All Forum Posts by: Jeff V.

David,

Intro's on Note Investing

Best Practices on Managing Contractors

Different Phases of a Buy and Hold Strategy such as Growth/Accumulation, Mortgage Pay Down.

CAPEX, there are not enough posts out there on how to effectively manage cash to account for and be prepared for large Capital Expenditures.

Just some topics off the top of my head that I'm interested in.

Michael,

2 CPA's come to mind Amanda Han and Brandon Hall.  Both are here on BP.

Jeff V

Have a chat with @Dmitriy Fomichenko he's offers a free consultation.

Jeff V

Aaron,

Yes you begin with the end in mind.  If you know the market rent will only support 60k while meeting your casflow requirements, then thats the max that you would want to refinance the property for.  This is a major point...  If your purchase + renovations run over this price point then you will be forced to leave some of your capital in the deal.  On the flip side, if purchase + renovations run below then you'll be able to pull some excess cash out of the deal up front and still cashflow...  BONUS.  

These are things that you need to figure out up front before going into the deal.  Is there enough cushion with your purchase price and estimated repairs to allow for unknown issues and still get in under that price point.

I would screen the new tenant to be sure they pass all of your requirements.  Then and only then...  If the new tenant passes all requirements I would refund the previous tenants deposit and take a new deposit from the new tenant. 

As far as the lease goes, I would draw up an addendum to the lease to transfer responsibilities from first tenant to second tenant for the remainder of the lease.  With this option, I wouldn't bother with a turnover cleanup ect...  they are accepting the previous tenants damages ect....  and should be spelled out in the addendum.

A second option is to terminate the first lease and create a new 1 year lease with the new tenant.  Rent could be adjusted to market rent and would treat the cleanup just as any other tenant turnover with move out checklist and move in checklist ect.

I would not penalize the old tenant, due to the circumstances and the fact that they did get you another qualified tenant.  

Just my opinion.  Take it with a grain of salt.

Hope this helps.

Jeff V

I'm curious if someone with experience with dealing with contractors successfully could provide some tips and best practices for dealing with them.

Quotes:  To date we have been getting quotes on labor and timeline for our renovation projects and paying for materials directly.    Is this the best method, or should we be getting fixed/firm quote for Labor, Materials and Timeline?

Materials Procurement and Pickup: My business partner and I work full time so we established a credit account for the contractors to use when picking up materials and we pay that off monthly.  I'm sure this is not the best way being the results I'm seeing is the contractors buying way more materials than are required for the job and buying tools and equipment on the account when not authorized ect...  We end up eating the cost of things like nails, putty, caulk, buckets, paint pans, rollers, putty knives, trowels ect due to waste and the tools ect walking off with the contractors.  We end up returning $1000 - $1500 in excess materials when we do the final cleanup and recoup some costs.  There has to be a better way to do this piece.  What are you guys/gals doing for this section as a best practice?

Payment:  We have been taking the total labor cost from the quote dividing that evenly over the number of weeks required while holding out $1000 for the final punch list payment.  The holding out of $1000 has been a positive change to keep the contractors motivated until the end of the project.  I'm not sure that the weekly payment structure works best due to Chang Orders that pop up and extend timeline and cost more in labor...   Do you have best practices for the Payment portion?  Do you pay weekly or half up front and half on completion?  What way has worked best for you?

Change Orders: We have been getting a quote for labor on change orders and once the original timeline has been passed we total up the change orders and see how far behind schedule we are then start weekly payments based on the new remaining balance...  example 3k in change orders that put us 3 weeks behind would be 1k per week for the next 3 weeks.    I'm sure this can be smoothed out by suspending the original weekly payments until the change order is complete, paying the change order labor and then resuming the original weekly payments.  What are your tips for best practice on handling change order process?

Last thing is Firing Contractors...  The last project we done we had a contractor that started off good with the rough work, but was horrible at the finish work.  He had absolutely no attention to detail.  Virtually everything he touched with regards to finish work, I've had to hire another contractor to come in and fix.  How do you go about firing a contractor and terminating the contract....  How are the final payments handled ect?  What are your best practices on this?

I would welcome any information on these things.  We've managed to do well despite these inefficiencies but I hope to improve these processes going forward.

Thanks for any and all information!

Jeff V

David,

Welcome to the group.  

You are in my neighborhood.  Good Luck on your first deal and feel free to reach out if there is anything that I may be able to help with.

I recommend buying J Scott's book on flipping houses.  It's definitely a must read if that's the niche your going to be in!

Word to the wise...  watch out for the termites in the area!

Cheers,

Jeff V

Eric

Not sure if this will help in your specific scenarion but on our first one we paid cash and started the Renovation then obtained a construction loan that was similar to a line of credit with draws. Once we were finished and the property rented we pulled a final draw to get our most of our seed capital back and the loan turned into a permanent 5/1 ARM amortized for 20 yr.

This is a different flavor of the same strategy and allows one to do a BRRR strategy without having all of the Renovation money.

Jeff V

Current Note Info

PV 31000

Term 216 pmts

I 5%

PMT 217.94 (Calculated using financial calculator)

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Note Investor Info

Figure Offered Rate's Yield

PV 25k

Term 216

I ???

PMT 217.94

I = 7.95 Yield to the Note Investor if purchased for 25k.

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However if you want 10% yield you can solve for what the purchase price would need to be.

PV ???

Term 216

I 10%

PMT 217.94

PV = $21,797.41 is what you would need to purchase the note for if your goal was to obtain 10% yield on your investment.

-----------------------------------------

To do these calculations in a financial calculator you populate the 3 fields that are known and use CPT (Compute) on the field that you want to solve for.

Hopefully this helps with the calculations. I'm not a note expert, just sharing my experience of using a financial calculator to figure the unknown values in this scenario.

Thanks,

Jeff V

James,

I would consider obtaining a HELOC using the equity in those 2 properties.

I currently use the same strategy and combine that with the BRRRR strategy that @Nicole Graves suggested.

I basically Buy, Renovate, Rent, Refinance, Repeat and it works well using the LOC for purchase and Rehab then when you refinance it pays off the LOC freeing up that money again. Essentially makes each deal a no money down deal once you refinance your LOC money back out.

Cheers, Good Luck