All Forum Posts by: Douglas Gratz

@Mike Smith I don't disagree with you, but I believe the team I put together will give this a very good chance to succeed. my builder is 16% partner and my other partner is in for 24% and on the board of the bank getting us the construction loan....The builder is very experienced in high-end homes.  We have the lead times on most of the material so that we can order it on time to get it on time...For all the tile and kitchen materials I am working with a company called Porcelonosa, my builder uses them, and they are very good at making sure materials are on time. They say how long it will take and that's how long it takes. I might as well just be the person with the lots, and consider the builder the one doing it all..Would you tell the builder who built over 30 high-end homes, a 15 unit build during covid, that he won't succeed? If you look at it that way, yeah its my first big project, but not his first, so there is a high probability of success

@Andrés Uribe I would be careful building homes in the range below 1 million, those are the people getting hit the worst, they want to move but don't want to give their rates up...They shouldn't mind and have it in their head they can refi down the road, however, people that are not in business or do not invest do not think like that. Also, who knows when they will get lower We are 9% now, it's crazy. I won't lie I am worried, but by the time I am done, all I think is now that it will take longer to sell whereas before I probably could have pre-sold them....My thought behind that is if you are buying a 2 million dollars home then you are most likely either putting down a large downpayment, do not care too much because they know they can refi later, buy cash, and look at it as an investment since there is no more land in the area. When these lots were bought in 1980 for 40k, the house next door (which the lots were part of as their yard) was purchased for under a million and is now worth 4-5 million.  Appreciation in this area is amazing. If I had the capital, I would not be building at all. I would hold the land pay the taxes and use the equity to invest and either sell them 10 years from now for double or eventually build. But I do not have that choice, I have to build

@Bruce Woodruff small claims are maxed out at 12k, but I had so much evidence that I convinced him, if he didn't want to lose 50k, he would pay 6k extra and sign a contract with his car as collateral 

 Well on this particular project, I did with my father ( to bond, we don't have much in common so I thought this would be good) He wanted to choose the contractor and he found a good company. I told him to do research and look up reviews and he looked up reviews for the wrong company. Ultimately my fault as I did not double-check so I take full responsibility, and yes he was cheap and you get what you pay for. The biggest problem was waiting on permits, he used our down payment for another job, overextended himself, so hired cheap labor for my flip to make up for it. Sued and won. Would have gone to large claims, but I would not have gotten a judgment for at least 6-8 months if not more along with higher attorney fees. I could have gotten 30k, instead, I got 18k, which after time and fee is close to what I would end up with if I went large

9/16/22 Update:

Today at 9 AM I met with my partners and lawyer to go over the Amended LLC Operating Agreement in which I am managing partner as I own a majority stake. They were added to my LLC instead of doing a joint venture for two reasons taxes and ease. We signed the Amended Operating Agreement and went over any questions anyone had. One of the partners, my loan officer hooked me up with and is a good friend of the president of First Bank who is giving us the construction loan so that is good in terms of getting the loan and networking (which is most important) I now have a partner with connections that I can use for future deals! I think that has been the best thing about doing this project, the networking, and all the people and banks I have started business relationships with. From Architects, surveyors, lawyers, partners, hard money lenders, and much more. 2nd best thing is the knowledge I have gained. @Steve K. So far so good. It's taking a lot longer to get to the digging stage, but that's because I had to do a lot of maneuvering to get funded along with underwriting taking a lot longer these days. Turns out the Bank will take over the loans on both lots which I had with a hard money lender at 11% and now at 7% without an expiration date. We had it at 6% but since we have not close and rates are above 6%, we believe we will end on 7%, but maybe construction loan rates are different.

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9/16/22 Update:

Today at 9 AM I met with my partners and lawyer to go over the Amended LLC Operating Agreement in which I am managing partner as I own a majority stake. They were added to my LLC instead of doing a joint venture for two reasons taxes and ease. We signed the Amended Operating Agreement and went over any questions anyone had. One of the partners, my loan officer hooked me up with and is a good friend of the president of First Bank who is giving us the construction loan so that is good in terms of getting the loan and networking (which is most important) I now have a partner with connections that I can use for future deals! I think that has been the best thing about doing this project, the networking, and all the people and banks I have started business relationships with. From Architects, surveyors, lawyers, partners, hard money lenders, and much more. 2nd best thing is the knowledge I have gained. @Steve K. So far so good. It's taking a lot longer to get to the digging stage, but that's because I had to do a lot of maneuvering to get funded along with underwriting taking a lot longer these days.  Turns out the Bank will take over the loans on both lots which I had with a hard money lender at 11% and now at 7% without an expiration date. We had it at 6% but since we have not close and rates are above 6%, we believe we will end on 7%, but maybe construction loan rates are different.

@Andrés Uribe Thanks for the siding substitution, I will look into it. As far as the bank I am using First Bank; however, it's hard these days to get construction loans for the non-experienced and experienced. Banks have slowed down on giving them out.

Contractors are the worst! You need to keep an eye on them throughout the day, all day all hours and if you pay cheap you get cheap bad labor. I just did a flip in 2020 and was supposed to be done in 6 months, my contract robbed peter to pay paul, and was end up using bad subs for my job.  Took 1.5 years, luckily I was using cash. I ended up suing him and you should as well. Here in PA small claims is for 12k or less if that's what you want to win, large claims, are for a lot more but also more expensive in lawyer costs, but I would definitely sue. Take pics before you tare it down of everything and before suing show it to the contractor and try to work out a deal. You have to show him he will for sure lose the case.

My contact for the bank is a loan officer who struggled hard to get the loan for me because the first few fell thru after he swore to me we are okay. I had a hard money lender ready to close , canceled this new loan with the new loan officer, and when the loan fell thru he worked his *** off to get it because of what he did.

What are you going to build? Also, the way I structured it with my builder and another partner was to add them to the LLC, my builder is in 16% and the other guy 14%. This way they have to help pay the loan payments on the lot we are not building until the first one is done. Its good to have the builder invested, he will do his best.

@Bruce Woodruffthats the goal, I just cant find anything that will live up to what I want to sell the house for, I have been shopping around for different suppliers who can make the same metal just not name brand....

What might you suggest?

@Mike Smith Yourwelcome everyone , I am doing this journal more so for everyone else to see what I have gone thru to get this done and if I succeed or not. There are many on this site that think I will fail and I really cant wait until the final entry of this journal and show them! (hopefully lol)

It absolutely is harder. It comes down to how well you can make a solid budget, find a good builder (I would not be building this if I had to find the subs, im not ready for that) making sure you account for any problems that might occur and make sure you have extra money if they do and that the numbers work in all the scenarios you can think of....It also comes down to you ability to manage and ability to do things in general which I am confident I have the ability just based off my life experiences when it comes to doing new things . Making sure I've asked all the right questions, read what I need to learn about, etc etc.... 

Who knows, maybe this flippers do have the ability, you wont know unless you try. I wouldn't just do any new construction though , this piece of land, it will be hard to lose money on. or at least lose a significant amount which is why I feel comfortable doing it (along with the team I put together, my builder is now an investor so that makes me more comfortable as well) But you do have to dive in somewhere or how else will people like me get into new construction? 

However I agree, a few fix and flips or bRRRS is to little experience . I have done over 30 flips, most have been full gut jobs with a ton of re-framing, floor additions, basement digging. I think my biggest difficulty will be in doing some value engineering , because the architects chose a really expensive siding. 

As of now, the holiday is holding me up, but hope to break ground by next Friday. It has been really difficult so far and it has not even started. Having to change the schematics a bunch of times and with that changing the subdivision twice to avoid needing variances that would take 6-8 months and cost alot in money lost in interest. Rates going up which made me had to find a new lender . That worked out for the better because instead of hard money for the construction, I got a bank at 6% instead of 11% and 3 points.

I will keep everyone posted!

8/28/2022

Update:

I got the JV agreement from the builders Lawyer. I gave it to my lawyer to look over and hope to have his revisions (since there are always things that should be more in my favor or vice versa depending on who's lawyer draws it up) I hope to have it tomorrow. My lawyer is also adding him to my LLC to keep thing simple. I will let you guys know soon! Keep ya posted