Fort Lauderdale, FL · Member since 2012 · 11 posts · 0 votes
Hi Everyone!
I am really happy to have found these forums. It's good to hear from others with the same interests and it's really interesting and informative and fun to read the newbie experiences and the experienced investors as well.
My husband and I have 7 long term buy and hold single family rentals in various cities (some are more and some are less profitable). Our short term goal is to achieve financial freedom within 5 years through passive income. We both have full time jobs, and I would like to be able to just be a full time investor eventually. Our longer term goals are: $1M+ annual income, 100+ units, and transitioning from full time work to full time investing. We intend to use our earned income as well as leverage to fund our goals, but we also want to accellerate our goal acheivement by completing multiple rehabs each year.
We have done one full gut rehab, but spent way too much money and it took way too long, and we ended up selling it in 2 weeks, but losing money. THEN, we took some extensive professional rehab training, got our real estate licenses, created an LLC, and started making offers. So far, we have been unable to get any offers accepted, and I think my offers are too low, but I am concerned about repair price estimates, having not done a rehab down here. I am just worried that it will all cost more than I initially estimate, or that I won't be able to find contractors to take me seriously and get me investor pricing vs. retail pricing.
Thanks for any advice or insight or even just encouragement or sharing you give! I appreciate it. :)
Kristin
Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
13y
Welcome Kristin. My first question to you is why do you think your offers are too low? What are you comparing them to?
I can tell you that if you say that because you are not getting offers accepted remember there is the possibility of others are paying too much. This has happened to me dozens of time and I have learned to let others pay more. I feel confident in my cost estimating and probably one of the most valuable disciplines in rehabbing is sticking to your maximum offer price.
You say you lost money on one of your rehabs, that probably means you paid too much...
Like you I had no idea how to do construction estimating when I started this business. There are several things I did to improve this:
- Spend a lot of time at Home Depot/Lowes and when you hire someone try to buy the materials. You will quickly learn how much stuff costs.
- Find a home inspector or general contractor that you can use to do home inspections and rehab estimating. Walk through a potential project with them to make a list of repairs needed and their cost. You will probably have to pay them for this and it is well worth it.
- Talk to other investors This is one of the most important ones. I have met, talked and walked through dozens of other investor projects (includes J Scott from 123flip.com) and that is a great way to find out who they are hiring and how much they are paying.
Cost estimating is not rocket science and it is not the hardest part of this business IMHO. But it can certainly make or break your project.
Also make sure you start out with a small project. Estimating a $10,000 rehab budget is a lot easier than a $50,000 rehab. Also if you mess up the smaller budget you will probably be fine while if you mess up a complicated budget it can cost you thousands…
Also be very clear when you hire someone to let them know when they need to be finished. For every contractor establish clear, written scopes, schedules and guidelines. That way there will be no confusion whether something is done right or not and you protect yourself. If they don’t perform to the mutually agreed guidelines do not be afraid to fire them. Holding on to a non-performing contractor is bad for everyone involved. Ask me how I know...
The whole investor pricing vs. retail pricing is easily solved by calling contractors that have been referred to you by other investors and by getting several quotes for the work.
I have gone into a lot more detail on this on my site if you want to find out more. Let me know if I can help.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
13y
Welcome Kristin, you really have come to the right place to learn how to achieve your admirable goals. Your ability to rehab on budget and on time will come with experience. One of BiggerPockets most active members, J Scott has blogged extensively about this. http://www.123flip.com/ and is working on a book. Your learning will accelerate studying J Scott and other BP rehabbers' techniques.
Given your income target, I suspect you might be better served by Multi-family or other commercial properties in the future. Have you considered commercial?
Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
13y
Welcome Kristin. My first question to you is why do you think your offers are too low? What are you comparing them to?
I can tell you that if you say that because you are not getting offers accepted remember there is the possibility of others are paying too much. This has happened to me dozens of time and I have learned to let others pay more. I feel confident in my cost estimating and probably one of the most valuable disciplines in rehabbing is sticking to your maximum offer price.
You say you lost money on one of your rehabs, that probably means you paid too much...
Like you I had no idea how to do construction estimating when I started this business. There are several things I did to improve this:
- Spend a lot of time at Home Depot/Lowes and when you hire someone try to buy the materials. You will quickly learn how much stuff costs.
- Find a home inspector or general contractor that you can use to do home inspections and rehab estimating. Walk through a potential project with them to make a list of repairs needed and their cost. You will probably have to pay them for this and it is well worth it.
- Talk to other investors This is one of the most important ones. I have met, talked and walked through dozens of other investor projects (includes J Scott from 123flip.com) and that is a great way to find out who they are hiring and how much they are paying.
Cost estimating is not rocket science and it is not the hardest part of this business IMHO. But it can certainly make or break your project.
Also make sure you start out with a small project. Estimating a $10,000 rehab budget is a lot easier than a $50,000 rehab. Also if you mess up the smaller budget you will probably be fine while if you mess up a complicated budget it can cost you thousands…
Also be very clear when you hire someone to let them know when they need to be finished. For every contractor establish clear, written scopes, schedules and guidelines. That way there will be no confusion whether something is done right or not and you protect yourself. If they don’t perform to the mutually agreed guidelines do not be afraid to fire them. Holding on to a non-performing contractor is bad for everyone involved. Ask me how I know...
The whole investor pricing vs. retail pricing is easily solved by calling contractors that have been referred to you by other investors and by getting several quotes for the work.
I have gone into a lot more detail on this on my site if you want to find out more. Let me know if I can help.
Fort Lauderdale, FL · Member since 2012 · 11 posts · 0 votes
13y
Glenn, Glenn Espinosa
The training we went to was a bootcamp....all day every day for 4 days. It discussed estimating repairs, they gave us their price sheet for estimating repairs (with specific numbers to use for windows, floors, paint interior and exterior, roof, AC/Heat, Kitchen, Bath, landscaping, etc.), it went over hiring and dealing with contractors in a professional rehab with timelines and change orders, they discussed obtaining private money, hard money, etc, they talked about different ways of finding properties to buy, they talked about having exit strategies in place in the case that it wouldn't sell, having a project manager....that's all I can think of right now. They had us walk through some actual houses and estimate repairs using the repair estimator to see how close everyone got on the numbers they came up with. Hopefully this is what you were asking. :)
Kristin
Luis A., Luis A.
Wow! Thank you so much for your reply. Your point about letting others pay too much is a great one. That is what my husband has been saying (I'll tell him you agree! :)) but as we just can't get a nibble I have started to doubt. But you are both right.....I just haven't found that motivated seller yet.
Working with the contractors is the part that makes me nervous, because I worry that they will just try to roll over me and kind of push what they want, and not do what I want, or not take me seriously. Sometimes (having worked with them as a homeowner) they seem kind of bully-ish.
The training we went to said to have the contractors sign your forms (they gave us the forms they use) that spell everything out, and protect the investor as well as specifying when they would be paid (after some work was done), etc. But I worry that contractors will refuse to sign. Perhaps I just need to toughen up and stand up to them, and tell them if they don't sign then we can't work together. I have thought of doing this, but then I wonder if that won't really matter to them, as I am only just starting and don't have a lot of work for them yet.
I will keep reading here and asking questions and check out your blog. I also hope I can find some other friendly South Florida rehabbers who don't mind sharing their knowledge with a newbie.
Thanks again!!
Kristin
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Kristin Britt if you're truly serious about being a full time rehabber, there are several things you need:
1) Money. Paying hard money rates for money to fund your deals will eat 7-10% of your eventual selling price, depending on how long it take to turn the deal.
2) Your own crew. As long as you are hiring contractors, you're going to be paying their markup. Doesn't necessarily mean they work exclusively for you, but they need to be your crew and not contractors you're hiring.
3) A license. Maybe not you, but someone close to you. Who can make the offers and get the buyer's agent side of the commission. And get your rehabs onto the MLS and collect the seller's side of the commission
If you're borrowing hard money, paying contractors, and paying full commissions, then the numbers are the numbers. If purchase plus rehab is 70% of your eventually selling price, you'll make 10-15% of that price as profit. If you go over budget, it sells for less than you expected, or it takes longer to sell, all that extra money comes out of your 10-15% profit. If you pay 75%, that starting margin turns into 5-10%. If you pay 80%, its 5%, if everything goes perfectly.
OTOH, if you have your own money (which, could be used to make hard money loans to other rehabbers, don't neglect this possibility) that's a chunk of cost you're not paying. If you have your own crew and are paying them $10-15 a hour (like a contractor) rather than $30 an hour (like the contractor is billing you) that's a big savings. If you (and, here I really mean your company) are getting the commissions, that's something like 4-5% back into your pocket.
Look at how the big developers work. This is exactly how they run their businesses. Now, this is a big scale business. But if you're aiming at a million bucks of income a year, this is the scale you're talking about. 100 rental units might product 10-15% of that total. More if they're paid for rather than mortgaged. But ultimately, rentals come down to cash on cash return. A 20% cash on cash return would be outstanding, IMHO. 15% more realistic. So, $1 in income means you need $6.7 million invested. If you make $15K per fix and flip (don't know what price range you're considering), you're doing 66 flips a year or better than one a week. Even if its three months turning around on every flip, that's 16 of them you have in progress at all times. If we're talking $100K houses that you have $80K invested in, that means you need about $1.3 million. Now, that's a better number than.$6.7 for the rentals. That's because rentals are investments and rehabbing is a job. Your input into the job is, in part, what produces that return. At the kind of scale we're talking here, you're not doing the business (i.e, making offers, doing rehab estimates, overseeing the workers), you're managing the business.
Honestly, you might consider trying to find a rehabber and seeing if you could work for them for a while. Perhaps as an unpaid intern.
You might have to consider looking in another area. Lots of places have no profitable rentals. Same for rehabbing.
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
13y
Kristin Britt - I'll leave the rehabbing advice to the rehabbers, but I did want to thank you for signing up. Welcome to BiggerPockets -- I think you'll like it here!
Foreclosure Specialist · Miami, FL · Member since 2011 · 153 posts · 24 votes
13y
If you are looking to "achieve financial freedom within 5 years through passive income." I am not sure if rehabbing/flipping would be considered passive income. LOL Lots of work involved in that route.
Have you considered supplementing your portfolio with commercial real estate? I have found that commercial rentals are much easier to maintain, the tenants seem more stable and there is less turn around. Additionally, it is not difficult to find NNN tenants (that is ones that will pay all expenses including taxes and insurance). This can be a great way to stabilize a portfolio and provide stable cash flow that can be used to finance other projects.
Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
13y
Originally posted by John Evan Miller:
If you are looking to "achieve financial freedom within 5 years through passive income." I am not sure if rehabbing/flipping would be considered passive income. LOL Lots of work involved in that route.
Oh goodness don't start the "passive income" discussion. That one went on for a couple of pages a couple of months ago... :-)
Remember, there is nothing passive about a 100 unit rental portofolio.
Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
13y
Kristin, reading your questions reminds me a lot about me, I had the same questions when I got started a few years ago. First off, if you went to a bootcamp that can be a good start as long as you did not have to pay a gazillion dollars for it….;-)
The way you get over the whole “roll me over” with the contractors is by getting referrals and getting several quotes for the work. You are right, you do not have the same purchasing power that an investor that has done dozens of rehabs has but you can still get better than retail pricing.
Now, allow me to be Frank, you are a woman (in case you did not notice ;-)) and you are in the South. There will be someone trying to push your soft buttons because of this but you have to learn to deal with this. I have met a few women investors that have learned to handle this very well, you should be no exception.
Also you are worrying about something that has not happened. If your contracts and forms are fair they should sign them. Other contractors will already have their forms and contracts that you can amend as needed to include what you need them to include. At the end you are the one paying and you make the choice. There will not be a shortage of contractors so if they don’t want to work with you then move on.
Also Jon Holdman advise is right on the money. I especially agree with what he says about having a crew. However IMHO that is more like rehabbing 201...a bit more advanced.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
13y
Originally posted by Luis A.:
...
Remember, there is nothing passive about a 100 unit rental portofolio.
From an effort perspective, that would be a reasonably accurate statement. From the perspective of income taxation, that would be less accurate, as rental income is not subject to many of the "self employment" taxes ...
Fort Lauderdale, FL · Member since 2012 · 11 posts · 0 votes
13y
Jon Klaus, Al Williamson,Ned Carey,Joshua Dorkin
Jon, Al, Joshua, and Ned
Thank you all for taking the time to welcome me. I appreciate it. :)
Jon Holdman
Jon,
Thank you for your insight. I like the fact that people on here challenge me to think specifically and clearly about exactly what I need to do to achieve what sometimes starts out as a murkey path to achieve a desired goal. It really helps to crystalize the vision and make the path become more apparent. So I agree that having those 3 things (money, crew, and license) will make this much more profitable. We both have our real estate licenses in Florida so that much is done. The goal is to have our own money, which is the purpose for doing the rehabs, but we will have to start out with a little and keep investing in the business to build more. As far as having my own crew....where would you start with that? Would you suggest advertisting for skilled individuals, like individual plumbers, electricians, painters, etc.? I like the idea of just paying them hourly. Why would a skilled worker want to work this way, rather than working for a contractor....especially when at first I will only be doing one here and there?
You asked what price range I was going to be doing....and at first the intent is to start with "starter" houses in decent neighborhoods that will sell for $105,000-$115,000. This is because I know about 6-7 of these neighborhoods (I live in one), and because in addition to hard money, the remainder that we will have to come up with to complete the deal $40-50K I think we can handle at this point. We both have great jobs that pay very well, but unfortunately they cause us to be out of town about 1/2 the week, every week. So finding time to search for houses and make offers is the hard part, as I am only home 3 days or so before I go again.
Then the goal is to get experience under my belt, build systems, learn who I can trust to work with, and then move up to bigger deals with more upside potential. But I have to build up a solid bank account, to really get the ball rolling.
I think I can find profitable rehabs here, I just need to break into a small one, and then I'll have a better idea of everything. As far as looking elsewhere, I don't know about doing rehabs out of town....where I don't know the areas. Is this what you mean? Have you done this? If you have, how would you suggest I go about it?
Finally, doing an internship would be fantastic experience, but I have two concerns. One is that I do have a full time job, am only here 3 days a week (to do everything from laundry to groceries to bills and just be at home for a minute), and I don't know if I could do an internship under those conditions. I could ask for time off from work, which would probably be granted, but I would have to pay insurance and would have no income, which would seriously hamper my investing goals. I don't mean to sound negative about it, because I think its a fantastic idea for building experience under a more experienced person, I am just asking if you think it could work for me? If so.....how do you suggest I find someone to do an internship with? Here on these boards? Again....thanks for your insight. I REALLY do appreciate it.
Kristin
Fort Lauderdale, FL · Member since 2012 · 11 posts · 0 votes
13y
John Evan Miller
John,
Thank you for the response. I meant "passive" income in terms of coming from an investment, rather than income from me working for an employer. I know it will be a lot of work, but I do look forward to and relish the work I will have to do to manage a business of that size/scope. I love the idea of being independant from a "job" (I realize that I will not be truly independant as I will need tons of help from many people) but I mean that I will not have to worry about someone else's bad decisions causing me to lose my job....I will have to worry about my own bad decisions! :)
I would love to learn about and own commercial property. I have not done it yet. My one concern would be that I don't know how to pick a property that I can be fairly certain will stay rented, as I know it can stay vacant for much longer than a typical residential house or apartment. Do you have any advice about choosing a good commercial starter property?
Again, thanks for your questions and response.
Kristin
Luis A.
Luis,
Again, thanks. I appreciate you understanding my concern about getting "rolled over" by the contractors. As you said, I will just have to learn how to deal with it. And hopefully, it would not be the case very often.
We both (I've been reading these to my husband too) thought that your suggestion to maybe amend their forms if they don't want to use mine was a great way to meet in the middle.
I like the crew idea a lot. How would you suggest putting a crew together....or do you think that this would come after I have done a couple using contractors?
I kind of think of my first one or two as my internship.....hopefully it won't end up being an unpaid internship, but if somehow it did....it would still be fantastic experience. I am not afraid to try and then make mistakes and fall flat sometimes; as long as I keep trying until I am successful (and then still keep trying).
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
You'll have to build up to having your own crew. The expensive ones are going to be the licensed ones like plumbers and electricians. Below this are skilled but unlicensed folks. And below that are the low-skilled workers that do the grunt work.
When these folks go out on their own they bid their own jobs. I am 100% confident there is a huge element of what the market will bear. When someone bids a job, they estimate how long its going to take. Then, at least some of them, look you in the eye and think "what's the most I can bid and get this job?" I've had plumbers bid everything from $2900 to $9000 for a job. I had two HVAC guys bid job. One was $1100, the other was, sit down, $8900. I had an electrician bid a job (license required) and then his apprentices did almost all the work. He was there to make sure it was right, and me and the inspector were both happy, but he did very little of the hands on work.
Anyone who's working for someone else is getting paid hourly.
Hiring people is hard. It doesn't matter if its software developers or electrical engineers (my day job), contractors, or actual employees in your rehab business. Its hard. You will make mistakes. One of the most important hiring skills is firing. If its not working, and can't be easily and quickly fixed, time for the door.
Being around only three days a week and doing rehabs doesn't mix. I've done them. They're every day jobs. It gets tiresome. But that's the only way to stay on top of it. Now, if you get to the point where you have a REALLY trusted employee who's managing the day to day work, then you can be away. But you're not going to start there.
Real Estate Investor · Atlanta, GA · Member since 2009 · 339 posts · 126 votes
13y
Jon's experience has also been my experience - multiple bids, multiple prices...
Since I was not aware of your lifestyle I would have to now recommend that you find a way of investing in real estate that matches your lifestyle.
You learn a lot (I did) by being present at your rehabs. There is just no substitute for hands on learning. So if you are not going to be able to be there not only will you not learn but it can be a huge source of stress having to fit in a rehab while you are away and then using your three days at home to play project manager.
I am not saying it can't be done but then you might have to hire a General Contractor to handle everything, I have and would do it again. But....be then prepared to pay more.
I am fine with paying more if the deal supports it, meaning that even with the higher prices of the general contractor I will still make a good profit on the deal.
Fort Lauderdale, FL · Member since 2012 · 11 posts · 0 votes
13y
Jon Holdman, Luis A.
Hmmm....sounds like you may be doubtful of the outcome of this venture with my schedule....? Is that right? I know it sounds horrible, as it is difficult to imagine this lifestyle, but I still think I can do it, though it will be 2 full time jobs essentially until I can find trusted project managers. I have a very strong work ethic, so when I come home, I will just have to hit the ground running and go to the project. When I am on the road, I will call for updates. Perhaps I can set up some systems to keep the contractor up to date with where things should be---a weekly schedule that can be checked off and viewed online? Perhaps when jobs are completed, I can have them take pictures and send them via email or message, and via phone we can discuss any issues. I believe that any business I will start will require all of my time and attention. I have done the 2 full time jobs thing before so I know I am capable of it. We don't have kids, and my husband is involved too, so I think we can pull it off. It wouldn't be long term, but would have to be sustained through the first 2-3 projects, I believe, and hopefully by then I will have found a project manager that can manage for me when I am not here. Or, if it doesn't work out, it doesn't work out....but at least I will know. I think I will need to use a GC for the first few jobs. Though I am interested in making a profit (so I can reinvest it, and so I can know I am successful) as long as there is some profit, I am really interested in learning how to do it. I can then increase the margin later.
General Contractor · Tampa, FL · Member since 2011 · 32 posts · 13 votes
13y
welcome. my advice is find a rehabber that has experience or you could partner with for a few deals until you gain more experience while keeping you out of major trouble.
here is an old post that may be of interest to you
http://www.biggerpockets.com/forums/48/topics/72801
Keep this in mind. you are rehabbing it to make money not for your taste or style which is probably why you and most people go over budget. No single item will ever push you over budget its just when you decide on a 100 different items and each time you go with the more expensive item you quicky can be a 20k over budget
Define, define define a scope of work . Be very detailed about what work needs to be completed. the more you can define what work needs to be done on paper the better off you will be. You can not just have ideas in your head and tell a contractor you want it to look like whatever. If you leave anything to interpetation then you will be disapointed 9 times out of ten. For example if you told me you wanted a pair of shoes and i the contractor came back with a pair of payless brown velcro shoes i suspect you may not be happy. You then would specifically tell me what kind of shoes you wanted. 1 pair of 4" high heel shoes that had to be black and size 7 maybe a certain designer name brand that you expect.
Go from room to room and write down everything that needs to be done. Then thing about the basics if you want a light here is there electrical there now or would electric need to be re routed to make your idea work. Make a running list for each room. then break down your list into categories such as electrical items, plumbing items, painting etc. Define what materials you need to complete your project. if its say drywall how many sq ft are needed? how many sqft of paint. quantites of material need to be defined. define if you will supply them or will the contractor.
ask questions when you dont understand. and even if you dont understand fully get a contractor to explain how many men and how many hours will it take to complete a specific job. if you have that basic info you can do some quick estimating. this simple estimating is great trick to feel if a labor only task is priced fairly.
example: it will take 3 of my guys 4 days to do what you are asking.
3menx8hoursx4daysx$50 per hour=$4800
So if you get an estimate of 12,000 you can quickly see your not in the same ball park and the estimate is high.
Spend time learning some of the basic trades such as plumbing electrical, carpentry. many things in residential construction are not hard to learn but spend some time learning those basics.
The more detailed you are, the better you define a scope of work, and the more organized you are the better your contractor will feel he can work with you and make money. if you are lazy and or dont want to deal with it because you dont know it, then your prices will be higher because they know there will be many changes that dont allow them to complete a task and move on. these kind of people waste a contractors time and it ends up costing them money on this job but costs them more money by preventing them from moving on to the next project where they can make money.
Foreclosure Specialist · Miami, FL · Member since 2011 · 153 posts · 24 votes
13y
Originally posted by Kristin Britt:
John Evan Miller
Do you have any advice about choosing a good commercial starter property?
If you are looking to start investing in commercial real estate, I would recommend looking for a property that already has a long term tenant. The price is going to be higher because of the stable cash flow, but your risk is reduced as well. Really good stable investments are triple net government leases such as post offices. The purchase price, however, can be quite high so you will want to make sure that you have bank pre-approval before you start shopping around.
If you get approved for a commercial loan, another option is to try to find a company looking for a long term lease and try to back into a property with them in tow.
Specialist · Davie FL · Member since 2009 · 147 posts · 35 votes
13y
Hey Kristen,
Welcome,
I'm also in South Florida. There are great opportunities here but our market has become saturated with investors over the last 18 months so you have to remain consistent with your offers to get anywhere.