All Forum Posts by: Joe Villeneuve

Here is the order of appearance for details on the drawings, in reverse order:

3 - Inspector.  They need the least amount of info, but their needs are very specific.
2 - Home owner.  They need more info than the inspector because they need to see what they will get in the finished product.
1 - Contractors.  They need the most amount of details on the drawings.  They need everything the Inspector and home owner needs, and more.  They need to understand how to build it.  Can the contractors build without drawings, yes...and the result will be total chaos.

You're leaving out the most important info.  What are your monthly payments for mortgage, taxes, insurance?  What is the total monthly rent?  How much total cash have you put into this?

How can you tell if this is a good rental without this info?  You can't.

Quote from @Marcus Auerbach:

For the first 10 or so flips, stay away from changing the layout! Architects are expensive, think 5-10k, and you'll be plenty busy managing the design for a rehab project. If you get to the point where you start removing walls, your contractor or lumber yard can provide the sketch and structural calculations for permits.

Paint and carpet = cheap and high ROI
Changing footprint = very expensive, often negative ROI

I would avoid it like the plague. Buyer's don't appreciate what you have done, but they go nuts over good design, which does not cost you anything if you have the skills.

My go to rehab list is always the same:
1 - Paint
2 - Floors
3 - Kitchen

Quote from @Jo Bradley:

Quote from @Joe Villeneuve:

Quote from @Jo Bradley:

2 thoughts….For me, once I owned more than a handful of properties, the deals started coming to me. Most often, from other investors I know that are retiring. The more people that know you are in the market for houses, the better. That said, I never needed to market myself, it came along organically. Secondly being a landlord is a long game. if you finance real estate it is generally a slow income producer for many, many years initially while you wait for either market appreciation or loan pay down to give you more options. While I am thrilled with a $300 initial cash flow, if you are not maybe there are other forms of investment that might interest you more. You might consider buying a property with cash if you want to see bigger returns or selling one of your rentals to pay off the second one if there is enough equity in it. 

Using cash doesn't get you a bigger return.  A return is based on the difference between cost (which is the cash you put in) and the cash coming out.  If you put all cash in, it will take a long time to recover that cash, which means a long time to profit.  Paying all cash and thinking it makes you profits faster is an illusion.  Numbers with dollar signs in front don't lie.

You are right, the return on investment might be higher with financing, but paying cash increases your monthly cash flow dramatically which seemed to be the concern of the OP who was concerned with only getting a $300/mo return. If I finance a project, it takes me 15 years (conservatively) to pay off that loan. Assuming I credit myself the same amount I would have spent towards principal and interest, I recover my investment in less than 10 years if I pay cash.  Sometimes I pay cash, sometimes I finance, it just depends on the situation. 

Wrong.  Sorry.  You're using incomplete math.  The math is very simple.  Cash in, cash out.  If you pay cash, your monthly cash flow goes up, but your return is severely delayed because it doesn't start until you first recover all of your cash in.  Thinking that your cash flow increase when you pay all cash up front is an illusion.
Keep in mind, your cost as an investor is ONLY the cash you put in.  If you buy all cash you are paying full price, and have to recover all of that cost.  When you pay only the DP, and you have positive CF, the tenant is buying your property for you.  You ONLY cost is that DP, and your profit comes as soon as you recover that.  Your monthly CF is less, but the recovery of your cost is much faster.
On top of that, if you took that full amount and spread it over multiple properties, not only will your total monthly CF return on that same cash spent (now on more than just one property) be much larger, but your total property value from having more than one property bought with that same cash be much greater.  That also means, your equity build up increases faster because any appreciation applied is now applied to a much higher total PV.

I'm lucky, because plans is what I do. I just do my own. Not just because of permits, but I want to make sure the contractors know what they're supposed to be doing. I have seen a number of deals run into problems where the REI thinks the rehab is straight forward and either don't need permits, or do simple plans and are missing a lot of things like you mentioned above. Then, there's the inevitable lack of info for the contractors, which can lead to any number of problems, all "dominoing", one after the other.

I'm lucky, because plans is what I do. I just do my own. Not just because of permits, but I want to make sure the contractors know what they're supposed to be doing. I have seen a number of deals run into problems where the REI thinks the rehab is straight forward and either don't need permits, or do simple plans and are missing a lot of things like you mentioned above. Then, there's the inevitable lack of info for the contractors, which can lead to any number of problems, all "dominoing", one after the other.

Quote from @Jo Bradley:

2 thoughts….For me, once I owned more than a handful of properties, the deals started coming to me. Most often, from other investors I know that are retiring. The more people that know you are in the market for houses, the better. That said, I never needed to market myself, it came along organically. Secondly being a landlord is a long game. if you finance real estate it is generally a slow income producer for many, many years initially while you wait for either market appreciation or loan pay down to give you more options. While I am thrilled with a $300 initial cash flow, if you are not maybe there are other forms of investment that might interest you more. You might consider buying a property with cash if you want to see bigger returns or selling one of your rentals to pay off the second one if there is enough equity in it. 

Using cash doesn't get you a bigger return.  A return is based on the difference between cost (which is the cash you put in) and the cash coming out.  If you put all cash in, it will take a long time to recover that cash, which means a long time to profit.  Paying all cash and thinking it makes you profits faster is an illusion.  Numbers with dollar signs in front don't lie.

City appraisal has nothing to do with value.  It's a number the city uses for property taxes.  The owners should have fought the appraisal.  Tax appraisals should be based on actual comps.  They go for the highest they think they can get, hoping the owners don't fight it.

If the sellers are using that appraisal, they need to be shown the comps when you make your offer.  Just list the comps you are using to justify your offer.  They either accept it, of they don't.  If they don't, they'll be waiting a long time to get what they want. 

When they reject your offer, and they probably will, don't change it.  You're correct, and they aren't.  Just politely say your offer is still in place if they change their mind...then wait them out.  

Never offer more than the what the sold comps dictate.  Never, ever.  I'm sure someone will come up with some ridiculous rationalization using the word "appreciation".  to justify making a bad offer.  Remember, you don't want the property, you want the deal.  Any offer over comps isn't a deal...no matter what the rationalization.

The most expensive word in the REI vocabulary is "rationalization".

I always cringe when I hear or read someone saying this.  

If this is the way investors learn, then the person that made the most mistakes, must be the smartest person in the world.

Yes it's true, you CAN learn from your mistakes, but it's cheaper to learn from someone else's.

I hope you're saying you need both, and not forget the book smarts and just jump into the street smarts.