All Forum Posts by: Michael Hayworth

I really don't understand the fetish for rent on the 1st. 

Maybe if you're a tiny landlord doing this on the side, and your houses are with low-rent tenants who pay in cash or something, then it makes sense to do that. But as @Bill Gulley said, any decent bookkeeping system can automate transactions.

90% of my tenants pay via ACH either with the bank or with eRentPayment.com. It doesn't matter whether they're set up on the 1st, 8th, 23rd or what. That produces several nice benefits:

1. When I have multiple properties coming up for renewal in a month, it's nice to not have them all on the same day. If they're tenants I don't want to renew, I may get one property back on the 10th and another on the 20th, instead of getting two or three back all on the first.
2. Flexibility. Renters are often not in great financial shape - otherwise, they would be homeowners. I have one excellent tenant who's a teacher recovering from a bad divorce. We pull half her rent on the 10th and the other half on the 25th. The system does it - the entire extra work is clicking OK to enter one more memorized transaction in Quickbooks. If a tenant needs a flexible schedule, that's fine as long as it's automated. We want to be sucking the money out of their account as soon as their paycheck goes in.
3. When we sign a new tenant, we don't have to mess around with prorated rent for the first month and tax the math skills of the average tenant to figure out their security deposit, prorated rent first full month's rent - your lease starts on the 18th, your rent is due on the 18th.

So sorry for the long answer, but I'd leave well enough alone, but insist that tenants move onto an auto-pay system as their leases renew. If they're not willing to, then it's time to move on.

I disagree with most of the advice above.

1) Cosmetic stuff will not keep you from getting conventional financing. However, you should do an inspection and discuss the results with both your lender and the seller to get seller to make any repairs that will be a problem. (For example, internal cosmetic issues are often accompanied by rotted wood trim on exterior siding, and some lenders will decline to lend based on that.) Also don't understand the comment about fixing everything up front to minimize Capex and maintenance expenses....you said this is all cosmetic.

2) A verbal lease is legal, but you don't want to be a landlord in that situation. Well before closing, I would meet with the tenant and offer the chance to sign a lease. If he declines, have the seller give notice to vacate. Otherwise, you'll have to give a 3-day notice when you close, then go thru eviction. This discussion also gives you the opportunity to clarify any security deposit, so you don't get caught up in he said/she said disputes about whether there's a security deposit and how much. Deposit, if any, should convey to you at closing.

3) If he's a good tenant and willing to sign a lease, I would probably keep him and not touch the house. First, if you got a full increase of $400/mo, it would take you 30 months to recoup $12K in reno expenses - and that's assuming you actually hit that budget. Second, lower rents make the house more rentable, even in cosmetically challenged conditions. There are always good tenants around here trying to get their families into good school districts but on a tight budget. I have a house in Hurst where I've explained to tenants, "I'll fix safety issues, but this house hasn't been cosmetically updated, and that's why it rents for $1150, when most everything else in the neighborhood rents for $1400-1500. The key is, I've never had more than 10 days downtime between tenants on that house, where properties trying to get full market rate will typically have a couple months between tenants.

In short, I'd buy it, rent it, take the cashflow, consistently put money in a repair reserve, and then steadily raise rates $50/mo each year when the lease comes up, citing increased insurance and property tax costs (be sure to content property tax appraisals as well to minimize your costs)_. When the tenant finally moves out, fix the cosmetic stuff, take the appreciation and sell it at a nice profit - by then, you'll be in long-term capital gains and can minimize your taxes and buy two more with the profits.

You have no legal recourse. Your loan application will include all kinds of disclaimers of liability. Your recourse is bad publicity. Facebook it, Tweet it, Youtube it...if you become obvious about it, someone from the bank may say, "Hey, let's do something for this guy so he goes away." That's unlikely if you're dealing with a huge bank - they get bad pub every day - but it could happen. And at least you help someone else out.

One note, though. I see a previous poster mentioning 45 day close. No way that works in a competitive bid situation. Your offer will get passed over. And it's not TRID making loans run long...it's lazy loan officers. TRID is just the newest excuse they can use for not having their **** together.

I haven't quite gone as far as @Jay Hinrichs on declining offers from Wells Fargo, but it's a thought. They're absolutely terrible. I do decline VA offers, which I hate doing, because I support Veterans, but I've never once had one close anywhere close to on time.

The standard Texas Real Estate Commission Contract has a clause that says the buyer can terminate and get their EM back if they cannot obtain financing within ___ days. If they go beyond that and then can't get financing, they lose their EM. If they're using a lender like that, when I get their first extension request, I warn them. "I'll extend one week. No more. If you can't close in a week, I'll put it back on the market and keep your EM for my inconvenience." Then they scream at their lender, and magically, stuff gets done. There are a lot of good loan officers out there. Few of them work for the big banks.

That's wishful thinking. 

One of the reasons wholesaling is booming is that there's a million or more people in the U.S. wanting to be real estate investors, and in many cases, buying up mediocre deals. Wholesaling is relatively easy money right now, just like being a headhunter was during the tech boom or a real estate agent was before the 2008 crash (and that's easy money again right now, of course).

When a crash happens, a lot of the wannabe investors will find their funding has dried up (or they've lost their jobs, or don't feel secure enough to live with the risk of REI). There will be fewer people buying, and less of a market for wholesalers.

Inevitably, a crash weeds out the weak. Strong, established, well-funded wholesalers will have some down years, but will survive. Same with real estate investors. They'll struggle for awhile, but end up with a better market position. It won't be fun, and lots of people will lose money. But that's how markets work.

I don't know the Toronto market, but in the markets I am familiar with, good contractors stay very busy right now. I'm trying to think about what scenarios would make me consider entering into a deal like that, and I can't really think of one, unless it was structured so I'd make a whole lot more money than I would make by charging my normal rates. And if there was some significant risk, I'd pass and just move on to another project.

My company doesn't take investor work anymore, but when we did, I would occasionally have clients who wanted me to enter into some very complex arrangement. It never seemed to make sense to me when I typically have all 8 of my crews booked out pretty constantly. If I'm going to take risk, I'll do it on my own investment properties.

We use ACH payments through the our bank, or we now also use eRentPayment.com.

The ACH payments are pretty simple. We started using eRentPayment.com because they have an option to report payments to the credit bureaus, and several of our tenants have liked that option for helping rebuild credit after a divorce or some other life event.

@Josephine S., contrary to what you hear from the guru seminars and TV shows, wholesaling is really not the best entry point into real estate investing. Being a good wholesaler is probably the toughest job in real estate investing. You have to be good at:

• Marketing to find deals, which usually takes money.
• Knowing how to run comps accurately, which requires MLS access, skill and experience.
• Knowing how to estimate construction costs accurately - which is a skill that takes a lot of learning.
• Knowing how to negotiate with sellers. And until you're very well established, you'll rarely be the only one they talk to, so you'll usually be bidding competitively, and there's always someone who's willing to overpay.

The last thing DFW needs is another clueless wholesaler pitching deals that have overstated ARV and underestimated renovation costs. We've got plenty of those already. Try saving your money until you can actually invest in real estate, or partner with someone who already is. Wholesaling is a hell of a lot harder than the seminars make it sound.

What you'll find is that investors who have a good GC often don't want to share that info. You can sometimes get recommendations at REI meetings - sometimes good contractors even show up to those. But a lot of investors just don't want to share - they want their GC readily available when they need him, not working on your projects. In absence of an actual recommendation, I'd start with Angie's List (requires a membership) and HomeAdvisor (doesn't) reviews. The ones with hundreds of reviews are generally retail focused and won't want investor work. Look for one with several reviews, but not dozens.

Investors are challenging clients for contractors, particularly right now. With loads of investors in the market, non-renovated properties are getting bid up to where there's hardly any margin to make room on a flip.

Generally, you have to choose from two broad categories:

• The "two guys and a truck" type. Some of these guys do great work, others are totally incompetent. They often live hand-to-mouth, so progress may be difficult if they're juggling multiple projects, or if they get tight on cash to where they take a deposit on a new project just to get some cash flow. They're generally inexpensive, though, so if you can find a good one, it can be a good ongoing relationship.
• A more established company. They're generally going to be more reliable and generally (though not always) will finish projects more quickly. But they're going to be more expensive.

It also depends on how complex the project is. It's a lot easier to do a quick cosmetic make-ready than a structural renovation that involves lots of moving walls, moving plumbing & electrical, etc.

The first part of finding a good contractor is really finding a good property where the deal works. If you're trying to cram $25K worth of reno into a $15K budget, you're going to be frustrated with your contractor for not being able to perform miracles.

The second part would be asking for references, or even better, asking to walk through current projects to get an assurance that they really know what they're doing. HomeAdvisor and Angie's List can be good starting points here. 

It's also important that you have a fit in personality and approach. If you have a personality mismatch with your contractor, you'll always be frustrated with him.

Finally, clear expectations are very important. Misunderstandings are always going to happen, but you need to minimize them. Unfortunately, in the haste to get a project going, there's a temptation to gloss over things and then be frustrated later.

Most investors will say they value reliability, speed and competence, but when it comes right down to it, they'll typically make decisions based on price, at least until they've gotten burned a couple of times. Unfortunately, that "getting burned" thing happens fairly regularly.

Good luck out there.

With only what you've listed as perspective, it doesn't sound that out of line. It's a very busy time in construction. Anyone good is  going to want to make a fair profit. If I can't make 20% on a job after overhead costs, then I'm not spending my resources wisely. There will come a lean time again when we'll need to live off savings and cut rates on jobs, but this is not that time - right now, all good contractors are very busy, and if someone is cutting rates, it would make me question their quality.

That said, I'd have a few other questions:

1) You said you asked several GCs for bids, but you're asking about this one specifically. What were the other bids like?

2) It sounds like the $1.1 is an estimate, and any cost overruns would be passed off to you. If the $260 is a percentage, does that grow if the $1.1 does? That may be perfectly fair, but you need to understand the terms you're working with and not have any surprises. 

3) Have you checked references on this contractor and specifically asked how final costs were vs. initial estimates? There are plenty of contractors who make a living using lowball pricing to get the sale, then change order you to death.

4) We don't have any info about configuration of the units, but this brings you out just under $100K per unit. For that, this should be a very nice complex. Is it?

OK, deep breath. :) You'll be OK.

First, I've been there, and I know it's frustrating, especially on one of your first flips. You want to shake the neighbor as ask what the hell he's thinking!

Second, your profile says you're in Arlington. Everything in our area is going over list right now, so his lower listing price is likely to result in multiple bids and a sale $10-15K over list.

Third, if you want to PM me the address, I'll give you a sanity check on your comps. 

I do hate seeing new investors spending loads of money based on bad data. I renovated a house for a couple in Granbury last year. It was their first flip. In my first proposal, I told them if we renovated it right, it would sell for $215K, so let's try to keep our budget focused around getting them where they could sell it for that and make $20k or so - decent for first flip in a competitive area. They had some seminar guru guy and a bitchy real estate agent advising them and said, "Oh, no, we need to pull $40-50K out of it, and it's going to sell for $270." They set their reno budget based on it selling for $270, exceeded that as they went along, and 14 months later, it's still sitting on the market at $259. Hopefully, that's not your situation.

Good luck!