes 2-3 days on average for them to fit in a walk through. One recommendation, if you find a good one, compensate them for their time. I pay a general contractor $100 to go look at a property for me. Much cheaper than an inspector (maybe I should pay more?). Also be respectful of their time. Dont expect a full detailed quote on the first inspection. Most that i have worked with will refused to take the time for an itemized quote unless they are generally assured of your business. Have them go out to the property, and note what needs to be done to get to your standards. more importantly, have them point out major issues and concerns. 

Personally, I think the market is locally dependent. One of the largest employers in the state is Delta Airlines - they most likely will have trouble for months if not years. I have a flip under contract in an area close to the airport and it took longer than normal to get under contract. I definitely saw a slow down, and im eager to get that one off the books. My other property is in the Warner Robins area, which is based on government jobs. I havent seen much slow down there. 

In general, Georgia has a diverse economy and increasing population. Im not an economic expert, but I dont see anything on the horizon that changes those factors. Jobs and population growth, as long as those hold true the market will continue to grow over the long term. The key will be identifying the correct markets within the state as the turbulent times and economy will drive changes. Will suburb heavy atlanta continue to be one of the top markets in the country? WIll there be a nationwide shift to small town america as social distancing and teleworking become the norm? 

I personally am interested in some of the smaller markets. America's largest demographic (Millennials)  are finally starting families. Even before the virus, raising a family in a studio apartment downtown gets old. However, the financial situation for millennials has not changed. Student debt along with a generally more frugal nature could keep them away from the McMansions of their parents generation. At the same time, regulation and materials cost continues to drive up the cost to build, and housing becomes less affordable. I think this will create a market for renovated starter homes, in the 75-200K price range. Just look at one of the more popular shows on HGTV right now - Hometown. 

Scott, 

I wrote a short flyer on the benefits of seller financing. PM me and I will send it to you. its meant to give to the seller to inform them of the possibilities. Disclaimer - I have only come across a few properties so far that were possible candidates of seller financing, so I have not completed one yet. One property was great terms but turned out to have easement issues. I did have an owner read my flyer and tell me it was very informative and would have convinced him, except he was completing a 1031 exchange. Either way, my belief is to educate the seller to open the conversation and get them to the negotiation table. 

It seems to me there is a stigma amount sellers (mostly non-investor sellers) against seller financing. However, I always try to educate the seller that it really can be a win-win based on their situation. Why pay the banks interest when the seller can make the interest? I am not a fan of banks, FYI.

My biggest mistake could fill a book with details, but I will summarize it here. For everyone wanting to renovate properties - either single family homes, apartments, commercial, does not matter. Here is the lesson - Either hire a QUALIFIED PROJECT MANAGER, or dedicated the time  and money  to learn project management yourself. Part B of that lesson, project management is a job (not an investment activity) and most often is a full time job. For anything larger that very light rehabs, take heed of this lesson. Here is a brief synapsis of the story

I bought a triplex that needed a major renovation. It was pretty much a full gut, needed a roof, pool filled in, and had hoarders, drug addicts and plenty of rats as tenants. I estimated the rehab would take about $80,000, and 4 months.  Lesson number 1 for rehabbers - unless you have a full dedicated staff of contractors working directly for you, an $80,000 rehab almost always takes more than 4 months.  

Since I had completed several smaller renovations with success previously, I decided I could contract this out myself. I had a few contractors I had used before and felt confident I could vet others to get the job done. At the time, I was working 60-80 hours a week at my day job, and traveling at least 2 weeks a month. I also had a 1 year old baby and another due in 6 months. (Do I need to spell out lesson number 2 here?)

That was my plan, here is how events unfolded

Since I was using an FHA loan, closing took 2 months longer than expected.

Step one was replace the roof - turns out roofing contractors in Florida (Destin, FL) are in high demand. I had a quote before closing that was double what it should have been. After closing, I tried another who said he could do it. After six weeks I realized he was putting me off since mine was tied to the FHA loan and "guaranteed money".

In the interim, I got sent to a training course out of state for 2 months. I had no ability to check email or take phone calls during the day. 

At this point, much of the interior drywall was finished, as I could not afford further delays. I found a 3rd contractor who said he could get it done. He said he pulled the permit, the proceeded to remove the old roof. Two days later, Hurricane Michael hit. I had no roof, and the contractor had $7,000 in money to buy roofing supplies. Long story short, he ran off to chase hurricane work, never returned my money, had never pulled a permit, and left my property in shambles. ( Lesson 3: what the lawsuit process is like - long and arduous. I eventually did receive a settlement, no where near the cost of the damage but better than nothing. ) 

At this point, the project was nearly 4 months behind schedule, and $20,000 over budget. I spent the next 7 months working myself every single night and weekend to complete the project, because I had no money left to pay contractors. I finished somewhere around $130,000. 

This is the abbreviated story. Am I turned off of real estate? Absolutely not. This was a costly education, and I learned many lessons that I don't think I would have learned otherwise. That project caused me to take pause and evaluate my life, my business and its systems, and my future. I spent the next 6 months creating a project management system that I can use to train people to management my projects. Even if I didn't work a full time job outside of real estate, I never again want to miss key events in my kids life because I HAVE to work on a project. 

One last point from that project: I could have hired a top end General Contractor in the area to do the project, and probably spend lest money in the long run, and certainly had less head ache. That brings me back to my point. Renovations require project management. Either pay a GOOD general contractor, find/train a qualified project manager, or have the knowledge/time to be at the project EVERY DAY and watch over the contractors yourself. Even good contractors require oversight. 

And yes, I am still digging out of that hole, but the property does cash flow enough to cover all expenses of top of the extra debt payments I had to take on to finish the project. It may take a while, but eventually it will be a great property.

Thanks everyone for all the advice. I find it very useful. We will be consulting with both an attorney and CPA, I just wanted to do some up front research to have an idea which way to go. here is what I am thinking 

- place the property in an LLC, with my mother as the manager. I have my own LLC so I am aware of the necessity for it to truly operate as a business in order to maintain its protections. My mom would take a small fee as the "manager", whatever makes sense (5%?)

- the LLC would be placed in a trust with my grandmother as the beneficiary. My mother would be the next beneficiary.

this way, my mother gets the liability protection of the LLC, and the trust takes care of probate. from my understanding, my mom would only be responsible for taxes on here "management fee" and the rest of the rental income would be taxed at my grandmother's rate (0-10%).

Any thoughts on this approach?

My grandmother is aging and currently in an assisted living facility. In order to cover the cost of her care, my mother has rented out my grandmother’s home. I am trying to help her put the home in the correct entity so she has liability protection yet also minimize taxes. Here are the things to consider

1. My grandmother owns the house free and clear

2. All proceeds from the house will go to her medical expenses, my mother will not keep any herself

3. The house is currently in both my grandmother and mothers name

4. My mother wants to protect her own assets, so I originally recommended an LLC

5. My mother is also a high income earner, and has no real estate of her own to offset taxes

The dilemma - it seems that if the house is held in a single member LLC in my mother's name, she will have to pay taxes on the rent (at a high rate) which cuts into the amount available for medical expenses.

We do not want to keep the house solely in my grandmothers name and risk it getting tied up in probate.

Any recommendations on how to structure this to minimize taxes yet provide adequate liability protection?

@Anthony Lilley

You should definitely be able to find something in the fort Walton area within the bounds you described. It will definitely be an older property, but you can find something in your price range with 4 bedrooms if you are willing to settle for a dated property. In that area, most homes were build pre 1980s, so it’s just a matter of finding one in good repair, albeit dated. With that, once you move you can rent as is, or modernize the property and increase the value, getting higher rent.

@Zach Westerfield

Sorry for all the typos, I’m on my phone and auto correct is killing me

@Anthony Lilley

I am also military who bout with a VA loan in the area, and I also own multiple rental units in the area. Do you have a target area to live? I think if you are not picky in area you can find something with 4 beds for close to the 1% rule. It will be a family decision though. You will not probably find anything in Destin or on the star that fits that description. However there are other areas, not just crestview, where it can work. I also did a live in flip in the area (while having 2 kids) so I understand the adversity to a BRRR, but you can find some things that only require a little work. Let me know if you would like to talk more

@Ron Steele

Did anyone ever recommend a company for this? I have a triplex I want to sub-meter in Florida