All Forum Posts by: Brandon Rich

Exactly my thoughts on how that capital could have been used for a downpayment on REI. If a new investor has that kind of money, then why doesn't the "coach" offer a JV of sorts and actually teach a new investor a thing or two while being hands on.. It's anyone's guess lol.

I've never known anyone to buy into the RichDad thing, but sounds like they do just enough to legally not be a scam, but it pretty much is a scam IMO. Real estate is by nature a very local business. Local REIA's, like gareia.com, have a yearly membership for only 200/year and you will meet plenty of people there that are happy to help guide new investors. They want you to succeed because they need you to succeed - It's a mutual thing in this business.

From my experience, due diligence is part of the difference between the two and the interest structure (Dutch Loans vs. Non-Dutch Loans). Hard money can be more cost effective than private money because of the interest structure alone. Private money is from an individual instead of a company that partners with asset managers or hedge funds and becomes a hard money lender. The underwriter for a HML company has a list of required due diligence that needs to be collected before a loan can even be submitted to the asset management company or hedge fund they partner with for approval – meaning it could take a few weeks to close if you can get your broker the required docs (it's usually referred to as the conditional approval process). However, that is not the case for a private lender. A private lender will partner with a broker who they trust to put their capital to work. If the broker sees a roadblock with using their HML source but feels that the deal is good, they may turn to their private money connection and make the deal happen. In return, the borrower usual pays a lot more in closing fees and might even get stuck with a Dutch Loan. As Jay mentioned, private money can save the day but it's going to cost you more than a HML would.

Typical requirements for a HML: recent bank statements, credit report, appraisal/BPO with as-is and ARV, sales contract, scope of work/budget-draw schedule, track record/previous purchase and sales HUDs/ALTAs showing the construction holdback amount, etc. And that's not even covering any loan guidelines or rate adjustments for whatever HML you go with. It's very important for the borrower to understand all the above and how it works. The more the borrower knows, the quicker a HML can close.

You might need to find a local private lender/broker who can help you with getting a second mortgage on your investment property. Lots to factor in with these type of loans, but they often happen when the borrower needs to recoup the down payment with a hard money loan. Good luck! 

 Hi Dionne! @Don Goff might be able to provide the services you are looking for. He is local too! 

This is a good question. There are many opportunities to partner with someone on an investment property if you can bring something to the deal. Aside from the usual going to REI meetings and doing what you just did by posting a question, here's a view from a lender's side... I recently underwrote a bridge loan for a borrower that had the experience to qualify, but their credit was a little lower than we would like to see. So, they ended up adding an additional guarantor on the deal who had good credit and partnered with them to make the deal work. This is just one example I have seen recently but it's not the first time I've had a borrower partner with a newer investor that could help with the purchase down payment, etc. in exchange for gaining experience.

This is a good question and there are going to be several opinions on this. In my experience, the contractor needs to be someone who is busy and that comes with a price. The GC that keeps their sub-contractors busy are the ones to go with. As a former PM, I have ran up to 6 jobs at a time with one company and 3 jobs at a time with another design & build company. I never had a problem with sub-contractors not showing up when I had 6 at a time, but I had all kinds of problems with them when I was with the company that would only have 3 at a time going. 

Probably not what the investor wants to hear, but be ready to pay a little more to ensure a timely finish - unless they plan to project manage their own jobs. Construction project management is not something you learn after just one or two completed projects... 

@Scott Wolf That's a good deal! I usually just offer my Class A borrowers and/or brokers a flat 10.5% with 1 point. But I am also just a small family business with little overhead. The only thing I ask for upfront is the fee for the appraisal. 9.75% is a good place to be.

@Kj Rustom 

- Contractor and investor agree on a timeline in the contract but there are multiple avoidable delays. What's the most 'mature' way to hold the contractor accountable? How do you know what’s avoidable in the first place? There are many reasons why delays happen and a lot of that is out of the GC’s control. I would start by saying you are an over communicator and need to know when there may be a possible delay asap. Have the GC create a list of your long lead items and make sure you cooperate when it’s time to purchase those items, so they don’t hold up the job. Many delays are also caused by the investor – you would be surprised… I would also suggest printing out your own schedule and keeping at least a 2-3 week look ahead at all times. Never go to the job site clueless of what’s going on. A good GC or PM will visit the job site to confirm that the schedule is on track and calling the trades to follow and making sure they are on schedule to start on time, or to let them know of any delays so they can plan accordingly.

- Cost overruns - In a new build, there should not be any avoidable cost overruns - unless the contractor's estimate were not accurate to start with. i.e Lumber prices are not in his control but he should pretty much be on point for labor. Who eats the cost variance typically? The estimate & SOW should have an expiration date – meaning a timeline to agree on the set pricing(s). Those costs should stand unless you do a change order during the project. Change orders come with fees and increase on labor and material. You can typically avoid these higher cost if you get WAY ahead of the change order before the task actually starts. Sometimes a subcontractor has something come up and the GC must hire a last-minute backup. I have never worked with a GC that passed any of those extra costs on to the client, but to each its own. Pending the contract, you will pay some of it if you agree to a cost plus contract.

- Quality issue and definition of done: For instance finished carpentry, painting, etc. Quality of acceptable work is subjective for certain trades and based on price point of the build. What's the best way to set expectation in the contract to avoid uncomfortable conversations and additional costs during execution? Most investors understand that they should do their own due diligence when it comes to finding a GC to work with. You can probably drive around your area and see some new builds happening. Stop and look at them to see the quality. There are new builds listed on the MLS that you could check out too. One thing to consider is the 6-foot rule – if it looks good from 6 feet away, then it passes. I have seen this verbiage in contracts before.

As a former project manager in construction, I created a lot of schedules based off the SOW. Actually being in the field and setting realistic time frames is critical. But that also has a lot to do with knowing your subcontractors and how they work (ex. who's the best for this job and how's their schedule looking, etc.) Working with a GC that keeps busy should have a reliable team of subcontractors. The GC should have their own contract and the investor should review it and then ask questions. That's how it usually works. The amount of time spent on a new build is crazy. It's why a lot have started their own design & build companies. There’s a process to the madness that just goes over the investor’s head.

I am also curious about this too. BP is a good place for starters and those who are just curious about the business. I am also impressed with most of the knowledge I see on this site. I set aside at least 30min a day just to scan through posts on here and other similar sites. You just never know what you will come across, and this industry is much larger than one may think.

For someone new, it’s simply the fact of – you don’t know what you don’t know. So, it’s nice to see questions answered. There are people that know how to do it and do it, and there’s people that know how to do it but only teach it. I personally have been working in this industry most of my life because I was born into a real estate family. It’s never-ending learning with this industry because of how much change takes place.

Maybe the best advice is to just dive into the pool with the rest of them and start talking…