All Forum Posts by: Jim Goebel

@Joe Silva

Aren't there better properties to focus your time on up in Detroit?

Sure there's countless complete remodels to do that'd be 60k+ for the cost, but I bet there's quite a few that only need 30k and would be much better on the rent side, too?

@Robert Gilstrap

I feel like there's got to be a back story here - why did the properties you were managing have a home warranty?  Did you initiate that or did the homeowner you were managing on behalf of?  It just seems a little redundant to have a property management firm also relying on a separate home warranty company.  Ideally a property management company has reached the scale to employ their own network to handle things?

I'm not trying to get personal here Robert just trying to understand why you have such a negative impression of these companies.

The stock market if properly done is a long term play.  There's no guarantee that on a short time horizon the stock market appreciates and when you need the money for your downpayment, you may have less than what you started with.

That said, I did that before I bought my first house.  I had some money invested in a few stocks in 2007-2009 and then took it out to buy my first house.  I think I lost like 25% of what I put in, and ended up taking out 401k money at the time to meet the downpayment.

@Jarryd Dalfino

Hm.  How many of these deals have you done, Jarryd?

From my experience, most contractors if they're looking out for their own skin will inflate construction prices.

Florida's likely to be different but 70-90k is a HUGE budget.  It would have to be a full gut job and entail quite a bit of exterior work to justify that.  Consider getting a different contractor?

The other consideration here I believe is that concessions for folks buying these types of deals are a risk.  When we buy a place with cash that needs a lot of work, part of the 'value proposition' to a seller is that we're investors so it's less likely that we'll want a bunch of concessions.  If something is there that we didn't see, we'll deal with it because we're supposed to be pros at evaluating deals...

I think that can help with the credibility factor when we come in with aggressive offers.

All this said, we had one deal that we backed out of because of some unforeseen regulatory items.  

If you've got language in there to do it and it'd be a big enough hit to you to follow through with the project, sure, do it.

@David Hald

We currently live right up the road close to MLK and Hickman, a little east of Beaverdale.

I've looked at a couple houses off MLK and have passed on 2.  We did bid on one (the southbound, west side of the road) a while back but couldn't come together with the sellers.

Like any major road but especially MLK it will come with certain challenges related to equity/holding value over time.  I'm kind of bullish on the area as you get closer to downtown, and especially a little to the East of MLK as you get closer to downtown.  The conventional wisdom though is that the pocket between University up to Hickman and even up to Euclid/Douglas is that to the EAST of MLK = bad, whereas to the WEST of MLK = good.  I'm always dubious of arbitrary conventional wisdom and I'm not a real estate agent but I do buy the 'spillover' effects and the effects of perception.  Perception changes over time and can change quickly at times-----

The real effects are that there's more wealth / affluence as you get further to the immediate west of this area you're describing, but you transition to more of a working class/working poor (although more diverse) population to the east of MLK.

I think it would be an absolutely great thing for Des Moines to get some investment into that MLK corridor that you're describing.  That said, there's quite a bit of 'getting over the hump' that would be needed though as this area and the immediate to the east area is one of the 4/5 areas around town that I still see a decent amount of interspersed blight.

My view though is that there are some socioeconomic challenges with the area you are describing and its not close enough to downtown (almost, but not quite) to enjoy the upward and frankly much more desirable benefits of proximity from a long term equity perspective.

I think if you do pull up the crime maps you will see some of those challenges.

All this said though the macro picture of Des Moines is very solid, in my view, so if you get something for the right price I'd jump on it.  

Personally I wouldn't mess with renting to Drake students.  I'd get it fixed up nice and go for the good long term tenants.

I think alley access and a garage would be kind of important there in terms of your ability to get really good quality tenants.  With that location you could get them.  There are enough people willing to look past some of the perception problems I listed above....

Let me know if you want some more local perspective/thoughts etc.  PM if desired.

We went ahead and made the plunge. Our whole portfolio is now backed by a combination of HomeServe for the main water and sewer lines, and then American Home Shield at a cost of roughly $60/mo per property total. I will try to do my best to document how this goes for us. This comes out to roughly 4-5% of our gross rents (not including deductible costs) and still allows us to try to maintain the rest of the 15% assumption for CapEx/maintenance/Vacancy that we have allotted as a goal/assumption.

We plan to keep a very, very close eye on this over the next half year and re-evaluate as it is a major cost item.  What we are planning to do is to evaluate American Home Shield's deductible options ($75, $100, $125) on a per property basis.  The lower deductible entails a higher monthly amount and would make sense for a more frequent service call type of house.

The main thinking/reasoning for this choice was that we should be doing things more valuable with our time than handling service calls.  At times, that has definitely seemed to be the case.  We should be in shape middle of 2018 to really scale if we want, taking on multiple new equity properties and some major project(s) simultaneously.  My wife Rachel has been getting more and more involved and capable and although she still works full time, 

Another consideration is that we have been evaluating more turnkey property management type of options that again might provide more flexibility with our time.  We have made the decision that the prospect of a warranty type of solution will save us tons of money compared to turnkey prop management.

We also think our portfolio/product mix/fit may be better offering for these companies than many people's portfolio (better tenant mix, likely to have less frequent calls but more of the major CapEx type of stuff than the 'average' portfolio)

@Robert Gilstrap

Thanks for the perspective.  I'd be curious to hear if this is personal and/or if you have any anecdotal evidence to back this up?  FYI I hadn't read some of the more recent comments on here until after we already made the decision and moved forward.

@Mike McCarthy

I understand what you're saying and agree with the premise but not the conclusion.

I think by your logic - should we not pay for an iPhone because they are a for profit company?  

I'm of the opinion that there's nothing wrong with making money and there's nothing wrong with a company getting profit if they are offering value - and in our case the overriding considerations we have used to justify this decision are that:

1. We should be doing something more valuable with our time than handling service calls (and we have those opportunities in the hopper)
2. We have higher 'costs' (lets call them transactional costs) associated with constantly trying to maintain a network of competent service suppliers.  These costs include: 
   
   1. risks associated with non vetted yahoos coming over and doing work, 
   2. time associated with scrambling to find someone when calling a home warranty company is much easier (heck we can even have our tenants do it), much of this time is often going out and walking the site with people.  This time would no longer be needed given that it would then be the job of the warranty company to take care of the item.

No clue!  Haha - I've never heard of a structural warranty.

I'm an engineer and have done some professional engineering in the structural field.

My work is solid and non-negligent however I don't know what that even means - ie: a structural warranty.

Maybe some more specific questions would help you to feel more comfy about the decision to purchase:

• Soil quality / hardness etc.  Most shifting or settling has more to do with soil than it does with the design.
• Are there plans available and do 'as builts' match plans for the place?

Warranties are only as good as the people that offer them have integrity and competence, and are still in business. Even many in business purposely keep a small amount in an LLC to protect against bigger claims etc. They can just get wiped out and start over. I'd be more interested in finding out the above questions to understand if the builder was competent.

Yeah Josh

Numbers don't lie just like ball doesn't lie (actually it does) in a basketball pickup game.

In a Denver/your market, etc.  Things are much 'tighter' and there's less room for entrants.  The only money to be made in those kinds of markets with higher entry costs are for those that are taking a 300k house and turning it into a 500k house.  Or something to that effect.  When there's a floor to entry, it hurts entrants and the biggest way it does that is to not allow your to enter and get the experience.  

My view is that these numbers force a choice.  Either choose to move to a market that is more conducive to getting into the RE game on your terms, or ... not.  

House hacking and what people refer to as BRRRR are much easier ways to get into the RE game and more in line with what you're describing of your risk/life profile.

You can always move back to a Seattle , Denver, Bay Area, etc later and do it on your terms.  Build that Pacific view house yourself or buy the 1.2m house with cash.  But your first step is the most important, and do it quickly.  

I'd be interested in hearing responses here.

Tracking time can be tricky because regardless of how you accomplish it, the challenge always ends somewhere with trust.

I've used a text message system where people text me when they get in, and when they leave, with very limited success.

I've found that the common psychological profile of someone that's out selling hourly time doing construction is often someone with an ego that doesn't want to be 'handled/managed'.  Of course I'm generalizing but in general, it's true and it becomes a challenge.  For hourly folks from my experience, you've got to be on top of them and keep them accountable, VERY accountable.  Not just with time, either.

Yes,

responses below with some past numbers I've seen and paid for this stuff

Replace drywall -$5500 Post an ad and ask for $/sq ft.  You don't find a lot of them but shoot for closer to .45-.50/sq ft.  Note that this is for drywall square foot, not house square foot.  For that size house I'd want to be closer to $2500 total.

paint (3500sqft) -$2000 - this doesn't sound too far out of line here

Replace 13 windows- $1500 - I think you can find someone that will do this for closer to $50-$75/window.... Note if simple and you can put together a QC checklist, just make sure you find someone that has done your type of install before.

Replace 6 doors - $900 - this was certainly one that seems WAY too high.  I usually like to be at $25-45/door depending on what work needs to be done.  If it's a lot including re hinging and shaving down, that's where you're closer to 50/door.  This seems way high.

Hardwood flooring (800sqft)- $2500 - you'll do better with someone hourly.  It's hard to mess this stuff up.  Flooring a house shouldn't be more than 3-4 days worth of work... So do the math at 12-15 dollars/hour.

Install kitchen cabinet - $700 - this takes all of a half day to do.  Do it yourself or pay someone by the hour and you'll pay max 100 dollars

Replace trim - $800 - I'd shoot for closer to $600, however if they are ripping off existing and replacing, this may be in line.  You can always get cheaper but that doesn't mean someone will complete it and there won't be things they screw up.

In general,

rules of thumb i use to select someone include:

is there real knowledge there that only a select group know about? if so, be prepared to pay more

Some things work a lot better to just pay someone by the hour.  You need to just load them up with work.  Often to get the most value there you have to be at least willing to have materials and tools dropped off for them.  Around here there are countless people that have basic construction knowledge but aren't full contractors, if that makes sense.

Don't be afraid to just bring someone in and get them going and see what they accomplish, you'll do better money wise than the yahoos out there 

What are the risk/ramifications of having someone screw something up?  For the most part above, it's small.  The installing windows has the biggest risk factor that I see.

'you get what you pay for' is a disgrace.  It's so entirely not true that I feel like those that say it should be tarred and feathered.  Most of the people that say it are clueless or have a dog in the fight.