All Forum Posts by: Sue Hough

Good morning all!!  Unfortunately I have had two subs through the years attempt to “squeeze” me for more money after the final payout.  From a legal perspective, if I had a notarized final lien waiver there would never have been any problem to solve.  I hate having to solve unnecessary problems...LOL!

As @Jay Hinrichs stated, it may be easier to mail checks, but I do like the comfort of knowing my subs, myself and the homeowner (if applicable) are protected.  I have never had a problem with any sub issuing me a notarized waiver, I hold the check until I receive it....this elevates the reluctance since they want to get paid.

Good luck,

Sue Hough

Good morning @Rigo V.!  I am an investor and am also the owner/founder of a residential construction company for 21 and 18 years respectively.  @Mike Zins is correct, “draws” operate on work complete and do not allow for money upfront.  Here are some guidelines for you to follow, and protect yourself;

1.  Draws are not something you can request every week or so as they require inspection and processing, and usually a fee of a few hundred dollars.  There is a standard “schedule”, meaning when money is requested in the construction industry, and most tradesmen are familiar with it.  Here is the typical draw request milestones;  Completion of foundation includes; excavation, foundation, architect, underground plumbing and temp electric.  Completion of project being “weather proof”; includes framing, roofing and windows.  Completion of rough inspection (which is when plumbing, HVAC, electric and framing has passed inspection and you are approved to insulate) includes; plumbing 75%, HVAC 90%, electric 75%, framing 100%.  Completion of  flooring includes; insulation, drywall, partial paint, hardwood floor and bathroom tile.  The last draw is the “final” and covers all that remains.

2.  Your subcontractors should be aware of this.  Feel free to share with them the name of the lender and a copy of your Sworn Contractors Statement, which is the document your provide your lender with the name/address of all of the subcontractors and their contract amount.  This assures them they will get paid and elevate their apprehensions.

3.  ALWAYS, let me repeat - ALWAYS, require a notarized waiver from every sub before you put a check in their hands.  Make sure it is complete.  Get a final material waiver for all materials delivered to your job site as they can lien your property if they are not paid.  There are two types of waivers; “partial”is used when work is ongoing. “Final” is just that.

4.  All contracts between you and your subs need to be in writing which include; date, amount, specific work to be performed and payment terms.  It can not be a text.

5.  Make sure all subs provide you with a certificate of insurance which includes a minimum of $2,000,000 liability.

Good Luck,

Sue Hough

Good morning @James Geary!  Glad you are taking some great steps to becoming an investor.  The Q&A forum here is wonderful, with people offering advise within a few hours.  If you want any advise, don’t forget to ask a questions...

Good Luck,

Sue Hough

Ask the city, as I am not aware of their procedures, what can be done to change the lot to residential 2-4 unit?  As long as you stay within 2-4 units it would be a residential loan for both you and the buyer.

Good Luck

Sue Hough

@Trevor S Foster good morning!  I am happy to see you thinking about options, as that is the biggest sign of your success.  Markets will change, that is the one certainty in this industry.  Your ability to re-invent yourself is what will define your success.

In the Chicago market we have been experiencing a slow down in viable whosale deals for about 2 years.  All of the investors I know wear many hats; wholesale and fix and flip and buy and hold.  I believe that would be a great strategy for you to keep things moving.

@Marc Winter is right on target with his advise.  Start taking every investor you know out for coffee.  Prepare a simple 2-3 page business plan for your coffee chats which include; your 3 year goals, target market(s) and the composure of those (schools, income, crime rate, 3 year real estate market trends including market time and comps, etc), end strategy, and your anticipated financials.  Include some charts and photos of the markets you are interested in.  Make sure your target markets are focused; no more than a one square mile area.  This will make you a master of your market - laser focus.  

While this is going on learn your market hands-on.  Have your realtor set up searches for your target market(s) to be sent to your email every morning and every evening.  Go into as many properties as you can every week which are for sale with the following intention; see which properties are selling the fastest and how this compares to the location and the interior finishes (flooring, paint, cabinets, tile, etc).  You will begin to see a pattern here and you will soon learn what finishes are necessary in your market and corner lots on a busy street sell for less :). The finishes are important if you are going to fix and flip as they are a critical factor in your construction budget.  Finally call the local municipality and speak with the business development office and ask if there are any changes in the near future and what plans they have for future developments. After a month or two you will know your market like the back of your hand, and you will be able to converse with your investor friends with great authority.

Good Luck,

Sue Hough

@Austin McCall,

Since the building on the property is Victorian, I will assume it is a single family home being used as a commercial space.  Have you considered changing the zoning?  If you are allowed mixed use, in the Chicago area, they may be open to converting it to single-family or low density multi-family.  Unless you can change the zoning, you will continue to have your lending issues.  Also, long term, you may not be able to sell it to a traditional buyer, since they will be restricted to a commercial loan.

Good luck,

Sue Hough

Hello Keith.   I have found through the years there are three major components to a real estate investment. 

1.  Knowledge

2.  Time/ sweat equity 

3.  Money 

 If you can identify which one or two of these elements you possess, then you will know  what element a good partner would be for you. For example, if you know of a wonderful opportunity and have the ability to do much of the work yourself -  that covers it knowledge and sweat equity. Therefore, you would need to pursue a partner that is going to bring finances to the table.  Conversely, if you have money available to invest but are new to the industry, you would want to pursue somebody that has knowledge and the time to run the project. 

Good luck,

Sue Hough

Geo,

 Welcome my newbie friend!   In my humble opinion, if the numbers are solid a cash flowing property is great security  and has many underlying benefits.   Fix and flips are fun, and they usually can provide some quick cash, or they can provide a quick loss of cash.

 Stick with the buy and hold and if you can put together a few of them, then go for the fixing flips so you have something to fall back on. 

Good luck,

Sue Hough

John,

 I agree with the comments of  all of the previous great advise! First things first though, you need to find out what the zoning is on the property and if it is even compatible for multi family residential. Then you need to check into the composition of the soil to see if the property is even buildable, you need to check with a soil engineer.  Then you would want to contact an architect and most definitely partner with somebody on this who has a lot of experience. And multi family ground up construction there can be a lot of pitfalls and you want to avoid as many as possible. 

Good luck,

Sue Hough

Justin,

 I totally agree with  @Michael Broudy.  I have been a general contractor for 18 years in addition I have been an investor for 21 years.   Lenders are aware of “Reasonably Unforseen”  ( not visible or reasonably expected) events  during a construction project and they happen all the time, this results in a very simple change order. Your lender may not want to do it you may have to be firm, but that would be my first plan of attack. You may want to consider restructuring some of the costs to offset this expense, for example going to a lower grade kitchen cabinet and putting on some nicer hardware.  Perhaps you may have to do a little bit of the work yourself. 

 Good luck, 

Sue Hough