All Forum Posts by: Will Barnard

 LOL. I just grabbed a recent one, ignore the price of course. It was probably a large addition or new build contract, not just a rehab, although I have done many rehabs above $400k here in CA. Hope the language was helpful.

 You should probably check with your attorney to be sure you have language in your contract that protects you as every state has different laws when it comes to contracting. That said, here is a copy paste of my contract here in CA:

"3. Contract Price

Client shall pay Contractor the estimated sum of $491,328.00 (the “Contract Price”)

for the work to be performed under this Contract, subject to additions and deductions

pursuant to any change orders agreed upon in writing by the parties, and subject to “allowances” as provided in the bid.

Note: If the final cost of any item covered by the allowance is more or less than the dollar

amount listed, the Contract Price will be increased or decreased by a written change

order from the Contractor."

Assuming you invest wisely, this is all true. But like with any investment, inexperience, misinformation, or any number of other hurdles can prevent the profitability of a RE investment. As such, it is important for everyone to get educated in their investment market, their investment strategy, and build a solid and experienced team to make the investments profitable.

It is very simple, any change for additional work (labor and materials) requires a written change order signed (agreed to) by the owner. The contractor should not do any work above and beyond the scope of work agreed to in writing. All change orders should be discussed (contractor should explain what additional work is needed nd why), quote it and then have you sign BEFORE said work is started & completed.

Doing things in writing protects BOTH parties.

For most, it is constant failure to accurately peg ARV and rehab numbers. Without knowing those numbers, you cant make an offer price that is financially sound for the investor. Finding actual deals is also the most difficult part.

As with any flip / wholesale opportunity, it is all about the numbers. There is no way to tell you if it is worth it as none of the financials were presented here so all the answers above could only be generally speaking. Fire damaged homes can easily scare many potential buyers away which could work in your favor, that of course is up to your negotiating skills.

The short answer is YES, fire damaged homes present opportunities to the right buyers who can negotiate the right price and perform the rehab efficiently. 

Your best bet is to consult your CPA, getting tax advice from the general public on this site can lead to misinformation. As an example above, LLC's ARE pass through entities, however, they do NOT have "tax protections". Flipping income is treated as ordinary income and taxed at your marginal tax rate. You can not 1031 a flip if flipping was the initial intent.

I use an S Corp to flip however, you can also use an LLC with S Corp tax election to accomplish the same thing. The S corp provides some tax savings as some of the income can avoid self employment tax. When you flip, you have to pay the tax man, so if the intent is to use profits to buy and hold, then flip more for more profits (and more taxes) until you have enough for that buy and hold. Of course that is only one way of thousands.

There is no such thing as a one size fits all formula for calculating rehab costs. Some will say to use a price per SF but those in the know can tell you this is NOT the way to do it. Two houses, both on same street and both the exact model match. One needs a new roof, new HVAC and an electrical upgrade along with all the other general items like kitchen remodel, flooring, paint, etc. The other just needs the general items and windows. Using a price per SF will have you way off on one of these two.

The only way to do it is to get yourself a spreadsheet with all the line item tasks possible. Then your job is to find out the labor and materials costs for each line item. From there, you need to go to as many fixer upper homes as possible and walk them with your note pad, noting each item that needs repairs/updates. Then you talley it all up - there is your rehab number. Once you get more experienced, you will learn to break up the home into sections like kitchen, baths, flooring, paint, windows, doors, trims, electrical, plumbing, landscape, roof, HVAC, etc. By doing this (and knowing the line item costs), you can walk into a home and back out 15 minutes later with a number in your head. (Kitchen $12k, 2 bathrooms $18k, flooring $8k, paint, $12k, etc).

There are NO SHORTCUTS to this process, it takes time and lots of practice. Hooking up with a contractor can also get you some great insight as well.

$300 per SF for basic level finishes, with 2 story, you may be slightly above that. If you have a plan set ready to go, then it would be easier to be more accurate with the numbers. The distance of the ADU to the utility connections and what is in between (hardscape or softscape) will also fluctuate the costs. Reseda is in my wheelhouse, I do most of my building and investments there (and was born in the valley) so I know it well.

 Most do run a credit check but they don't submit the loan on your personal credit report. The only ding on your report is the inquiry (which is a tiny ding).