Today is July 10, 2007.
This marks almost 4 months I've been working on a real estate deal.
Originally began as a potential flip. A guy with a bunch of rental properties contacted me from one of my ads. He wanted to sell me 4 of his Single family homes/rental properties.
I got them under contract and begin in my last trimester of pregnancy and began trying to wholesale the properties. At that time I had not even seen the properties. Todd was in Watertown and took a quick look at them. He sent me photos but I had NO IDEA of the poor condition these houses were in. They were fully rented so I assumed a basic level of living conditions.
Mental note...
Everyone has different standards for livable. I guess the tenants did not mind but the people I was trying to wholesale the properties did. So I still felt the numbers were there. It just meant that I would rehab them.
Finding hard money proved to be an exercise in futility. Eventually in the 11 hour a private lender appeared. I truly believe Pedro is a result of the law of attraction.
So 2 of the properties were cut out of the deal because structurally they presented too many problems.
That left 2 houses for 37.5k each.
..................................................Cooper St .............................................................................E Main stTenants
giving notice - clean house
Dealing with tenants is proving to be a pain all over in most cases. I have to say the tenants from Cooper St were STRAIGHT out of the Jerry Springer line up. Mom running around cussing at kids and anyone else that she can take her frustrations out on.
When she found out the house was being sold the crap started to fly. She started bashing the land lord and he was in that much of hurry to be done with her and the house. We asked the landlord/owner and her for permission to bring a contractor by to get an estimate. At first they said no. They later changed their minds and agreed to let us in to look around.
While she lived in the house she had a fence in the back yard. She wanted the landlord/owner to pay her $1500 for 'her fence'. He promptly said he was not paying her anything and that we were the new owners. So that was the reason she agreed to let us in. She wanted to tell us why we needed to pay her for the fence. The fence by the way was donated to her because she has a son with special needs.
I had originally planned to give each of the tenants a few hundred dollars for leaving the place in decent condition but In between her expletives It was clear her demands for $1500 would keep that from happening.
We did not give them $1500 for the fence and in her rage she had her husband and friend did up the fence. We came by and she went back on her tirade because me and the landlord/owner caused her to loose 3 new places to move into by not giving her $1500.
She told me she had been trying to call me non stop for 2 days before she dug up the fence. I guess she had the wrong number, but regardless I was glad I had not heard from her.
She asked me if I wanted the fence. With a puzzled look on my face I asked if she had taken the fence out already. I saw that she had what was now scrap metal behind her. Then She said she could put it back. I shook my head and wandered off as she called the landlord/owner to cuss about some other issues.
Contractors
ok dealing with contractors is a crap shoot. In interviewing contractors I've encountered some of the most shady characters. They mostly fit into one of 3 groups. Those that were probably just crooks ,those that gave estimates so high it was not worth discussing and those that took a look at the filth and didn't want to deal with it. The odor and sheer quantity of roaches send many people out the door soon as they took a look around.
Those that fit in the first group of possible crooks continued to call. I thing between myself and Todd with his back round in law enforcement and criminal investigation we have a bit of a radar that goes off when we sit and chat with people for a while. I asked for written ITEMIZED estimates along with references and insurance certificates. Most of this group faded like the roaches with this request.
Of those in the second group that appeared more honorable they had higher estimates so it was a matter of taking with each one to see how we can get the costs in ballpark. Another issue was schedule. Those that did good work were usually booked out months in advance.
We ended up with Kevin. An added bonus, he had a large crew that could take in an additional job in a reasonable amount of time. We negotiated 3 payments. The first payment to cover the cost of materials. A second payment when half of the work was completed and the final payment AFTER I sold the property. I explained I was looking for a quick sale so he eventually agreed and it gave him added incentive to keep to the schedule.
Inspector
So I had a prelim home inspection done once the house was gutted. That gave me a list of things that the house was deficient on. There were not has many as I had thought.
Gut check/Electrician
I have very little knowledge of electrical systems so I had no real number to budget for electrical work. I knew I would be leaving myself open if I talked to someone and they realized my lack of knowledge. On the electrical side it was mostly a matter of adding some outlets and converting some that were not grounded.
The general contractor gave me a referral of a guy that he said was licensed, reasonable and able to get out come out quickly for an estimate.
The guy came out that evening and looked around. He said it would take about 16 hours to do and gave a price of $560. I thought that was a reasonable amount to pay and I would be able to market the house as having an updated electrical system. The only catch was that I would be providing materials. I agreed because at least I knew there would be no hidden mark up. Of course it was a learning experience in the cost of electrical wire. I still have to total the receipts but that was around $200 I spend in Lowe's for the materials.
He appeared very knowledgeable and he mentioned something about his church so he got the bonus points. I guess that was a good thing because otherwise we might have had second thoughts, especially when he asked to be paid in cash at the end of the FIRST day. I ended up only giving him $400 cash, the rest by check at the end (noting on the check memo how much cash I had given him).
He began work the next day. His work looked very professional and he even began to ad things that were not originally in the agreement. We got the closets wired for lights, a line wired for proper use of a washer and dryer. Then on day 3 Todd stopped by the house early in the morning. They chatted for a bit and he casually mentioned it was taking longer than he anticipated and his regular rate was $35 an hour. Todd told him he needed to talk to me and left for work.
I did not hear about this conversation till after Todd got off work. EEESH What?! That meant he was expecting the was starting a new tab at $35 an hour. So we rushed over and I explained to him that we were limited to the original estimate given. He was somewhat disappointed but agreed to finish up in hopes of doing additional work on the other houses we had lined up.
Lesson learned: Every one doing work should submit a WRITTEN bid/estimate outlining the work, price and requirements that changes be approved in writing. Also have every one working sign an independent contractor agreement.
Schedule
I'm a certified project manager. I have to measure. So my prelim schedule outlined 4-5 weeks. I have the financing in place for a max of 5 months.
July 16-22 exterior Installation, windows,
July 23-28 siding, roof, exterior doors, landscaping
July 30 - 8/4 electrical, plumbing , dry wall
Aug 4 -7 kitchen, bath, lighting, interior doors, painting, flooring
Aug 6-18 interior detail and show house to get a contract.
At the half way point start the process on the other house.
I realize I will be adjusting as I go along. At this point it's more about tracking estimates to actuals so I can have the data for the next one.
Cost Estimate
OK So I admit my original cost estimate was a vague shot it the dark. I wrote down $15k. At that time I had not even seen the house. I only had a report from Todd. My criteria was to ask him if it was a house that he could live in. His answer as 'With a little bit of work."
I had no idea what a little bit was, nor the enormity of the colony of roaches currently residing in the house. Well I guess that is a lesson in communication for us.
I learned to ask for specifics. That could have avoided a ball park estimate that was only half of what it would take. Todd, I guess he learned to give specifics. When I asked if he could live there he NEVER dreamed that would be the case. In finding ways to make this project work financially I discovered insurance would be much cheaper as an owner occupied. 30 days from now, we will in fact move into the Cooper st house. That reminds me, I need to call the exterminator back!
side note ...
Learning to live with a military husband. We've been apart a lot. I have to learn to accept the fact that he probably will never clean the stove top after using it. (Nor am I likely to clean the cars after using them) :)
3rd BTSB
Looking at my estimates I see there is at least 16K for drywall material and labor. That is a surprise to me, especially when I check Lowes and they are about $10 a sheet. I didn't know the measurements or how many if would take, I just never dreamed to pay 16k for it. So my resourceful DH comes through. He has 4 soldiers ready to come out and help clear out the trash from the house.
In two days I had most of the junk out of the house, along with the kitchen, bathroom and 3 rooms demolished. I spent a few hundred dollars for the labor (as well as beer and pizza). We also filled TWO construction Dumpsters at $300 a piece. I spent about $1000 for the weekend but when I had the contractor back in afterwards I got the drywall price down to 8K!
The guys came out several weekends to work. I gave them each $10 an hour an supplied pizza and beer for lunch. That worked out well, especially since it came with Andy. He had experience with demo/drywall and actually liked doing the work. He made jokes about the roach problem but they didn't scare him away. I wish we could keep him involved but he goes on some type of detail for a month in August.
I also put an ad on free cycle. Found a guy that was THRILLED to take the dresser, entertainment center, computer desk and some panelling from the demo. I have to really thank the roaches for not ruining that guys excitement when he came to look at the pieces. That saved me by not having to have them hauled off.
Getting rid of the appliances has not been so easy. I guess the roaches are more of a deterrent to people when looking for free appliances. As of right now a salvage company said they will send a truck for them in two weeks. I'm hoping they come on a day when the roaches have been tamed by the exterminator.
July 25 photos:
cheaper labor:
So I need to find areas to cut costs. Kevin is a professional contractor. I have confidence he'll do a good job. The other jobs he's done look well done. His charges reflect that. I need to find some areas that I can get nice work but more cost effective.
- painting
- landscaping
- flooring
Bingo! Picaso is a guy renting a room down the street. My remains of the Spanish language are enough to make a new friend. He is originally from Puerto Rico and NYC. He does landscaping during the day and would love a side gig of landscaping this house as well as painting. Bonus! His brother Cesar does flooring for a living. I can get the three tasks done for a 10th of the general contractors price (+ materials).
Exit strategy
I've heard enough horror stories of new rehabers trying to FSBO to save agent fees and it ends up costing them twice as much in the long run due to all the holding costs when they can't sell it quickly.
Here is my plan: When the exterior of the house is done and the dry wall is mid way. I will begin marketing the heck out of this house on my own. I will spend 2 weeks on a massive (mostly free) FSBO advertising campaign. I'm going to work with an attorney and a lender to draw in prospectives.
I have a list of on popular on line sites, I'll be distributing fliers to target military families that need housing, then I will evaluate placing a news paper ad.
I've looked at comps and feel I can price it to sell in those 2 weeks.
My plan B is use a flat fee MLS listing service and offer the regular 3% plus a bonus to selling agent.
Better yet, Todd agreed to get a real estate license. He's now in the required training class to sit for the NY state exam. He can list the property as well as gain access to the MLS for more data in recent sales.
Don't make competitors, make friends
I check the papers, neighborhoods and websites for signs of other investors and rehabers. When ever I can I call them up, chat and even invite them to coffee. It's an excellent method of working with people that I credit to MFG.
Instead of a possible competitive relationship. I offer a friendly networking relationship. We get to know each other. If there is anything I can offer I do so, without restriction. ie) I had a TB lead come in to my web site. I offered it to a guy that needed to fill a property ASAP. He was more than happy to take the lead and I was more than happy with the contractor and local (investor friendly) attorney referrals he gave me.
There are 3 more right now that I would like to schedule get togethers with right now. We'll meet and chat over coffee or lunch. It amazing most people have more in common than they could ever realize once you get to know someone.
August 1st 2007
original schedule
July 16-22 exterior Installation, windows,
July 23-28 siding, roof, exterior doors, landscaping
July 30 - 8/4 electrical, plumbing , dry wall
Aug 4 -7 kitchen, bath, lighting, interior doors, painting, flooring
Aug 6-18 interior detail and show house to get a contract.
Learning points:
- Find out if your window size is in stock upfront. You need these in before siding
- Many people (and contractors) are scared off by all the roaches. I am too but I've learned where they are and avoid their living space. I didn't realize the extent of the situation. I wish I had the exterminator out twice the first week. It takes 24 hours after she sprays for the treatment to dry and to go back in.
Revised schedule:
July 30 - 8/4 windows , roof, exterior doors, electrical
Aug 4 -7 siding, plumbing drywall,
Aug 6-11 kitchen, bath, lighting, interiro doors, painting, flooring
August 13- 18 landscaping, interior detail, open house
E Main ST
The tenant in the East Main st house is moving out today. I thought he was going to be there for August so now I can begin work there.
My original plan was to use the same contractor but now I am making more contacts and will bid this job out as well. This house is almost twice as large but I think I can get a better price for the work with all I've learned so far.
This house is 100 times cleaner than the Cooper st house but to be on the safe side I sent him a letter offering him $200 for leaving the house in good clean condition. That's a great deal in comparision to the $1000 it cost me to clean up Cooper st from the tenants.
