All Forum Posts by: Chris Clothier

I think there is some really good advice and i am glad to hear from Ziv Magen because of his success in condos. Ziv, are you investing in condos here in the states or in Canada & Asia? It is extremely difficult to create predictable income models with any piece of real estate, but can be even more difficult with condos because of shifting need and demand. In my experience (limited to the areas I have invested in Memphis, Dallas, Denver, south Florida, Salt Lake City) the demand for condos goes up during economic booms times, but is absolutely the first market segment to disappear during crisis. As well, they are often built quickly and in excess during booms and include covenants meant to protect value by not allowing rentals (mostly on new construction). I was being heavily pitched two years ago on the virtues of buying condos in Toronto, one of the worlds largest and most diverse cities and I chose not to. I recently read where condo values are tanking fast in the city because of waning demand and an excess of inventory while owners are left without the ability to sell and they cannot rent. Just an example of what can happen I would imagine to any classification of real estate, but IMO condos are more susceptible to the ebb and flow of demand.

Dan Griffin - You will want to be involved in the management of your management company. Very few have the manpower and forethought to develop a strategy for keeping you up to date each month so you should at a minimum expect to be keeping up with them to monitor the progress of your properties. From a cost standpoint, it is really hard to know what your costs will be because so much of it depends on if the management is any good. If you are planning on holding the property for any significant amount of time, you need to plan holding back a large percentage of your rental income for the first several years until you have a record of what your costs will be.

Jamal Harb - I disagree with you on on thing, but in your defense, I think it is a sentiment shared by a lot of investors. SO many investors say that you should find the lowest cost property management company and as you said investors should try "to minimize it" when it comes to the management companies profit. I get where your coming from and I know that many management companies have earned this very poor reputation for being "bill mills". But, you need to remember that a company that does not make money is not in business for long. It is so important to find the right management company and more importantly, a company that is in business for the investors and not because they are charging investors.

Brian Burke - that is a great story and I'm sure more and more investors around the country are going to start sharing these kind of stories. I haven't seen anything quite that ridiculous here, but we are certainly seeing some very bizarre buying. Based on my meetings with the largest hedge fund buying here in town, their plan is to sell the entire package as a cash flow play to a large company needing to invest income such as AIG. Not sure of the level of success they are going to have, but based on early returns, I would guess it is going to be tough. Thanks for giving us all a laugh -

Samantha M. - Great question and some excellent responses and I wanted to point out two in particular (no offense to all the great responses).

Bill G. beat me to a comment I wanted to make on here. There is nothing that can replace time and experience as it relates to properly evaluating the repair costs and I know many like Charles Perkins and Don Hines commented that doing things your self or 'getting your knuckles bloody" and I can only say they are 100% correct. Nothing beats experience.

Will Barnard did an AWESOME job of providing a materials list and telling you to go to Lowes of Home Depot to track pricing. This is something that every investor should do if they do any work on investment properties. It is the only way to get inside of the costs of a renovation. You have to know what shingles costs, and toilets, light fixtures, faucets, flooring, paint, etc... all the way down to nails. From there, my company developed an I-Pad app. that our renovation managers use that has 300+ questions on it that goes room by room, item by item all the way down to small issues like the number of light plates that need to be replaced. Because we know the cost of everything, the program then tabulates the cost and prepares a list of materials for a contractor.

That kind of detail comes from doing hundreds of projects a year and keeping a detailed analysis of what everything costs including your labor. At some point, you will be able to walk through a house very quickly estimating the rehab (under 30 minutes) and be within $100 dollars of actual costs. Then you hand your list to a contractor with the SKU's of every item they are to use in the house and you will be spot on with your pricing.

Sorry this response was so long, but there was some great advice and I still think the best thing to remember is that it takes time and experience to get really good at anything worth doing.

best of luck Samantha -

Chris

Alex R.,

I applaud you for looking for novel way to approach renovating your project and to your follow up question, IF you can find someone who will renovate your project and agree to get paid at the end of the job, then sure - give it a shot. I think J Scott has given you a more than thorough run down of what real life application is like. Doesn't mean that you shouldn't ask an certainly doesn't mean you shouldn't look, but time and experience are really the only two things that are going to help you here.

Most everyone that has responded has said that it would be difficult and not very likely that you will find a GC contractor to take you up. They are coming from a side of experience. But, over time, you absolutely can develop a relationship where you set the budget, the time frame and the expectation and the contractors follow your lead. Unfortunately, that only comes with time and only comes after you have earned the right to operate that way.

Best of luck over there in Bakersfield -

Chris

I would agree with you on their figuring out they were not making money. Unfortunately, we have heard time and again about algorithms and formulas that will work regardless of market - and more importantly - they were not concerned about price point and neighborhood. Most experienced investors, especially those like me who have made good and bad decisions with regard to neighborhoods and price points, will tell you that challenging neighborhoods where you find "cheap" properties cannot be approached with algorithms and formulas. You can lose a lot very quickly.

I would guess that any fund that is committed for the long haul is smart enough to monitor and adjust their strategy as they go.

welcome Jared. Let us know how we can help!

Chris

Im not sure what you are asking when you reference 'turnkey' and contractor in the same question about the renovation materials and costs. Are you asking about having two contracts with a turnkey vendor? One for purchase and one for renovation?

It is not common to buy a turn key property without it being renovatd first and probably unlikely that a turnkey company would sell you a property and then enter a contract for the renoavtions separately

You are exactly correct!

I am positive that some have already figured it out and have made some good inroads, but many that we talked to personally completely discounted the value of property management and we have seen signs already in Memphis of poor management leading one large fund to continually change tactics. They are getting hammered with properties sitting unrented, properties going vacant after only a couple of months, rampant theft at vacant properties, repair costs every month because they made the decision to go cheap on the front end.

This is a very familiar story and many individual investors have lost a lot of money due to these same poor decisions. The funds have deeper pockets, but i am not sure how long some will continue to operate in an industry where there are so many unknowns and where property management plays such a key role in the success.

We'll see -

I know it is different in every market, but we have not had a significant amount of trouble dealing with large Hedge Funds or pool buyers that have entered our markets. They are here and they are buying a significant number of properties, but so far have not had any impact on our ability to find and purchase inventory.

I think you are very smart for having a plan. That is the biggest mistake some investors are making. We started planning a solid 90 days before the first real significant Hedge Fund started acquiring and it has paid off. Others we know did not and they are struggling right now.

I think your success will lie in how well you are able to adjust your strategy and follwo some of the simple advice on here as well as the steps you laid out. A more varied supply of sources, a recognition of tighter margins and a strategic decision to join them where you can't compete and beat them where you can.

Good luck -