All Forum Posts by: Michael Hayworth

@Jay Hinrichs is probably right in this case, that the contractor may have no money. Shady contractors tend to spend money unwisely. But the problem here is not licensing, as Jay implies. Do you really think there's no fraud in heavily licensed states? Ever hear of a little project in Boston called The Big Dig? You don't get much more heavily regulated than the northeast and California, and those states have far more fraud than Texas. In general, things actually work really well here.

The most common problem is, investors get into shaky deals with tight margins and little or no money, need to do a reno on the cheap, and choose a ****** contractor. (Note that the OP's profile says he's looking for low or no-money opportunities.) The entire state is in a building boom. No good contractor needs to work cheap. Hell, I'm a very active investor, but my remodeling company no longer works on investor projects except my own houses.

So if an investor is looking for the lowest bid, he's already fishing in a bad pond.

We've only heard one side of the story. We don't know what the contract actually says, or whether the OP is representing it properly or whether there were discussions about change orders along the way. When I did do investor work, I tried to be extra careful that new investors truly understood what we were both agreeing to and what the scope included. Some of them have deal fever and really don't want to be bothered with details - you see their eyes glaze over, know they just wanna "get started on this deal!" and you know you'll have trouble down the road.

But let's assume that everything the OP says is correct - the contractor is shady and is trying to get more money to finish the project.In that case, @Jess Hewitthas the right course:

• Start with a very clear phone call to the contractor. Lay out the problem, and be firm about your expectations. You can threaten bad BBB and Angie's List reviews, which a reputable contractor doesn't want.

• If that doesn't get results, get an attorney involved. A call from an attorney will make a contractor pay attention. Find someone with experience in construction-related cases.
• You can sue for up to $10,000 in JP court (I believe it's $10,000 + attorney's fees, but I am not a lawyer), and that goes much faster than regular court, so you may want to claim that your damages are $10,000....that's a conversation with your lawyer. If the contractor doesn't show, you'll get a default judgment.
• Now getting a judgement is one thing, and enforcing it is another. But Texas is pretty serious about judgments. That's what Constables are for. You have to pay a service fee to have a judgment served by a Constable, but he'll actually go find the party  with a judgment against them and insist they pay up. In a previous career, I once had cause to sue a client. He basically told me F. U. on a $1200 debt he clearly owed. By the time it became a judgment, it was $3000. The constable showed up at his place of business and demanded $3K. He said he didn't have it. Constable said,, "OK, then we'll need to seize assets we can sell that'll cover a $3K judgment. I'll start with your truck." Magically, the $3K appeared.

I have done this a couple times. But I wouldn't do it if I didn't already have adequate capital.

I've got 2 properties where I paid cash for them at auction, did reno, and raised the value enough that when I refinanced them, even at 75% LTV, I was basically left owning the house with no cash outlay. Rents on those properties were basically break-even or very small cash flow, but that's figuring in all real expenses, including a repair reserve.

I don't mind a non-cash-flow property if a tenant is paying my mortgage and building my equity in the place, and if I have it for free. But I have plenty of cash reserve that if the AC, roof & water heater all took  a **** the same month, I could cover it.

I really wouldn't recommend doing this on a first property or with low cash on hand.

 I hope it goes well. 

Sending you a PM on another topic.

Yeah, that last's the best part, isn't it? Oh, I can't send you info on the property. I need you to come in and sit down with me to understand our process. Am I buying a used car here?

Look, I run a pretty large remodeling company. I have overhead and I can't price things as low as "two guys and a truck." The NWs seem to have the same situation. I'm really not sure that real estate wholesaling is something that can be effectively done by a large company and still give the investor a good deal. But the solution to that is to change your business model, not just present ******** numbers to make sales.

I love the DFW market. And there are some really excellent wholesalers here. But as @Hattie Dizmond and @Rocky V note, the two big companies are mainly just....big.

The "N.W." wholesalers here seem to have a business model of overpaying for properties to lock them up, then overestimating ARV and underestimating reno costs in order to sell them to newer investors who don't know any better. As a GC, any time I get approached by a newbie investor with an "N.W." property, I know I'm going to have to break the bad news to them about real ARV and real reno costs.

I've been very successful with rentals and mid-grade flips, but I'm moving more and more toward high-end flips and multifamily. I'd like to sell off 6-8 of my Fort Worth area rentals to raise more cash. They're quality properties in B or B- neighborhoods with good tenants (mostly who pay via ACH autodraft).

I see a lot of advice about buying turnkey, but not much about selling. Any advice out there for someone in my position?

No, no, no.

Search for Than Merrill on this site. Also search Guru Seminars. Plenty of threads about them. These guys are really good at one thing - transferring money from your pocket to theirs.

As a GC who's also an investor, I get calls All The Time from newbie investors who went to these seminars, spent loads of money, got talked into a deal that's really not a deal, and really don't have a clue about what things are really like in our market.

Use this site, find a local REI group, find an investor who's successful that would be willing to mentor you in exchange for you taking some load off him somehow. Save your money for actually investing.

@Josh Richter, search under my posts and you'll find a few on this topic. 

Remember that old advice "good, fast, cheap - pick two"? It applies to contractors, too (although with some, you don't even get two of the three!)

An investor really has two choices in terms of type of contractor. You can get the cheap "two guys and a truck" type off Craigslist or somewhere, or you can hire a reputable, established firm.

The problem with the first type is that you're not always sure what you're getting. Sometimes they do great work, sometimes they're scammers, sometimes they will start well, then stop in the middle of your project because they need to get someone else's deposit to make payroll..

The problem with the second type is cost. We have overhead, and we also understand how much gross profit it takes to actually have net profit at the end of the project. We're not going to be as cheap as someone with no overhead. That makes it tough for an investor sometimes on a project where margins are tight. 

Most investors end up looking for the most reputable of the first type they can find. References and walk-throughs are your friend. Ask to talk to previous clients, and ask to walk through their current job sites.

Also if you want a good contractor, learn to be a good client. A reputable contractor of either type probably has plenty of work. They're not likely to spend loads of time with you answering questions and walking through properties you're "thinking of putting an offer on." There are resources here on this site to help you learn to estimate rehab costs. When you find a contractor you can trust, be willing to listen to advice. Sure, you may not take every bit of advice they give you, but there's no worse client to work with than a newbie investor who just went to a seminar and thinks he knows it all. Be willing to share your goals with your contractor, be willing to share your budget realistically, and find someone you can have a good working relationship with.

There are a lot of us contractors here on BP (many of us are investors ourselves) and you'll probably find more at your local investor groups, which gives you a chance to meet them in a setting where you're not taking them off a project.

Good luck

All the stuff @David Faulkner said is excellent advice. I'd add this...

Get good at your job. Get promotions (or a better job). Live below your means. Save money.

When you have enough money for a down payment, buy a duplex or 4plex. Live in it. Rent the rest. A couple years later, do the same thing over again, keeping the first purely as a rental.

It's not sexy. It won't make TV shows. But it will build wealth.

My name is Michael. I want to be a supermodel.