All Forum Posts by: J Scott

If you're buying REOs there are going to be VERY SPECIFIC contracts and addendums you need to sign, and with each bank/agent those contracts and addendums will be different. Instead of using your own contracts, either get the necessary contracts from the Listing Agent, or better yet, get your own agent to submit the offers.

Keep in mind that you won't be allowed to assign an REO contract. Banks strictly prohibit this. If you want to wholesale an REO, there are ways, but it's more difficult than most types of wholesaling.

Here's a good article to get you started:

http://www.premierrealestateinvesting.com/how-to-wholesale-bank-owned-reo-foreclosure-properties/

I certainly do all my bookkeeping electronically, but I also have a specific system for keeping track of paperwork.

I mainly do flips, and for each property, I keep 5 color-coordinated file folders (all yellow for one property, all green for another, etc):

1) Purchase: This holds all my purchase information, such as Purchase and Sale Agreement, Addendums, HUD-1, CMAs, etc.

2) Holding: This holds all my paperwork related to holding costs. This includes insurance, utility bills, mortgage statements, property tax info, etc.

3) Rehab: This holds all my rehab paperwork, including contracts, bids, estimates, scope of work docs, material lists, etc.

4) Selling: This holds all my selling info. My listing agreement, my marketing materials, offers, etc.

5) Financials: This holds all my receipts -- everything from the earnest money receipt to all my materials purchases.

I also use those first four categories (Purchase, Holding, Rehab, and Selling) as my major categories for tracking all financials. Every cost on a project gets allocated to one of those areas, and in the end, the sum of them all indicates my overall profit or loss.

For example, here's an example of the final financials for one of my flips:

http://www.reistartup.com/wp-content/uploads/example_financials.jpg

(that 5th category -- Commission Costs -- is specific to the fact that my wife own a real estate agency, and so some of our commissions flow back to us)

Hope that helps...

Diane,

Wow, I'm not quite sure where that last post came from?

First, when I was talking about some contracting companies looking for huge margins, I wasn't talking about your company. I don't know you, and I don't know your company. I'm not sure why you got so defensive about that comment, but the truth is, there are many contracting companies (not so much anymore) that work on big margins and lower volume.

Next, you seem to be implying that the "business" you're operating is somehow different than the "business" others who have posted here are operating. Again, I can't speak for the others, but I like to think I'm operating a real business (I've held senior management positions at a couple of the largest companies in the world, so I certainly know what it means to run a business). Like you (and others here), all of my employees have insurance, as does the company as a whole. We all make very good money, live in very nice homes, keep a lawyer on retainer, etc. I know how to track and manage multiple income streams, expenses, my ROI, and my cash flow...it's almost as if I have a "real" business.

As for your comment about confusing "cost" and "price," because I don't have contractors as employees, my price IS my cost. I don't care how much the contractor is paying for insurance, vehicles, wages, etc...all I care about is how much he is charging me to complete a task. That price is my cost. No more, no less.

The fact that I require my contractors to carry workman's comp and general liability affects THEIR costs, but not mine. You employ contractors through your company, so you need to differentiate price from cost...most of us have the luxury of not having to do that. Certainly I have business costs over and above my contractor costs, but again, I know how to run a business (and even wasted a bunch of money on an MBA to make sure of it :).

It very much sounds like you want to bash the rest of us because we are seeing rehab costs much lower than you are, and you assume that it MUST be because we don't operate our businesses correctly.

Instead of assuming that the issue is with how we run our businesses or treat our employees, perhaps you should take a more introspective view of your own company and costs structures.

Sorry if that was a little harsh, but I felt your post was a bit too preachy and "holier-than-thou" in attitude...if I misunderstood your intent, I apologize...

Whether you go it alone from the outset or decide to work for someone else first is all a matter of preference. Personally, I was concerned that there are plenty more unsuccessful investors out there than successful investors, so learning from a "random" investor was more likely to teach me bad habits than good ones.

Can it be done? Certainly...and I like to think I'm proof. When I started doing this 6 months ago (actually spent about a year reading and studying before that), I had absolutely no experience in construction or real estate. I had just purchased my own first home and barely knew how to change a lightbulb.

Here we are 6 months later (almost to the day), and I've purchased 5 properties (with two more closing this week), rehabbed and put back on the market four of them, and sold all four of those, with an average profit of about $20K.

Was it easy? Nope. Were there times where I was wondering what I was doing? Certainly. Was it an amazing learning experience? No doubt.

While I could have learned just as much working for someone else, it would have taken a lot more time. So, going it solo was the preferred route for me.

It may not be the preferred route for you, but it's certainly possible if you have the motivation and persistence.

Almost all REOs are listed on the MLS. So, if you can get access to the MLS, that's your best bet. If not, find a realtor and ask them to send you the REOs that fit your criteria. Alternatively, you can use any of the vast number of Internet sites that provide access to most MLS data.

Keep in mind that there are different "levels" of contractors...not necessarily better or worse, but focused on different markets.

Certainly, I can find a GC who will remodel a kitchen for me for $30K (or even $60K).

At the same time, I can get custom cherry/oak cabinets for $3K, WilsonArt countertops for $1K, new ceramic tile flooring for $800, a travertine backsplash for $200 and all new stainless (the fake stuff) appliances for $1400.

So, basically the same job for under $6500. That includes permits (where necessary), and I would never use any contractors who didn't have workman's comp and general liability insurance.

What's the difference between the $6500 contractors and the $30K contractors? The clientele that they serve.

The $30K contractors are getting about 10% of the jobs they bid, but are getting huge profit margins on their work. The $6500 contractors are doing seeing much smaller profit margins, but between me and a couple other investors, they're staying busy all year round.

To Tom's point, if I were to replace a roof today, I'd pay about $70/square in materials and $42/square in labor (plus $310 for the dumpster). This EXACT SAME roofing company (they're a reasonably big company here in Atlanta) would charge a typical homeowner about $170/square. What's the difference? The relationship we have and the fact that we can provide some volume (they've gotten three roofs out of me in the past two months).

I can't speak for others (though I suspect that the previous posters are the same), but all my jobs gets the required permits (and in Atlanta now that often requires a GC), all my contractors and their subs have insurance, and they all sign W-9s (tax reporting form) and Independent Contractor agreements before the work begins.

Btw, here is an interior gut rehab (half the house to the studs, the other half to bare drywall, all new mechanicals, fixtures, etc) that we just finished...final cost was just under $36K for the 4/2 1400 sq ft house:

http://www.reistartup.com/house-pics/the-second-chance-house-staging-pics

Here are the demo pictures to give an idea of the work that was done:

http://www.reistartup.com/house-pics/the-second-chance-house-demo-day-1

This didn't include new plumbing or a new furnace, but that would have added $3500 and $1500, respectively. The price did include a new back deck ($2000) and a LOT of landscaping ($2500).

Overall, it came out to $35 per sq ft for this job...and you can see the results for yourself...

Are you sure? I've done several deals with Wells Fargo, and have never seen a contract that allows assignment. In fact, I don't think I've ever seen *any* REO contract that allows assignment.

Did you offer actually say, "...or assigns"? Or did you somehow not let the bank know you were doing an assignment?

Depends on the area, but where I am (Atlanta metro), $50K would get you a full rehab (interior/exterior) on a typical 1400-1600 sq ft home.

I use $35 sq ft for complete rehab, basic finishings...

You can state this all you want in as many contracts as you want, but the fact of the matter is, if your contractors don't have workman's comp insurance, YOU will risk having to pay.

Don't just state in the contract that you aren't responsible or that your contractors need insurance -- actually require your contractors to provide you with a copy of their workman's comp and general liability insurance. Better yet, have them have their insurance company fax it to you.

PM me and I'll send you a copy of mine (or it's on my blog)...