All Forum Posts by: Keith Linne

@Brandon Mitchell I work full-time as a GC in the Twin Cities and Minneapolis has a solid information database for properties within their official city limits. Here is the website:

http://www.ci.minneapolis.mn.us/propertyinfo/index.htm

Input the address you're curious about, click the address when it populates in the search results, and there will be a list of options along the lefthand side. Business licenses, permit history, truth in sale of housing (TISH) reports, etc can all be found here. TISH is what you'd be looking for to assess code violations, etc; however, these reports are typically only completed immediately prior to selling the property (must have a TISH report to list).

I'm sure a few other municipalities throughout the Twin Cities offer this online; however, Minneapolis has the best database I'm aware of. If you aren't able to find things online, you could certainly contact the specific building/inspections departments of the cities in which you're buying, and they can likely share pertinent information.

Keep in mind, some cities don't even require TISH inspecitons at the time of sale, and most properties will have plenty of minor code violations regardless (I've seen numerous TISH reports miss things as easy as smoke detector requirements).

I don't have any good ideas on the high-equity absentee owner lists - someone working full-time on the buying side would be better suited for that question.

Good luck!

@Leigh Harris

Glad to hear you're getting into investing! I would not put marketing efforts on hold, as deals will continue to flow (and may actually improve in light of current circumstances). If you have a good deal come your way but are hesitant to pull the trigger, referring that lead to someone in your network/marketplace will go a long way in building your reputation in the marketplace.

Be sure you have solid reserves for the unknown. Cash will be necessary whether it's to float a long term rental experiencing abnormal vacancy, or to provide a contingency fund to cover cost overruns on a remodeling project.

It takes time, but knowing rehab costs is essential if value-add is your goal niche. I rehabbed houses full-time in the Minneapolis, Minnesota market (and surrounding suburbs) from 2011 until 2014, and now work full-time as a general contractor on (mainly) larger scale remodels. Although it's a great idea to get a few GCs out to verify costs, you also need to be wary of the type of contractor willing to schedule an appointment/provide a bid on a property that is not under contract. These are often contractors looking for work out of necessity (who tend to fail to deliver projects on time or on budget). Once you have an ongoing relationship with a few GCs, they'll be willing to do favors like this in the interest of the ongoing partnership.

I personally will not provide bids on properties that are not under contract. The Minnesota market is extremely competitive, and time is a finite resource. I know investors who have lost out on 5-6+ properties in multiple offers before they finally get a purchase agreement accepted. I have no problem giving time to bid a project I may be awarded (will only lose the project if my cost, working style, or availability are not in line with goals); however, I can't afford to give time bidding a project that a client may be unable to award, even if we’re the perfect fit (they don’t own or have the property under contract).

I know my construction numbers inside and out for my market (as I should after 10 years of full-time construction work). As such, I can bid a bathroom remodel for a client based on square footage, scope of work, and photos, and be within 5% of final cost (I'm typically within 5% even on jobs over $100,000 at this point). As such, if you're able to get that information (either from the MLS or seller), reputable companies should be able to easily give you a solid ballpark idea on renovation cost without visiting the property.

It is extremely important to verify the contractors you interview not only talk the talk, but walk the talk. Check references, ask to view job sites under construction and completed (cleanliness during the process, quality of end product), require proof of insurance and licensing, etc. Partner with the right contractor(s), and rehabbing is an awesome experience. Partner with the wrong contractor(s), and after one project you'll want to permanently close the door on RE investing.

Your first few projects will be the most difficult; however, "high-level" figures on cosmetics and standard replacements (furnace, A/C, water heater, etc) don't take long to master (at least within 10-15% variation). Call trade companies and obtain a general idea of cost for a furnace replacement, new roof (by square, 1 square = 100 sq ft), water heater replacement, cabinet costs (often by linear foot), flooring costs (by square foot), counter costs (by square foot), etc. Quality companies typically have no problem offering their. This will boost your preliminary knowledge base exponentially, and thereafter your confidence in offering on properties.

Once you have a bit more comfort with the straight forward items (or while you’re learning about them), get a property under contract with an inspection contingency of 14+ business days. At that point, a number of reputable companies should be willing to bid the project in person, and if your rough guess is way off, you can renegotiate with the seller, or back out of the deal.

Pursuing off-market property is definitely the best way to find deals right now, and I would argue those sellers may be even more motivated at this time (market uncertainty, reduction in showing traffic/potential health exposure, etc).

Finally, approach your investing similar to a "batting average". In the MLB, nobody has hit over .400 in a season since Ted Williams in 1941...which means he failed to hit 60% of the time he was at the plate, and everyone since then has failed at least as much! Don't be afraid to offer on properties and lose out on them, and after a few overly-cautious deals (since losses right out of the gate can be difficult to recover from), realize you'll always have some losers (I lost $30,000+ on one “flip”, but was able to off-set that loss by soldiering on and having a couple of winners immediately thereafter).

Hopefully you find this information helpful. If you ever have general construction questions, please feel free to reach out via message and I'd be happy to provide additional insight (may or may not be beneficial, since I'm in a different market).

Best of luck!

@Evan Kraljic

I completely agree with you on how to maximize value on investment remodels!

I'm always up-front with investors that we aren't the best fit for investment-style work. I started out solely in investment (rehabbed houses for 3 years), and that requires a completely different set of tradesmen (investments typically aren't occupied, finishes are entry level, working hours can be longer, reliability can be lower, followup service/warranty work is non-existent, etc). We've spent the past 5 years building a rock solid team, and my motto is you can't work with our crews/company unless I'd trust you to babysit my 8 month old. Every team we work with has a sub-24 hour response time to calls/emails, and typically will be on site within 48 hours if any need for warranty, service, or something else comes up. This allows us to deliver an excellent end product, with as minimal disruption as possible to our clients' lives, and provide the peace of mind that the end of the project does not mean the end of stellar service. We are also cognizant of warranty followup, and regularly deliver on that (MN has 1 year, 2 year, 10 year statutory warranties related to certain construction elements which most GCs try to avoid mentioning).

There's certainly a balance, and DIY work is the best way to shave costs. That being said, numerous investors treat time as though it's infinite, when it needs to be treated as the extremely valuable/finite resource it is. You can certainly fix up your own spaces (I'm personally finishing my own basement); however, there is an opportunity cost associated with DIY work. For some, it's worth it (maybe you would otherwise be watching TV or feeling un-productive). For others, it isn't (maybe you'd use that time to track down 2-3 more investments properties instead). Our client basements take 8-10 weeks, depending upon overall complexity/scope of work, whereas my personal basement is going on week 53. If DIY is the approach, you really need to track every material expense and every minute of time spent on the project to accurately reflect the true cost (still likely cheaper, but not likely as astronomically cheaper as it appears at first glance). The other related element here is timing. If my personal basement were an investment, I'd be bleeding holding costs like crazy (10+ unnecessary months of expenses). If one contractor is 10-20% more expensive from a bid standpoint, but can guarantee he'll finish the job a month faster, there is a chance his/her company will still end up being more cost effective on the whole, all things considered.

The last thing I'll mention is reliability. So many investors have horror stories related to contractors flaking out, and it typically stems from hiring the cheapest crews possible (this would never be the goal for your CPA, doctor, attorney, etc). We strive to provide extremely high value for the cost bid. As I always say, "price (budget), timing (speed to completion), and quality (craftsmanship)...pick two". And as with everything, the best blend/balance is highly subjective and depends on personal preference.

Great discussion, and appreciate you bringing up the additional perspective!

@Yi Chung Chen

Since you initially had "increased ceiling heights" on your wish list, I'm assuming you're planning for higher-end finishes throughout. That being said, I've pulled together some bare bones guesstimates for each item below.

I'm also from the Minnesota market (this thread reached my inbox via keyword notification), and work full-time as a general contractor. Obviously, labor rates, etc, vary drastically; however, I can tell you the following would apply in our market:

(1) Kitchen: $40,000 minimum. Kitchens have a ton of updated code requirements, and as soon as you open any walls, you'll need to update electrical and plumbing to code. Many municipalities will require these updates if cabinets, counters, and flooring come out, as they'll deem you're already past the point where it can be deemed cosmetic. Since you'll be living in the property, I believe you'll regret skipping electrical updates, etc, as you'll tend to have breakers trip (especially in kitchens). I also have never completed a remodel where there isn't something dangerous/illegal buried (spliced wiring, corroded pipes, etc). As such, we always take our remodels to the studs. Minimums are typically as follows: cabinetry (even for box/IKEA, smaller kitchen) ~$5,000. Appliances (~$2,000 bear minimum). Stone counters (~$3,000). Fixtures (~$1,500) and flooring (~$3,000). As you can see, you're already at $14,500 before accounting for demolition, HVAC, plumbing, electrical, framing, insulation, sheetrock, paint, and finish carpentry. This is also assuming a small footprint and bear bones design (no bells/whistles). We've had plenty of kitchens run in excess of $75,000. Most of the time once you crack $75,000, it's either related to additional structural components (opening walls, relocating windows, etc) or very high end finishes/appliances.

(2) Baths: $20,000 minimum (each). This would be assuming a full gut, and vinyl flooring, vanity package from big box store, fiberglass tub/shower surround or shower stall, etc. Our typically 5x8 bathroom with full gut and re-build using tile on floors/walls runs more like $30,000 minimum. Again, we open all projects to the studs to provide the best finished product, and ensure no safety/code issues upon completion.

(3) All costmetics is very broad; however, if you're talking paint, flooring, trim, lighting, door knobs, etc, this will be a very big number. Too broad to ballpark, but certainly wouldn't be less than an additional $20,000 when all is said and done.

(4) Windows vary a bit based on size; however, I agree with @Justin V. regarding per opening costs - minimum $500 per opening. I would also add, this often only covers the cost of the window, and its replacement labor. Not necessarily re-trimming the interior, painting that trim, etc. There's a huge difference in Jeldwen or similar Menards/Home Depot windows, and lines like Marvin/Andersen (popular in Minnesota, and the only lines we install). If you start looking at changing window sizes/locations, this cost will grow exponentially as you bleed into siding re-work, new headers, opening walls, etc. Assuming maintaining all locations, lower end windows, and 12 openings, call this $6,000.

(5) Forced Air Conversion: $15,000 minimum. Depending on layout, conversion to central air could be somewhat straight-forward, or extremely difficult. We've converted a couple, and with a new furance, A/C unit, and all ducting/permits, this is usually a safe beginning placeholder (before accounting for concealing new ducts, etc).

(6) Roofing: $15,000 (your guess). In MN, asphalt runs ~$300/square in MN ($300/100 square feet of coverage). Steel, tile, slate, etc are all significantly more expensive, and decking issues beneath the existing (due to moisture, etc) will also significantly increase cost. This is a decent placeholder.

(7) Exterior: $20,000 (your guess). Based on the size of the home, this definitely feels doable if you're sticking with more of a siding/paneling application. If you're looking at brick, stucco, etc things may become more expensive; however, the SW is a totally different market than Midwest when it comes to stucco, etc). May be a comfortable placeholder.

(8) Landscaping and driveway: $10,000 (your guess). Both are highly subjective, based on size/length of driveway, asphalt (cheapest) vs concrete (more expensive vs pavers (most expensive). This budget could be OK if you're going asphalt on the driveway and looking mainly at minor plantings/yard cleanup for the yard. If you're getting into hardscaping and potential retaining walls/systems, that number will be significantly higher.

(9) Conversion of Water/Drainage/Gas Piping: $10,000 (your guess). This could open Pandora's box. I strongly recommend you verify it's all in operable shape. If you're planning to have everything gutted to the studs in the entire place, a full update is somewhat palatable; however, you'll then end up spending a ton of money re-sheetrocking, etc. 

(10) Garage Work: $5,000 (your guess). Depending on the size, this likely wouldn't be a huge expense, but depends on how "finished" you'd like things to look. This could increase significantly if you're looking to make this a "man cave" or something similar.

As you can see above, I'm pushing almost $180,000, assuming you aren't doing a ton with layout/floor plan changes, and also aren't going high-end with finishes. This budget could easily double, as it excludes electrical specifics among other things. Permitting, dumpsters, blueprints, etc are also excluded. 

In addition, you have the massive challenge of finding a contractor who not only bids the project, but follows through on that budget both from a timing and cost perspective (much easier said than done). Many people err here in hiring the cheapest company - 99 times out of 100, that leads to extreme hardship, and a project that never reaches completion. I would also caution you to make sure you aren't taking the $100,000 goal budget, and simply making the pieces fit (for example, everything before windows totals $95,000, so you think "I'm sure I can get windows done for $5,000"). That approach (which can occur subconsciously) is very dangerous.

If this is your first foray into a remodel of this magnitude, I'd aim for some type of extended due diligence period where you're able to truly determine costs (or at least get within 15% of projected cost, knowing you're comfortable with a 15% swing in either direction). Our bidding process involves:

(1) High level figure based on square footage, photos, scope of work - this is within 15% of final project cost.

(2) If initial budget estimate feels aligned with goals, we schedule a site visit to hash out a more exact scope of work and take into account job sites specifics, access, finish level, etc - this is within 5-10% of final project cost.

(3) If the refined budget and our working style are a fit for the client, we take a small down payment for planning and finalizing the project budget (typically $1,000 to cover drafting fees, etc). During this process we spec all finishes/fixtures/scope of work, and then provide a final "guaranteed" budget that will only change if hidden conditions arise (code/safety-related), scope of work changes (additional work added above the defined scope), or fixtures/finishes change (price will go up or down, based on the new selection and any re-work necessary).

I strongly recommend you find someone with a similar process, who also freely offers up proof of licensing, insurance, 3-party reviews, and client references you can contact.

Finally, if it's a long term play and you don't mind spending the money, consider the "phased" approach mentioned by @Nabil Suleiman. If you pursue this, you'll want to have a "master plan" to ensure you won't end up with re-work (remodeling often leads to new roof penetrations, exterior adjustments, etc). There's nothing worse than re-siding a home, and then needing to complete re-work when a window location changes.

This post got a bit long, but I hope my insight is helpful. Best of luck with the project!

@Pavel U. I'm fairly new to HELOC style debt. After the 10 year draw period, does the rate continue to adjust along with Prime, or is the rate at the beginning of year 11 locked for the 20 year repayment period?

@Gus Muller We currently focus mainly on "retail" residential remodeling (direct to client, occupied homes); however, I rehabbed houses full-time from 2011-2014 (~30 total homes). As such, I have tons of experience in that realm as well. I'm always open to discussing opportunities, and also very honest if I don't feel we'd be the best fit from either a personality or cost perspective. If you're interested in discussing, shoot me a DM and we can go from there!

@Gus Muller

I work full-time as a GC in the Twin Cities, and we spent last Thursday/Friday discussing this same topic with our active clients, upcoming clients, employees, and crews. 
Ultimately, we decided all active projects should proceed as “normally” as possible (while following CDC guidelines to minimize risk of contraction/spread of the virus). This allows us to keep on top of payroll and sub-contractor payments, while also ensuring projects don’t drag on indefinitely. We’re delaying upcoming project starts until late April, mainly so we can get through the first two weeks of lock down and then reassess how things are going.

I think you are safe to continue work, and that approach will help minimize economic down side for you (especially keeping in mind the longer you hold a flip in this environment, the more likely the real estate market is to change). In addition, it sounds like you aren’t taking the shelter in place order lightly, and are implementing all of the proper changes to minimize health risks for all involved. 
I say full-speed ahead, while adhering to all new guidelines and assessing any changes to the working environment on a daily basis. Good luck with the remainder of the project!

@Alexander Knowles - I had never thought about it before, but yes, it DOES show up on my personal credit report. I haven't had time to get into points hacking, etc, so I don't "churn" cards (5/24 rule doesn't impact me). I also really like the cash back option over points, since I'm not currently able to travel enough to take advantage of airline miles, hotel points, etc (have three boys at home under the age of 5).

Since I also don't carry a balance (I pay in full each month), it hasn't hurt me in purchasing investment property, etc. I'm up to six 30-year mortgages in my personal name (not including my primary residence), and also have two commercial loans under business entities. In fact, I would argue having more credit available to me without being used has helped keep my personal credit score above 775 for as long as I can remember. 

I'll have to look into the CC reporting difference (and why it is such) at some point. Appreciate you calling that out!

@Alexander Knowles

I work full time as a General Contractor, and have been very happy with Capital One Spark Business. The card with an annual fee ($95) offers 2% cash back on every single purchase. They also offer a 1.5% cash back option with no annual fee; however, based on my annual spend volume, I come out way ahead with the 2% - after accounting for the fee. Last year, I received a year-end cash back check around $6,000, just for buying materials and paying subs!

Keep in mind I never carry a balance, so I don’t pay attention to interest rates. If you’re thinking of doing so, that will certainly alter your strategy.

@Roc Pilon I ran into appraisal issues on my re-sale of 2 rehabs in Minnesota a few years back. The first was an FHA loan, and unfortunately, an FHA appraisal sticks with a property for all FHA-financed buyers for something like 6 months. That property was likely only going to have FHA applicants, so I took a $5-10k loss on the re-sale to simply move the property rather than rack up holding costs.

The second property had a conventional appraisal come in $20k below the purchase price (which we received from a multiple offer situation). I told that buyer to make up the difference in cash, or we would go back to market (couldn’t stomach getting burned again). Ended up canceling the PA, calling another agent from multiples, and getting it back under contract at the same price, same day. When the appraisal came around again, I provided a one page letter explaining the length of time on market, number of showings and offers over that time period, recent upgrades, and comps supporting the new re-sale value. I left hard copies of all information, along with my contact info, at the property during the appraisal appointment. Appraisal came in as needed, and everyone was happy (especially me).

To this day, every time I sell a property for myself or a client, I use this approach. The last house I sold for a friend had an appraisal window of 10-11am. My friend was in his car outside reading for the hour. Appraiser showed up at 10:55, was in and out in <5 minutes, and left with all of the info I provided. Appraisal came in just fine (and was pushing the high end of comps by ~$20k more than the most recent comps).

My take away - provide extremely solid information to support the value, and issues all but disappear. Appraisers don’t want to deal with someone who will dispute their shoddy work, and most don’t actually spend any time on true valuation. I’ve never had an appraiser verify against property tax or city/county records - that would take too much time on their end, and assessed values always lag the market (for better or worse). Permits are almost NEVER checked. I work full-time as a GC and can’t tell you how many clients we need to notify of past permits that are still open when we pull new permits for our work!

All in all, don’t worry about the value from the original appraisal - they had to hit a specific number, and did. When you refi, provide as much info as possible supporting what you want the new value to hit, and you’ll be pleasantly surprised by the outcome!