All Forum Posts by: Pete Harper

@Michael Garofalo Yes we have a written contract and have made adjustments to the contract as needed. For example we added the electrical change order to the contract. Legally I don’t have to pay him any more money until the job is complete.

He doesn’t have a foreman or anyone who can finish the job while he recovers. That has been a big part of the delay, his guys are wasting time and materials on the job with out his supervision. We had countless framing issues that needed to be torn out and redone. Walls in the wrong place, shower enclosure stepping out into the toilet etc.

My fear now is he is not going to be able to finish the job. I think between Covid and heart condition he has burned through my initial payment and his personal savings. I talked with the Plumber and he complained he hadn’t been paid. I suspect the Issue with the HVAC guy is no money to get him started. At this point my biggest fear is he will go bankrupt and not finish the job.

Do I step in and become the GC and pay subs directly to finish the job? Then sue him to recover as much of my money as possible.

I have a dilemma with my contractor on a duplex flip. The current situation is he is off the job because on a health issue. He called earlier this week asking for more money in order to meet payroll. My fear is he will not be able to finish the job. Not to sound too unsympathetic but he was been a problem since the beginning of the project back in September. First issue was during demo, he and his crew all came down with Covid in October. We lost three weeks right there. Then in November after they recovered I noticed little progress on the duplex. They were in the framing stage and I didn’t see anyone on the job site. I live locally and stopped by on a regular basis. I started hounding him and finally he finished the framing. Next he underbid the electric, he didn’t notice it was a two wire system and needed to be upgraded to three wire. I cut him an add on check and finally got an electrician on the job. The electrician was the slowest guy ever taking six weeks to wire 2400 sqrft. Meanwhile I start nagging him on plumber. He tells me Plumber can’t work at the same time as electrician? Then plumber comes out and wants a $11k add on because the inspector wanted something. I follow up with inspector to clarify code and he said the add on was not required. Contractor didn’t bother to tell inspector this was slab construction. I paid $7500 for plumbing fixtures but don’t see them on the job site. WTF? I asked for invoices for plumbing and HVAC, no answer. That brings us up to date. I’m about 2/3 through spend. We are two months late on the project. The house is still bare studs, slab is jackhammered up for plumbing, plumbing roughed-in still needs to be inspected. He is off the job recovering from heart stints, his crew have been taking advantage of him drawing wages and not working. He doesn’t have a good foreman to fill in.

I was already frustrated with the guy before the latest health issues. What options do I have?

@Ashish Acharya Thank you

@Ashish Acharya

Forgive my jargon ignorance. What is TIC and QI?

Thank you

I have a question on 1031 exchange. I own a property in CA in my own name. I would like to sell the property and use 1031 exchange to purchase a property in TX. The TX property is worth significantly more than the property in CA. To cover the difference I would like to bring in another partner on the TX property. Is this possible?

The last 1031 exchange I did we sold in CA in our name, purchased property in TX in our own name, then transferred into TX LLC. It was explained to me at the time that the LLC transfer had to occur in TX otherwise CA would see the transfer as a taxable event.

@Joe Villeneuve

I was referring to the original post. He said the property has doubled in price so he has substantial equity. He didn’t give numbers so I will throw out a strawman. Purchased in 2010 let’s assume for $100k, 25% down so $75k loan. Property has now doubled to $200k. This leaves $125k plus equity. Refinances and pulls $150k out. If he sells he only gets $125k, less 6% commission ($12k), less 15% capital gains ($18.75). Less State taxes ??? Net $94.25k to buy two more properties. Now factor in closing costs, 2-3 months lost revenue while you look for new properties, buy them, get them settled with new tenants.

Option B. Cashout refinance 75% of $200k. After paying off original loan he has $75k to buy a second property. Plus he still has Cashflow from first property to help qualify for new loan.

The only reason I see to sell the first property is if it is underperforming or doesn’t fit long term strategy. If it is a good property by all means hang on to it.

@Joe Villeneuve

Wouldn’t it make more sense to do a cash out refinance rather than sell the property? You could pull 75-80% of you equity out at a very low cost. Plus you retain the cash flow from the original property.

If you sell like you suggest you will pay 5-6% commission to agent, 15% capital gains tax, then 2-3% closing costs on new properties. Then you need to factor in lost revenue while you look for, buy, renovate and rent new properties. You will easily loose 20% of your equity in the turn over.

@Paulo DaSilva

Look at Freestone County Texas. $400k will get you about 100 acres. We are an hour and a half south of Dallas on I45.

@Zhitao Cao It is really hard to time the market. Two years ago we were actively looking for multi family properties. We faced a similar issue with multiple offers on the better properties. Everything was going for more than asking price with many all cash offers. There is a lot of California money running to TX driving prices up. ;-)

We found you have to be patient. Be prepared to make multiple offers on different properties. Run your numbers and determine your last best offer on an individual property. Negotiation up to that number and be prepared to walk away. Don’t get caught in a bidding war. I’m sure I’ve offered on 3X the number of properties I’ve purchased.

@Zhitao Cao

The 1% earnest money goes towards your down payment at closing. This is primarily a good faith deposit to show your offer is serious.

3% is very high for loan points. I wouldn’t pay more than 1% point. If you can go directly to the bank you can avoid having to pay points to a loan broker. On recent financing I was able to get a portfolio loan directly with local bank and pay no points. My only closing cost was $600 appraisal. For portfolio lenders look for small to medium sized banks. Stay away from the big guys like Bank of American or Wells Fargo. I called 20 banks and found two willing to write portfolio loans.

Budget $500 for building inspection.

Good luck

You can also negotiate closing costs into the offer. Seller should pay for survey, title insurance.