All Forum Posts by: John Blackman

Great balls of fire!  Congrats, that's a very proud moment.  Thanks for sharing.

When you have no cash, but a lot of time you simply have to use investor money.  If you can identify long term rentals that meet certain investment objectives that you think you can sell to an investor for a cut, then that is certainly one path.

Our company does this all the time by finding the deals, locking them up, and pairing our equity with investor equity and or debt to accomplish the deal.  We come up with a split that is attractive enough to our investors so they are willing to purchase part of the equity in our deals.

This is a very simple answer, as structuring that incoming money is very important and involves a lot of legal preparation, which is too large of a topic to go into a single post.  There are many threads on that topic throughout BP.

I've heard from some marketing types that 10am EST on work days as that is about the time people getting to the office have finished checking their email and start their first 'goof-off' cycle before getting some more work done then going to lunch.

This is entirely anecdotal.  I am not a marketing expert.  Would be curious to hear other answers too though.

Hi Paula,

There are a few I would ask.  First off I would look for track record.  Do they have a history of previous successes in the market they are planning to build in?  Have them give you a tour of their completed and in progress projects.

1 - Look at the books.  Do they have a detailed accounting of their budget?  Are there receipts for everything?  Do they have a separate QB file or equivalent for each project?  Will they show you these books without hesitation? 

2 - Transparency.  What are their reporting practices?  Do they sent out status reports?  Do you have access to all of their documentation?  Ask if you can see a file from their previous project.  The truth is in the accounting.

3 - Process.  How do they run their business?  Do they have well defined processes and schedules?  Do they keep a schedule for each project?  How has their past performance matched up to their target schedule?  A good developer will have these well defined so all they have to do is just follow the checklist.  It's even better if they have a sign-off process for each item in the checklist so there is some accountability for each step.

4 - Fees. Is the developer taking a management fee or are they paid based on performance?  I don't like cost plus structures because the GC gets paid more if you use gold paint which doesn't take any extra management.  Fees should be based on real management overhead.  The best kind of fees are none at all, so you are both on the same side of the table and you both get paid based on how much money the project makes.

5- Title.  Be on it if you can.  Some developers may not want you on title, but if you are then you have to sign when you sell the property.  This allows you to have some say in the price.  When selling a spec home though, I suggest speed of sale over maximizing your profit.  A sitting house is loosing money not only in interest but opportunity cost.  I like to be the cheapest new house in the zip code if I can still hit my margin target.

6 - Skin in the game.  How much of the developer's cash is going into the project?  Who is signing for the loan, assuming it is a recourse loan.

7 - Overruns.  When you have them, who is going to pay for them and in what ratio?  To keep these as bay I would pad your budget with plenty of contingency.  However, even the best laid plans don't work out, so prepare for what to do when you need more money and who is going to put it up.  Do not go back to the bank to increase the loan.  This will just end in despair, madness, and agony.

If you explore all of the above topics with your developer, it should produce plenty of very constructive conversations that should give you a good idea of whether or not to move forward.

I've heard you can hit that number or even higher with trailer parks.  But then you have to manage trailer parks.

We purchase wholesale deals frequently, but we are also a cash buyer which eliminates the lender issue.  So if you find a investor buyer with cash a property that meets their flip or investment criteria, then said buyer should be ok with your wholesale fee.  That being said, cash investors are harder to find. 

Suzanne,

Welcome to BP.  There are so many options in front of you.  Have fun exploring all the different strategies and try to identify what strengths you have and how they apply to those strategies.  Typically you have some but not all of the following assets:

1 - Time

2 - Money

3 - Expertise

BP will help you with #3 for sure.  Different strategies require one or two of the three assets above but rarely all of them.

Wholesaling - Need time and expertise

Buy and Hold - Needs Money but not as much time

Fix and Flip - Needs Time and Money, but has great short term returns

All strategies will need a certain amount of expertise which you can get here.  Find a strategy that fits your assets.  Start with this and enjoy.

http://www.biggerpockets.com/starthere

@Bruce Y.

That is a very prudent plan for a subdivision because you can control the lot size and create a reusable design for a standardized lot.  However, when doing infill construction with unique lot sizes and constraints on each lot, this is hard to achieve.  The following variables generally dictate that we create a unique design per infill project.

1 - Inconsistent lot size

2 - Trees push around the borders

3 - Setback rules

4 - Lot slope

5 - Market for single family vs duplex - the same size building doesn't work in every market

There is also one large benefit from doing unique designs which is just that.  Every house we build is different from the last, so it is unique.  This has a huge attraction to buyers since they know theirs is the only one like it.

It does cost us more to design each house, but because we are not doing subdivisions it's worth it.  That being said, one of our projects is a small subdivide that uses one duplex design twice, so we did save some money there where it worked.

If we get lucky we may be able to use the basis of a previous design on a lot if the dimensions and market are the same, but in general we use a new design every time.

FEASIBILITY

So we've gone through our checklist.

1 - Flood - yes, 100 year

2 - Trees - yes, engage the City of Austin arborist to determine setback requirements

3 - FAR - yes, plenty of room on paper, but the long 25' setback is going to squeeze us

4 - Survey - the key element in this case is getting the 100 year flood plain line and elevation certificate.  The FFE will need to be 1 foot above this certified elevation.

5 - Plat/CC&Rs - you always want to read these for any gotchas.  They are less likely to be an issue if you are building something that the neighborhood is already full of, like a small single family house in this case.  So here the risk is low.  We verified there were no restrictions.

6 - Design - Since we're building way under the 40% max FAR this is less of an issue, but we have our architect plan a design rough to make sure we can fit within the setbacks and stay away from the tree.

CONTRACT

You need to do all of the above before you sign a contract to purchase the land.  Once you have and you are confident in the project, lock it up with 60 days to close.  You will need that time to complete the detailed work above, raise your capital, and spin up a bank loan if you are using one.  You can do it in less, but try to get some extra time if you can.  Surveyors don't show up on time.  People are out sick.  Holidays close the banks and the city.  There are dozens of little delays that can keep you from getting your diligence done.

DESIGN

After all of the above are done and you're under contract, get a design rough from your architect.  This is a simple 2D drawing produced by the architect which has dimensions and a rough layout without much detail.  The purpose of the design rough it to make sure your design is appropriate for the market and that you can make changes before the architect has spent a lot of time (and your money) implementing something you don't like.  This is where you want to have your sales agent review the rough design to make sure it has what the market wants.  Other things to consider at this stage.

1. Is there enough room for the HVAC equipment?  Can it be accessed?

2. Where is the water heater going to go?

3. Do you meet all access, entry, and egress requirements?

4. Do the bathrooms all make sense?  Do all of the doors open the right way so there are no doors  blocking sinks or other key features.

5. Is there enough room for the refrigerator?

6. Add up your cabinet volume.  Is it sufficient for the house size you're designing?  A small kitchen will not sell well.

7. Do the grocery experiment.  You just got home with a load of groceries.  How do you get them out of your car and into your kitchen?  Does anything stand out or impede this task?  Thought experiments about your most common activities at home are great for flushing out the details.  A good architect will know these and create a great rough from the start.

Once you've come up with a good rough and sign-off on it, let the architect go do their work.  I think it is very important to have the project manager get this sign-off with a letter or stamp.  This makes sure you don't end up re-designing later after the architect has spent a lot of time on it.

For 1106 Berger, you can see the building fits snugly on the lot right up against the tree's critical root zone, and we used pier and beam so that we could build closer to the tree.  A slab wouldn't allow us to fit much here.  This is also not the rough, it is the plot.

While the architect is working on the rough, order your soil analysis and have your GC start getting bids for what it will take to grade the lot, remove any previous structures, foundations, removable trees and driveways.  In general you want to be preparing to start the foundation.

You can't start with a lender until you have the near final plans and a budget.  We'll save that for the next post.

@DL Martin 

Soils in east Austin tend to be a mix of clay and regular soils.  We design out this risk by having a soil analysis completed for every project, so we know the soil composition and water content 15 feet down.  Our engineering firm designs the foundation to suit the soils.  In many cases we use pier and beam which is adjustable as it ages and can deal with a slowly shifting soil.  If the conditions are appropriate, we pour a slab.  In either case, the engineering firm takes the liability for the foundation.  We get pre-pour inspection letters to ensure that we build what the engineers designed.  As such we often have very deep and wide piers to manage the soils.  At the end of the day, it's an engineering problem.