All Forum Posts by: Rogers Smith

@David Zheng In another life I was a banker/M&A specialist. A lot of what you asked depends mainly on the size of your operation, the management systems in place, and the skills and smarts of your management team. A lot of small businesses, especially in the construction space, are simply one to five man operations, with the owner playing an integral roll. Remove the owner, and the enterprise shuts down. These types of businesses, even if they are wildly successful have little value beyond the book value of the assets.

When we would consult with these types of companies we would invariably recommend the owner endeavor to divorce himself from the business over time. This process would include developing or buttressing management systems, delegating most of the owner's current activities to other staff members, grooming a second and third in command, and instructing the owner to take a lot of days off. Over a reasonable amount of time, the company would begin to run itself. In a way it would be similar to what we call in rentals a "turnkey" investment.

This is how a business builds value over and above its assets. We call this intangible value. Without it, most small businesses will be worth no more than the book value of their assets. 

When you say contractor, to whom are you referring? An accountant doing your books? A plumber working on your flip?

@Mindy Jensen Thank you for the post. I'm having a problem with my profile and I can't seem to find an answer. Next to my picture its says I'm a flipper. I think I chose this when I set it up because "Contractor" was not an option. Any advice on changing this?

@William Hiday thanks for the kind reply. I've run the numbers inside and out, and the build to rent model works under the proper conditions. The critical issue is buying the lot right. Without that, the math won't work.

I have my eyes on an older subdivision with dozens of available lots. It is further out of town than I would prefer. But, it is still in a good school district, and houses in the 1,200 square foot range generally sell in about two weeks. I am meeting with the owner of the subdivision next week to see if we can work out a deal.

I envision building four houses at a time, 3:1 spec to rental ratio. My construction lender is a well-run local bank who also does rental perms for 20 year fixed. My capacity tops out at around 2 million, so I cannot light the world on fire with this new endeavor. I still need borrowing capacity for my normal 2500 square foot house spec business, along with warehousing a few lots.

A lot of this project will depend on the result of my meeting next week with the owner. If we cannot come to terms, the project may not happen. But if it does, it could be a whole lot of fun.

@Mindy Jensen you're a lot smarter than I am. Most of the time I can't remember what I had for breakfast.

Thank you @Mindy Jensen. How do you know if you are voting for someone frequently? Do you simply recall? Is there something in BP that tracks your votes?

@Mike Cumbie That makes sense. Rather than wasting time (yours and others) replying "I agree" to every post to which you agree, simply vote. I'm getting the hang of this stuff. 

@Clint Galliano good to hear from someone on the bayou! Spent a lot of time down there in another career in another life. Sounds like a promising find. How is your price/square foot living (including land) compared to the comps? If you're opening walls you may consider adding a bath somewhere. If you can find a drain stack somewhere reasonable, the cost would not be that much using PEX in the attic for water supply. Or if it is a raised house (like many in the Houma area, it would be even easier to add a bath.

Thanks @Nick Watkins. That makes sense. Does etiquette follow that I should vote almost all responses? Because I am invariably appreciative of thoughtful replies. Love the picture by the way. 

This may be a dumb question, but its early and I'm old. When I read posts in the discussions there is an option to vote. What is the function of voting?