All Forum Posts by: Jerry LoCoco

I was a hard bid general contractor before school; here are my two cents:

1) I was never paid for bidding projects for which I did not get a contract, although there are certain contracts where a GC can negotiate payment for these services.

2) The cost of estimating is an overhead expense, that is somewhat reflected in the desired profit on a project. There are two ways in which a construction company pays for overhead: 1) profit from projects and 2) management/labor on projects. As such, a GC can only bid a project so low in order to cover overhead. Therefore, overhead is reflected in a final bid either through profit or management/labor expense and the public does indeed pay for these costs. This rationale applies whether it be a new office building or a single family home.

3) All service industries including the legal field are subject to commoditization (see legalzoom and read The World is Flat), better find your niche!

4) Investors that hire solely on price will eventually suffer the consequences. Unlicensed contractors generally have no idea what overhead is, let alone what their company's overhead expense is. Many of these guys finish project 1 with project 2's payments and so on. So when they run out on a project its likely because there was no project 3, to pay for yours.

5) @jscott: you may not be paying for your lawyer's student loans, but you are paying a/many lawyer's student loans! The only way that would not be the case is if the market would not bear it, and despite the loss of legal positions in the past five years, I would argue that the market is continuing to bear such costs.

@Jscott I understand your position and agree, however, I think the analysis becomes less clear based on how inflation is defined. I would argue that real estate and commodities such as gold/silver have outpaced "inflation" as defined by CPI and soon to be defined by Chain CPI. So when you say that real estate has "tracked" inflation and the rest is gravy, in order to accurately account for the "gravy" the CPI or another way of defining inflation, must be accurate. Using a number (CPI) that the government has a vested interest in understating seems flawed and would most certainly lead to an overstatement of "gravy"!

That being said, many recent articles highlight the fact that the increased disparity of wealth in the US is the result of inflation. I tend to agree and believe that the cause of this disparity and therefore the argument for investing in commodities is quite simple: the middle class and poor do not own commodities and earn wages that are stagnant at best. As more dollars are pumped into the economy, the price of commodities increase (this includes cash flows from those commodities that are adjusted for inflation), while the purchasing power of the fixed wage earners decreases.

Thoughts?

David Krulac I was not aware that the Fed purchased 75% of all treasuries. When did that shift occur? Wait until the treasury doesn't have earnings to reinvest in bond purchases over and above the $85B/month, 25% foreign bond purchases decrease, and the numerous US long term liabilities become due.

At this point the fed will have two choices: 1) continue to inflate and monetize the debt and/or 2) Increase interest rates to entice investment. Either scenario bodes well for commodities.

Thoughts?

Jon Holdman a home is a bundle of commodities and generally speaking the price of those commodities increase with inflation. Now there are other factors that can increase and decrease the price of the home which may distort the impact that inflation has on the home. But when the government puts money into the economy either through QE or buying bonds there is definitely an impact on commodities.

I think the issue here lies with the definition of inflation. Most people believe that the inflation rate is defined by the CPI (just wait the rules have changed again, see "Chain CPI") and that "inflation" occurs when the price of commodities increase. "Inflation" just as the word implies, is the inflating of the currency, period.

Many people say that the inflation rate in the US is nonexistent and considering the trillions of dollars that have been added to the system it is surprising that we do not have corresponding price increases in commodities. But when the rest of the world stops purchasing our bonds and all those dollars come back to the US, those who own commodities and are not over leveraged will benefit.

Thoughts?

Roy N. Plaster & insulation removal/demolition is what made me motivated to return to college after every summer working construction! The ceiling are indeed removed and I budgeted for a complete rewiring to include phone and data.

Any yes, insulation is a great thing in AZ this time of year!

Roy N. Great information! The house needs a ton of work but on the bright side, the previous owner had a new roof installed, and left all of the interior studs exposed so I pretty much have a clean slate to work with. I plan on moving some non-bearing walls around for an improved layout and will demo at least one, maybe two additions.

As far as insulation, I don't think there is anything left in the attic after 70 years. If there is asbestos in the attic, do you call a asbestos/mold company to remove? The only experience I have with asbestos involved VCT mastic, and we hired a company to remove it.

Alex,

THANK YOU! The quality of the information and the precise nature of your comments makes me wonder whether you walked this house! I would really like to see some before and after pictures of your project.

The HVAC bid is $5,000 and includes: all labor, material and equipment for the installation of a 3.0 ton (Trane) heat/cool unit including all duct work. I'm sure labor rates are substantially higher in CA than AZ.

Let me know if anything else comes to mind and be sure to post some photos when you get a moment.

Best

I'm looking at a single family home built in the 1930s that will require a significant rehab (HVAC, Plumbing, Electric, framing, drywall, new kitchen, new bathrooms etc). The listing is off the MLS and closing will occur at a title company, so I'm not too worried about title issues. I have hard estimates for HVAC, Plumbing, Electric, and Drywall/framing. Here is a list of my due diligence items. What am I missing ?

1) verify sewer connection in the alley (house needs entirely new plumbing sewer and water).

2) inspect foundation for structural integrity

3) check for mold/issues, termite damage etc.

4) Verify if there are additional historic district requirements/fees/inspections.

5) verify size/age of the electric panel.

6) verify whether gas lines need to be replaced.

7) Verify whether windows can be removed and replaced without historic district permits/inspections.

Steven Hamilton II, in your experience, do you see limited partners who provide the majority of the equity,take a 50-50 split on any losses, despite their equity position?

Generally speaking, the strategy for investing in commodities is to preserve wealth. Anything over and above is a bonus. Today the options are limited: leave the cash in the bank at .00000001 or invest in the stock market and pray for a 4-5% pretax dividend yield. Even if you accept the current CPI numbers (which anyone who purchases groceries, knows better) does not leave much in terms of net capital appreciation.