All Forum Posts by: Jim Goebel

Jesse;

I've been through this and congrats for being willing to do the hard stuff that not many people do......however I think you're overthinking it.

In going down this road you will not be able to anticipate every challenge.  I'm not proud of it but I've peed in plenty of Gatorade bottles.  Taken quite a few cold showers, etc.

I wouldn't trade it for anything - and have been grateful that the wife at times has been both supportive but willing to make sacrifices of her own.

Regarding dust - depends on your remodel.  Have you selected your house?

The most dirty and frankly UNLIVABLE conditions happen during the following:

1. Demo (especially ripping out lath/plaster or major sections of walls/insulation etc)
2. Major Drywall Finishing Work
3. Painting leaves a lot of fumes
4. If you finish hardwood floors which I recommend although will depend on your local market in terms of preferences, you will have to clear out while the polyurethane dries, etc....

Here's a few suggestions

1. Do NOT buy an air mattress, opt to spend a little more for one of those mattress toppers, the foam type.  They're actually more comfy, and we had 3 air mattresses pop right in a row!  So it's a better investment.
2. Think about phasing the sections of a house that you're doing.  Honestly you will have to do this naturally depending on the scale of your project.
3. Be safe.  Keep the site clean best you can.

I think focusing on volume is OK, but I do believe and have gotten the advice from someone with 150+ doors that looking back, focusing on volume as a goal kind of misses some of the basic considerations...  The most basic is the bottom line.

IE if you can do 3 flips and build value by 1m in a year (ie build your net worth by that amount, vs doing 20 flips and make 20k per flip so 400,000 in the year, what would you prefer?

Is there something you can do to control / give yourself that option?

Just something to mull before you set out to get your question answered.

I'd prefer fewer more profitable, more interesting, and better learning opportunities to more JUST volume, ANY day!!!

Hi Lois;

I feel your pain- I don't have a great answer for you.

You can, I'm not sure how it will go.  May be good to ask for more info on how long it took, etc. Do you have an hourly type of deal worked out with different service providers?

We encounter the same thing on service stuff.  Would be great to have a master 'full cost model' which is something I've talked about but at the end of the day leverage is the ability to replace someone.  That does sound like a heck of a lot for that.  I'd think that's at most a full day worth of work and $50 in parts.

If they had to go back another 2 times to finish mud and paint, etc.  That may be a different story.

Precedent is an important thing so if this is a new company (to you) I'd tell them to account for their time very specifically.  Keep asking follow up questions and ask them how they pay their plumber.  If it's someone on their payroll and they didn't get invoiced, ask about their costs.  If they got invoiced, ask for that invoice.

Sounds pretty brutal.  We deal with this all the time......  I hate getting invoiced on stuff where there's not clear accounting discussed ahead of time.

Jim

@Roger Covin

Roger are you sure a new build (from scratch) will cost you $60k? That's impressive in any market I'd think. You're talking about a new SFH? Wow.

Not sure on how it compares for San Antonio but 8% cash on cash does not get me excited.

@Ashley White

Can you post some pics?

Sounds cool, I like those mixed use buildings.  I'd bet they do pretty well financially.  I think a project like yours might actually be a nice fit/challenge for me to move on to next...   One advantage is that you can often get away with the 'industrial' look for the upstairs apartments where there's exposed ductwork/pipes etc up above the space...  The lack of money that goes into finishing (drywall, etc) can be used elsewhere and honestly... After living in an apartment like that after moving to Des Moines initially -----  I like it better!

Do you live in the same area as the property? That'd be a big deal in terms of ability to manage the work..

I'd reiterate that if you want to move forward on a project as you're describing you'll need a good set of A/E plans and some really solid negotiating skills to actively manage the project.

@Jesse Brons

Yeah those numbers don't just not get me excited but they would scare me.

At some point when using leverage, whatever cash flow you think you're getting - if you're not operating on volume and creating some way to cut costs for materials.... Or SOMETHING - I don't think it's a valid assumption that there's even cash flow.

We assume %15 of rent (kind of arbitrary) for maintenance / vacancy allowance but I think we should adjust that upwards and ground that in actual data now that we've been at it for long enough to attempt to do so.

185k is a lot for a property.  If it's aged then you're going to have maintenance items.

I don't know what the answer is.

Do you have any construction experience?

Look for something closer to 100k that generates that same rent amount, at the very least.

Look for something that you can improve and increase rents by $300-500/mo in the 70-110k range based on where its at.  

Does that exist in your market?

@Ashley White

One more thought just came up too

Masonry is not a trade where there are tons of qualified people running around.  For a turnkey kind of solution it can be very very costly.

We have recently been going through the most aggressive rehab project to date (residential rehab) and I've had to learn about masonry a lot more.  We had one guy come in before we started and tell me he would guess it was going to cost $60,000 for the masonry.  (Yeah right)

Anyways.....  Youtube is brilliant but there are cavity brick walls which is how stuff started being built after say, 1910 or so - that's not a hard and fast - but before that, true masonry walls were common.  Cavity walls are tied to the STRUCTURE using what are called wall ties, and they have very limited structural properties.  IE the brick does not support any load.

Before cavity walls, the walls (structure) was literally made of bricks.  There would be two rows deep and every few courses up, they would run a brick course that overlaps the outer and inner courses.  You can tell those walls by looking easily mostly by if the walls have bricks that run length wise the whole way up (cavity wall) or if every so many rows, there looks to be a row that is made up of 'half bricks' ie the end of a brick. 

I'm not even sure if you're dealing with a brick wall, anyways....

If you own a structure that is the latter (before 1910 and true masonry load bearing brick wall) and you've got severe masonry issues then you may be in a situation where you essentially need to rebuild the load bearing parts of the structure.....  Which would, kind of suck and be costly.

From what you described you will have SOME structural repair for sure. 

On our recent project I found it to be much more cost effective and I had more control over the end result to essentially insert a structural steel post/beam type of solution to take the load from the existing masonry wall that was really struggling, in one case (that was where the garage masonry wall was carrying load).  We will keep that wall and live with how it looks aesthetically.  On another portion of the house, the brick cavity wall was bowing out and had pulled off the structure.  In that case the structure (wood built) was fine, but the bricks needed to go.  We just removed the brick cavity wall and then we will re-side.  

So anyways, what are you dealing with there with regards to your masonry?  Does it look decent but has some cracks throughout?  The prospect of re doing all brickwork on a structure you are describing sounds incredibly costly if it's a cavity wall, and frankly not even feasibly at all if it is a true masonry (structural) wall.  

Best path there will depend on what you have present.

The regulatory body let me do the structural engineering on the house I'm referencing, by the way.  Wife family and I plan to move in in Feb.

Hi Ashley;

Sounds like possibly a fun project!  

Maybe financially rewarding...  However from what you're describing it also sounds like a potential 'high risk' and needs to be VERY thoughtfully managed.  If it's just sitting there and has been for awhile - on one hand, I suppose some more time is not going to kill it.  ON THE OTHER HAND, (and that's an important hand!) you have presumably some holding costs, opportunity costs associated with whatever else you could/would do with funds if you were to 'cash out' even in its current state, and of course, a vacant and decrepit structure gets worse and worse over time, and can sometimes accelerate in its decline as more time goes on...

So here's a few thoughts and questions that may help inform early decision making:

1. What's the macro story/trajectory of this 'small town'. My big picture view is that metros reach a 'critical mass' point where they can attract the 'right' kind of intellectual capital and human resources (workers etc) that build the base of a solid regional economy.  Not all or even a majority of what we'd consider small (<50,000 people) towns enjoy the right mix here that'd make ME comfortable.  But the drivers here are important to look at on a case by case - also, thinking about this and its importance depends on your vision for the property.  If you are buying and holding, the long term value of the property becomes far more important - although some places if they produce cash flow can be fine not being a 'high value/equity' type of thing, if your time horizon is long enough...
2. What's it zoned? Do you have a vision for what you think it would be in its 'best' (financial) use?  Do these currently align?
3. What background in engineering/construction/project management do you have?  What interest level do you have there?  Just want to make sure you are being realistic about your abilities.
4. Per #3, what type of network/mentor-ship do you have above?  If actively managing a project like this it will be crucial to have people you can trust.
5. Financing and time allotment: I see these as being related - if you are working full time then you will not be able to be super active in terms of managing things unless two things are true - A: you are a beast and have the requisite background to handle it, which I doubt based on what I'm reading, what I guess to be your age, and perhaps an assumption of your background.  And B: The time and flexibility with your work. ----  The reality is to really get an AGGRESSIVE (high risk/reward) project through the process, there will be times during the project where something just cannot wait and you have to pick your priorities.  Now, if A and B do not both 'check out' (my guess is that they won't) you may be stuck exploring a more traditional financing and find an outside resource to manage type of route.  On that subject.......  Here are my thoughts and things to consider below........

First, consider getting some plans drafted up.  You can perhaps hire out a CAD tech.  If you know CAD or can teach yourself CAD, do it yourself.  These need to be of a reasonable Arch/Engineering Quality.

I suspect that you multiple options for 'outs' with a project like this.  Here they are:

1. sell in its current shape (probably expect to do same, worse, or a little better than you paid)
2. sell in its current shape with CAD plans and a vision for what the place will be, with some thought on the development side (probably some volatility here but the idea would you'd position yourself to do much better than #1)
3. Do the development to get the 'shell' solid, water tight, and leave the systems/final build-out to a developer that has more experience/time/capital to execute down the stretch with the rest of the Engineering, tenant readiness, or whatever (higher risk that 1 and 2, with most of that risk being from what you've described on the structural side of things) - There'd be some real money here, to get here and I wouldn't be 100% confident you'd get your money back.  From my experience, the developer/owner that gets to the FINISH line is the one that gets to really reap the rewards.
4. Do the development all the way through.  This may break down into the following BIG PICTURE steps:
   1. Do the front end loading, CAD plans, get secure financing lined up (if you can)
   2. Tackle the higher risk construction parts FIRST including from what you've described, the roof repair, the joists and other structural stuff.  If that gets off track or you need to punt the project, you want to know that BEFORE sinking in a lot more money
   3. Perhaps think about phasing some build-out to live in a portion of the structure if you are in the area/have the interest, also depending on your money/financing picture
   4. Kick butt on the rest of the renovations

Sounds like a fun challenge but you also want to be aware of your limitations.

Jim

@Nabeel Syed

I grew up in Indy.  From 4th grade through high school - then went to college in a small engineering school in the west part of the state.  I knew very little about real estate at the time, other than having an occasional comment from an uncle or aunt mentioning that some of the land that used to be farm land was now being built out as I grew up.  Indy has achieved a somewhat diversified, deep economy and is a major metro.  There sometimes feels like the cultural dynamism is lacking but I would have the hunch it'd be a solid bet on its long term outlook.  I can't really speak to the fundamentals of the city and it's growth trajectory.  I visit sometimes as I have family there (dad still lives there).

About a year ago I was in town with my wife over the Christmas holiday for a bit and decided to get out and investigate the same (out of state investing).  I hadn't really 'heard' of the turnkey value proposition at the time so was investigating through a real estate agent that oddly enough had gone to the same high school I did.  I had a target property I was prepared to move on for the right price - although that wasn't a 'bet the farm' on Indy, more just an opportunity tied to that one property.  In Des Moines where I currently am - we typically have had to see between 6-12 properties to find the 'one' that may be a fit.  Indy seemed like the same ratio but the comps analysis becomes much more important given the volatility in pricing and value of certain places.  I can't speak to the rent volatility from that same angle.

Here are some of the takeaways from my recollection and what I learned:

1. Indy has some wide, wide, disparity between properties and pockets that do great, but some pockets that just do absolutely terrible (I'm speaking mostly from an equity / value perspective now) - that's just mainly a 'be careful' testament.  We don't see that over here in Des Moines.  While there are perceived 'worse' areas of town here in Des Moines, Indy tends to have swaths of properties that are and never will be anything but $30-50k houses, even in decent shape.  I would speculate that Seattle doesn't have that same landscape either with there being a high 'floor' present in the metro area.  Even a dynamic deep economy like Indy has pockets that feel like they've just been 'left behind.'
2. I have little real experience with the real world of regulatory items and navigating getting work done, but one thing that did strike me as very peculiar was what appeared to be the lack of consistency in how public records (for instance sale data) was provided.  I view that as a red flag personally but not entirely a deal breaker.  Tells me that perhaps there are some pockets of fiefdoms and informational asymmetry that frankly should not exist.  Perhaps turf guarding with the local real estate lobby, I don't really know what's causing that but it's concerning to me.

Anyways, I will stop there as you asked a pretty specific question on turnkey providers and here I am meandering on with possibly unrelated other items.  Anyways, reach out if you have more questions, I guess.  I'd be curious how you do with this -----

I'm also curious how you came across Indianapolis as a possible investment area?

Maybe you can turn them and set expectations going in - are any of the projects/work conducive to managing while you you have a tenant present?  That kind of management is what separates the men (and women) from the boys (and girls) in my opinion.  If you can manage tenant expectations and those projects cost effectively in that situation, then you deserve to collect the rent while doing the work!!!!

No idea what you have there but we've done that on a few projects and although challenging it is to be commended and is rewarding financially if you can pull it off.