All Forum Posts by: Bill Patterson

I sometimes do it with my regular subs, especially on a project with a lot of variables or "what ifs?". I ask for a "not to exceed" price and use T&M up to that amount. Then it is fixed as a bid. This is fair for all, but no one needs to pay for situations that don't come up! Often, the workers on the job don't know if it is a T&M or a bid job. They just report their time and materials as usual to their company. I do agree...not all workers will work as hard on a T&M, but I'll bet, in general, my subs will! If not, I still have the "not to exceed" price that would have been the bid anyway!
Bill

James,
You have a couple of valid points, but you generalize too much. Some of my best subs are small contractors with their tool belts on. Also, as I said earlier, I charge up front for materials as well as a labor draw in the middle of the job as a means of receivables control. I guess that makes me a "tail lighter", what ever that means!

Also as I said earlier, when an investor or any other client has a track record of prompt payment with me, I use a monthly draw cycle. I pay my subs on time (or early). No one should be asked to work more than 30 days on their own money. Investors need to realize this.

As of right now, I have no receivables over 45 days. This comes from over 30 years as a contractor doing quality work at a fair price. Not the cheapest….not the most expensive. I try to be objective in all of my BP posts, and stay away from generalizations. It mostly keeps me out of trouble.
Bill

Sharad,
I can see a problem with letting your contractor use your account. It would not be just him, but his men that would be signing. This can open up some liability to you if they are doing side jobs with your materials or just getting jobs mixed up.

If you gave me a budget, scope of work and I could not do it all within that budget, I would suggest ways to save $$ and still get the job done. You could make some choices as to what you think would be your best ROI and work to a marketable rehab. Your contractor should be happy to do the same!

Buy the way....I agree with James V., although not many of my BP colleagues do. I do a lot of work T & M, usually with a "not to exceed" price. That is fair to you and the contractor and no one needs to deal with the "what ifs" until one really presents itself.

Bill

Sharad,
As a contractor, I can give some insight from that perspective. I am also an Investor, Realtor and hold a Master Plumber License. I guess you could say I've got a varied perspective!

You say your contractor just finished a rehab at a negotiated price and is starting another. Are you satisfied with his work and the price point? If so, you have the beginning of a possibly good relationship! Contractors have different price points and often are reluctant to give their best price until after they have worked with a repeat customer. Retail (homeowners that remodel once every 5-10 yrs) often require more time (thus cost) than a rehabber that has worked several projects with them. In this case, specs are usually about the same. Each party knows what to expect from the other. The contractor knows that you pay your draws on time and they don't have to file liens to collect! For these reasons, I'd consider working with him. If not, go back to your detailed spec and bid process. Get referrals from other rehabbers. On all contractors, check for current licenses and insurance!

As for the other questions.....I get competitive bids every year or so from all of my subs just to make sure pricing is in line. If they are close and do good work on time, etc. I don't beat them up for a couple of hundred bucks. I let them know about the difference, but tell them that their good work and on time starts & completion are worth it to me. I would expect the same would benefit you with your contractors. Also, pay quickly…cash flow is king!

You can go either way on materials. If a client wants to get his own materials, it is ok with me, but they had better be there when I need them. My contract has an hourly rate for extras, including down time to lack of materials. Things like faucets, ceiling fans, electrical fixtures, etc. would be covered under a warranty from your contractor, but you usually pay a bit more than you would from a "big box" store or on line. The gamble is up to you, but in reality, you are selling the house without a warranty any way, most likely.

If it is a small job, like a deck...I charge for the materials up front, with a rough in draw (about 50% of the balance) and balance sue after final inspection. If it is a whole house rehab and you purchased the big ticket items (cabinets, counter tops, shingles, siding, windows, etc.) I'd be 30% - 40% - 30%. Once we had an established relationship, I could go on Monthly draws based on % of completion.

Bill

Richard! Relax! I know your frustration in convincing Realtors such as Minna that there is really value added when an investor makes an offer, negotiations are started immediately, properties are priced right, an end buyer is located (maybe a couple of them!) and the sale closes, saving the homeowner from foreclosure. When fully disclosed and following all guidelines of the approval letter, it is perfectly legal, ethical and hopefully profitable.

The same holds true when an experienced, competent Realtor lists a short sale. They market, list at the correct price for the market, locate a buyer and negotiate the short sale. I know this because I am a Realtor and have been a Broker for almost 30 years! I don't list the short sales that we work with. We use Realtors with the ability and tools to market the property in the best possible way to get it sold as quickly as possible. It is a lot more than a few pictures and an MLS presence! We choose how to best spend our resources and efforts just as the Realtors that use us, make that same choice.

Putting all Realtors in the same basket is as bad as putting all Investors in the same basket! The good ones are invaluable to the clients and real estate market. The others....well, we have all had to deal with them and try our best to not be associated with them.

Where I get frustrated, is in trying to convince Realtors like Minna that investors can bring value to the transaction and that when the many great Realtors out there that don't want to do more than list, market and sell real estate use us to facilitate a short sale....that's ok! It does not mean that they are not good Realtors or that they are not working in the best interest of their clients. On the contrary, by working with an experience negotiator and investor rather than working in an arena that they are not experts in, they are doing the best for their clients!

I also spend a lot of BP Forum time trying to convince Investors that a good Realtor is worth their weight in gold (or at least $$ profits)!

There is more than one way to "skin a cat" and to close a short sale and avoid a foreclosure! And there is room in the market for the different approaches. There should also be "tolerance" for the way that other's reach the same goal.

Yes, everyone have a great 4TH of July weekend!

Bill

I've been a bit lax in watching BP for a while and missed this one until today. I have had this discussion many times with Realtors. Some get the difference between SS fraud and SS buy & sell done correctly (I hate the word "Flip"). Some Realtors understand, but are hung up on the assumption that only they can work in the seller's interest. I have also had an excellent phone discussion with the Michigan Association Of Realtors Attorney. I was concerned with a podcast of a discussion of the Connecticut case that implied that all short sale flips were illegal. I reviewed our process with him and he agreed that if we received any backlash from Realtors, that he would review our documents and disclosures on a specific file and allow us to clear our process. He said that it appeared that we were doing it correctly! We work with excellent, ethical & successful Realtors all over the country (including in our own back yard where we are Realtors and value our reputations very much). Our Title company recommends our services to Realtors that are not comfortable with the SS process. We also work with Realtors that have completed many short sales, but don't like that side of the process and want to concentrate their efforts in listing, marketing & selling real estate.

Minna, Richard hit on the best reason to work with an ethical, experienced investor. We will make the offer and while the SS is negotiated, we stick with it. It may take a couple of end buyers backing out, but in almost all cases, an end buyer can be found that will close the sale. If there is not enough "spread" for a back to back, we will step out of the way and close the sale directly with the end buyer. We see houses on the MLS noted as potential short sales that are priced well above market. They sit & sit with no offers until the lender finally forecloses. It is much better to take our offer, make price reductions as the negotiations proceed, until the lender agrees on a payoff and a buyer agrees on a sales price. Close the sale and every one wins.

Mike Welch, thanks for the link. The gist of the Connecticut, Natera / McElaney case was that the fraud was in FIRST having a higher offer, then conspiring to submit a lower offer and split the profits. Ron Ballard just had another webinar (an updated version of his other ones on SS Fraud) that goes into detail on this case as well the legality issues. You can find him at CaliforniaShortSaleLawyer.com and get the PDF of his presentation.

There are three things that are argued that I can't ever seem to win on...Religion, Politics & the issue of SS Flips! All I can do is express my views as an Investor and Realtor for the last one and try to be somewhere in the "middle" for the other two!

Bill

There needs to be some element of trust that a listing agent will submit an offer. Think about it....that is how they get paid!

I really don't know why you should not use a state form that Realtors are used to and that has more protection for the Buyer and accountability for the Seller? Using a Buyer's Agent is a no-brainer! Even if you don't trust agents (as it appears), you can guide them as you see fit.
Bill

Michael,
Most valves are made of brass and although there may be a few very, very poorly constructed & cheap plastic valves in the market, I would stay away from them. Also in Michigan and most states that use a variation of the International Residential Code, you must use a scald proof (pressure balanced) tub & shower valve.

I wish I could help you with the "bandits"! They do it here, too. While looking at REO's and vacant short sales, I sometimes look up at the basement ceiling and see a distinct lack of copper!
Bill

Michael,
I have seen these used in a three season room, recreation room, etc, but I would stay clear of using them for a whole house. They do produce carbon monoxide when they burn as well as use oxygen from the house. I would be very surprised if the mechanical inspector or housing inspector would approve that system. I would not take a chance that someone may die as a result of carbon monoxide poisoning.
Bill

If you are talking student rentals, many homeowner's policies will cover a son or daughter's personal property while in school and renting an apartment or dorm. Renter policies are cheap and well worth the cost for the tenant.
Bill