All Forum Posts by: Glenn Espinosa

Rich Weese Oh, no, I agree that you have been very open with your spec building and that you've answered a lot of my questions.

I will be approaching builders in my area and simply wanted to know what I could offer them in order for them to take me under their wing and teach me the finer intricacies of spec building. Generally, I already know the answer to my question but was wondering your viewpoint regarding mentees, apprentices, interns in your company.

My reasoning is this and it may be flawed but take it for whats its worth.

If I were to buy a personal residence right now it would be a distressed property with room for value adding - it's just the investor in me. I cringe when I see young couples buy huge retail homes that they don't need and get stuck with zero equity and not to mention wiped out savings due to down payments. Although, with the rates being where they are right now, you can make a great argument towards going ahead and buying a nice home...

For example, I know a young couple in their mid 20's who have great incomes and no children. They went out and bought a 3,400 sq ft McMansion for 500k+ and are now stuck paying that huge mortgage every month, have probably wiped out their savings, and have lost all liquidity in terms of making investments. Talk about jumping a few spots in the rat race but guess what... you're still in the rat race.

As for me, I'd rather invest first and then buy the home I really want later - or rather, buy a distressed home that I can turn into my dream home, then sell... for profit.

I used to live in one of my multifamily rentals before I got tired of being too close to my tenants (too much access, always asking me to do unnecessary stuff).

Other than that the living arrangement was good as I was practically living for free, having others pay my mortgage, as well as putting a few hundred bucks in my pocket every month. Did I mention the tax benefits?

Anyway, I now rent an apartment in a better part of town and do not plan on buying a personal home anytime soon. It's a lifestyle choice - I don't want to live in a SFH right now and the downtown city apts that I like are too expensive.

If I were to buy a SFH right now I would treat it like a live in flip, hold it for two years, sell, then use the proceeds to do it all over again.

Have you tried laying out the numbers on buying a duplex and living in one of the units to your wife? Maybe the financial benefits laid out a certain way could sway her?

Best of luck,

Glenn

Rich Weese - Thanks for the reply. I'm investing in the Hampton Roads area of Virginia, specifically in the city of Norfolk and Virginia Beach.

After researching spec building in my area for a few months now, I've convinced myself that there has to be something I don't know in order for these builders in my area to continue building the homes that they are.

Military is big in my area and with these new construction homes going at 220-230k, young military families are just eating them up with their VA loans and zero money down.

Ultimately, I think the builders in my area are simply building homes for less than the $85/sq ft that I've been quoted, are using cheaper financing, and are finding and developing lots for less.

My next step is to jumpstart my networking efforts with local builders - I need to find out how they're doing it and where the cost savings are coming from. I have a few builders in mind and I have a few value propositions I think I can offer these big guys. Rich - what would a young upstart need to bring to your table in order for you to open up you spec building operations to them?

Will Barnard - Thanks for the input, Will. Generally, I agree with you and as I do more research in my area I keep finding that the numbers are simply not working. Not giving up yet, though. Some guys are doing it successfully and I wanna know how.

Chris,

Great plan and listen to what Ned said above. Persistence is key. Right now you're in a real estate high and you feel like you can accomplish anything-motivation is through the roof. What separates the successful guys from everyone else is their ability to persist during the demotivated periods (believe me they will come) and to refocus their efforts. Somedays you wake up and you are passionate - take full advantage of those days. Somedays you wake up and you don't even want to say the word real estate - persist and get things done anyway.

My suggestion for the next year: throw in one big goal that is borderline unattainable. Use the sense of accomplishment you get from completing smaller goals and use that to motivate yourself towards the big goal. Do not be afraid to dream BIG.

Keep us updated on your progress.

Glenn

Karen, this is awesome news and I am truly going to enjoy reading about your progress!

Great thread guys!

As someone who is focusing on rehabs but would like to break into new construction my question focuses on the barriers of entry into new construction.

I've talked to a lot of GC's in my area and even the ones who are building for the big guys (new construction is the way to go in my area as of late). and the going price from what I can tell is $85-$95/sq ft.

When I do the math, things just aren't adding up. A 2,200 sq ft new construction house sells in my area for 225k. Here's my on a napkin rough breakdown:

ARV: 225k
- Quiet costs: 27k (12%, Im guessing here. I average 15% for my flips and I imagine bigger guys can bring costs down, hence the 12%)
- Minimum Profit: 22.5k (10%, again I'm guessing here but I imagine these big guys would not build a house for less than 10% of the final exit price. My guess is that this is a VERY low number)
- Land cost: 30k (I've been checking the prices on lots lately and in desirable areas a steal would be 40-50k. I'm using 30k in an attempt to make numbers work...)
= $145.5k left for construction or on a 2,200 sq ft home $66/sq ft!

Now, unless someone knows something I don't know, I just don't see how you can build a home for $85/sq ft and make a profit. If you look at my numbers, you can tell that I've played with them in favor for the builder yet I still can't come up with numbers anywhere close to making a decent profit..

Any idea on what I'm missing here. The only possible solutions that I've come up with is to:
#1 Buy a house with an oversized lot, flip the house and subdivide the lot in hopes of bringing your land costs to zero
#2 Buy a small subdivision and divide in an effort to further reduce land costs
#3 Reduce minimum profit even lower (unacceptable)
#4 Buy materials in extreme bulk to receive deep discounts. Possibly lose any discount gained with storage fees
#5 Just continue looking for a better land deal, maybe I'm not looking hard enough

Thoughts? Thanks in advance.

Glenn

Sam Craven Thanks for the insight. I didn't mean to form a blanket statement with my last post.

I'm sure there are very well established franchises that are operating profitably while helping out everyone they do business with whether they are sellers, buyers, investors, etc.

But, like you said, with any franchise the success depends on who is operating it.

Why? Just use the fees and marketing expenses to market your own business.

There's only one HomeVestors franchise in my area and the deals that they pump out are not real deals. I imagine this is the case because they'd rather get a house under contract and sit on it than really work with sellers.

One seller I was working with ended up signing a contract with Home Vestors for 22k more than my offer. Needless to say, no one bought the property and the home owner ended up losing it all instead. Had they gone with my offer (and the offers of a few other flippers I would imagine) they would have put some cash in their pocket and walked away headache free a few months earlier.

I guess my gripe is that they don't really focus on helping the seller and if they do happen to sell a house then end buyer is usually over paying.

My 2 cents formed from a very distant view into their business practices. Take it for what it's worth... Anyway, check out this past thread on the topic:

http://www.biggerpockets.com/forums/79/topics/45420-homevestors-associate-franchise

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