Posted by rm on July 29, 2003 at 08:48:34:
Someday, when I have all the marbles (or at least more than I have now), I can hope to be as sharp as you and Mr. Chin.
Just venting 
- Posted by michaela-ATL
Posted by michaela-ATL on July 27, 2003 at 07:19:06:
Boy, am I kicking myself for partnering up with someone, that has never done a major rehab. I just couldn’t find any hard money lenders, that would fund without me putting money in the deal, so I partnered with someone, that had the funds and who owns several mobile home parks.
He doesn’t understand, that major rehab is not an exact science. This house was filled with ‘stuff’ top to bottom - all 2500 sqf of it. There was a little trail in between. I couldn’t see the walls, floors or most of the ceilings. Couldn’t get any contractors in to give me bids, but I know it was an awesome deal. Bought it for 70K. ARV is 250K. I itemized my budget at 50K, plus 10k for all the little unforeseen things, that always happen. I expected the city to take the ‘stuff’, since it was all household goods, but they informed me, that it was too much and they would fine me, if I didn’t haul it off right away. Well, we ended up with about $ 2k for people and dumpsters to get rid of it, which I didn’t foresee. I’ve been on site from 8 am to 6 or 7 pm these past 2 weeks. I’m right on budget on the roof, the sheetrock/plaster work (which was total guesswork, since I couldn’t see the walls), the electrician was low and the plumber is high - they cancel each other out. My CHA is $ 4800, instead of the hoped 4K. Any of you, that have done major rehab will know, that there’s just no way to budget for every little thing. Well, he thinks I’m doing a bad job, because I’ve had unforeseen things and have gone over on some items. I think I’m doing an awesome job by being able to be so close to what I budgeted. Also, he doesn’t want me to give advances to anyone working for me. Have you ever tried hiring an electrician or plumber, that is willing to work without anything up front? It’s just not realistic.
I don’t know how this is going to end up. I think I’m doing great for staying within the 60K. He thinks I’m doing bad if I go over the 50K itemized cost. Unfortunately, I signed a clause, that if I go over budget he can take the rehab away from me and finish it and deduct any cost overrun from my share. He already threatened to do that.
Kids, don’t ever work with anyone, that hasn’t done your end and can’t appreciate what you’re doing. I may have done a major mistake here.
michaela
Re: Just venting - Posted by CPM
Posted by CPM on July 28, 2003 at 15:38:24:
“I just couldn’t find any hard money lenders, that would fund without me putting money in the deal, so I partnered with someone, that had the funds and who owns several mobile home parks.”
Seems to me that you are forgetting an important part of the equation…
Re: Just venting - Posted by Investor-Rama
Posted by Investor-Rama on July 27, 2003 at 17:36:05:
Hey,
How many rehabs have you done, and how many per month on average?
I enjoyed the exchange on the subject, and I am sorry it has happened to you, but it sure helps others like myself!
An Investor’s View - Posted by Frank Chin
Posted by Frank Chin on July 27, 2003 at 12:11:09:
Hi Michela:
What you described is a typical case of two partners, one doing the work, and one supplying the cash.
I was on the other side of the fence myself some years ago.
As the investor, I relied on my partner’s judgment on the ARV, and the rehab cost. As it turned out the ARV was lower than what he said, and the rehab cost turned out higher.
His attitude seems to be “So what??”
Not making any judgments here, if the ARV turns out to be 230K instead of 250K, and the rehab cost turns out to be 60K instead of 50K, then the profit is reduced by 30K. It would make a big impact on the investor’s ROI.
As the investor, if my partner’s rehab cost is not solid, how solid could the ARV be?? Then again, are there going to be unforseen zoning issues that pushed the rehab cost higher? In my case, he didn’t know that houses hooked up to a septic tank had to be hooked up to the city’s sewer system, before the property can close, - not a small detail.
So why should it come out of my pocket?? Am I supposed to know that, or him?? After all, if we know we got the higher rehab cost, and we know we actually got a lower ARV, we shoud’ve offered less money to begin with - also his job.
In my agreement, I take 90% of the projected profits before he takes his. So if the numbers given me turned out wrong, it comes out of his profits, and it did. If he tells me my cut is going to be 30K - I expect at least 27K. Just making 15K is not going to cut it.
He complained, but in the end, my return wasn’t bad, and he got less than half of what he hoped for. We both walked away making a few bucks.
My view is that its NOT MY JOB to determine ARV and rehab costs, it’s his. So don’t come to me after and complain about unforseen things, its not an exact science, and how was he to know the market changed, yada yada. After all, if I had to sit down and figure all that out - “what do I need him for??”
And if he tells me that it’s for finding a deal, I say that I can use a Bird dog instead for far less money.
Yeh, we did have a little shouting match before the closing, and I was glad I didn’t agree to the 50-50 deal he proposed originally.
Frank Chin
Not venting, just inventing ideas - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on July 27, 2003 at 10:45:05:
Michaela–(GA)---------------
Congratulations on getting a great deal.
Here are a couple of ideas:
Now that you are getting along on the rehab, could you find another lender? Refinance and pay off the person.
Ask the person to talk to a couple of other rehabs or contractors and see what they think of the situation.
Sit down with the rehabber and really get to know him. Ask him about his businesses. Hasn’t he ever rund into more problems than anticipated?
Try to hire some low-cost laborers to do more of the work that does not require too much skill. They can get the projects ready for the high-end folk.
You have so many investors there in Atlanta, why don’t you offer to “mentor” somebody about the rehab business? You require that they finance the deal upon which you are working. In exchange they get an interest rate return on their money, plus you personally show them how you are doing the thing.
Do you curse in German, or have you switched over to English on that? Or a mixture?
Good InvestingRon Starr********
Re: Just venting - Posted by Jeffery (La)
Posted by Jeffery (La) on July 27, 2003 at 10:23:32:
First of all, congrats on such a great deal!! Secondly, Yard Sale next time if you can. You get paid for people taking the junk away. I’m a contractor that does rehabs, remodels and so on and have been for quite some time. (I’m just now getting into REI) Given the info that you gave us, I think you’re doing a great job! It takes a lot of dedication for an owner to stick with a large project. Perhaps your partner is getting frustrated and that’s understandable. If $60k was your budget and you you stay inside that budget, then you do better than some contractors I know. In the remodel biz, we ALWAYS bid 10% to 20% over projected costs for the little things. Major things are a different story and my contracts protects me from that. As far as deposits go, our policy is to require 15% - 25% depost depending on the job.
Keep up the good work and let your parter know that I think you’re doing great! One more thing, get rid of that over budget clause next time. [
Best wishes
Jeffery (La)
Re: Just venting - Posted by Willie
Posted by Willie on July 27, 2003 at 09:08:34:
That “unfortunate” clause seem to be your down fall. It sounds like he had plans to take the deal away from you all along. You may need an attorney. Don’t let him get away with it. Have the attorney tell him, if the attorney agrees, that his contract is arbitrary and all those other words attorneys like to use and if he persists legal action will be taken and cost of attorney fees will be included.
Re: Just venting - Posted by Kim
Posted by Kim on July 27, 2003 at 23:52:04:
Michaela, I feel your pain and have been in your situation. Bought a 3br/1.5b all brick needing about 6k in fix up. My partner (son) and his partner thought they could do rehab better than I could so after the first 3 weeks (during which time they were meddeling and slowing things down) they stepped in on a rehab that should have taken 3 weeks to complete. That was in Nov. 2002 and still the rehab isn’t done lol. Testerone is a funny little hormone. When I was the GC everything was on schedule and with in budget, it’s not now lol and I have been divested of the deal and any profits. Fortunately I was not relying on profits too heavily so the fact that they are slipping way rapidly concerns me little. I have learned not to do business with family and not to lose control of the deal.
Kim
Re: An Investor’s View - Posted by rm
Posted by rm on July 28, 2003 at 19:07:46:
Gee whiz, 90%?
Who does these kinds of deals?
Re: Not venting, just inventing ideas - Posted by michaela-ATL
Posted by michaela-ATL on July 27, 2003 at 12:00:37:
Ron,
thanks for your advice. I really don’t think, that he has the intention of taking it away at this point. He just hinted at 'remember what we agreed on, if we overrun on the budget", which to me sounded like a threat, which i thought was uncalled for. He has never rehabbed anything and I don’t think he has any intention of spending his time doing this rehab. My frustration is more about the fact, that he doesn’t seem to realize, that I think I’m really doing a great job, even if not every $ figure is exactly the way it read in the budget. Most rehabbers go over budget even on cosmetic jobs, so to stay pretty close to the original number when you can’t even see the walls, ceilings, floors or systems, is pretty good as far as I’m concerned.
We have just finished the roof, the demo, part of the electrical rough-in and part of the framing. The house is not in the condition, that I could refinance it, yet.
I have hired low-cost laborers to do the clean-up (just imagine what the number would have been, if I had hired some big company ). We’re now at the stage, where everybody needs to be skilled. We’re finishing framing and our rough-in inspections middle of the week. Then we’ll hang sheetrock and start trim.
I like your idea about the ‘mentoring’ and allowing them to lend me money for the deal while I teach them. I’m going to take a closer look at that possibility. Thank you. I definitely have the experience and I’m pretty well known as local rehabber.
I’ve been in this country 21 years and I think and dream in English. I was still very nice and naive until I moved here, subsequently I only know how to cuss in English
Michaela
Re: Just venting - Posted by Michaela-ATL
Posted by Michaela-ATL on July 27, 2003 at 12:19:51:
Jeffery,
thank you for your nice words. I know he’s getting nervous, because we’re only 2 weeks into the job (we closed monday 7-14 at 11.00am and my roofing crew was on stand-by and started at noon) and now he’s seeing all these big numbers, without really seeing that much of a result, yet. Yes, the roof’s finished and we’ve done the demo and are in the middle of framing. The electrical is partially done, but it still looks like a house in need of work. Of course all the big systems are already being dealt with: roof, electrical, plumbing, CHA, carpentry, ordering Kitchen cabinets etc. So, he sees contracts being signed, but not that much of a result, yet. I have a lot of people working on the house at the same time and can get it done quickly, so, we’ll see. I think he’ll be ok, once we’re past the rough stage.
As to the Yard sale idea - Actually 2 days before the closing we put out signs everywhere :“free clothes and stuff”. Very few people showed. My idea was to let everybody, that got something, bring out 1 bag to the curb. Well, very few people came. So, I brought out bags and boxes from 8am to 4pm. One other scavenger hunter helped me, hoping to find some things for himself. Of course the seller wanted to look through every bag before and every bag and box got ripped apart once it was outside. Her stuff was so neatly packed inside the house, that it seemed like a lot, but it seemed managable. Somehow once things were outside and torn apart, they turned into a 50’ wide,
40’ deep, 7-8’ high mountain of clothes and stuff. People came from far away, because they’ve heard about this and had to see it with their own two eyes. It was
unbelievable. I had code enforcement, the building inspector, sanitation and city council on my back - in addition to every neighbor.Threats of fines and lawsuits against me were brought up. This mountain of stuff was unbelievable. I have never dealt with anything like this.
I guess I’ll see how this goes.
Michaela
Re: Just venting - Posted by michaela-ATL
Posted by michaela-ATL on July 27, 2003 at 12:25:48:
Willie,
I don’t think he really intends to do it, but just used it as a reminder. He’s busy with his stuff and doesn’t have time or interest in managing a big rehab like this. I hope I don’t find out differently.
Michaela
That’s not what I mean - Posted by Frank Chin
Posted by Frank Chin on July 28, 2003 at 19:50:47:
Hi RM:
Let me give you an example of a deal.
My partner says we can make an easy 50K split 50/50 if I only put up 50K. He puts up nothing.
If I put up all the money - do you have any problem with me taking 90% of 25K (my cut), or 23.5K FIRST before you take your cut, if the project doesn’t net 50K.
So what does this mean?? If the project nets 40K - I take 23.5K, and you take the rest, or 16.5K.
If your answer is NO problem, I’m sure the project will net more than 50K - I got a good feeling that the deal will fly.
If your answer is - What if the project only net 30K, so I only get 6.5K ???
My answer is - So YOUR NOT SURE of the 50K, are you??
Then what are going to say to me - rehabbing is not an exact science, maybe the market will go down etc. etc.
In other words - are we suppose to split 50/50 even if the project makes 25K - not 50K. Suppose you forgot to check zoning - am I suppose to eat the loss?? or is it your job??
Remember, the partner who puts up nothing makes an infinite return - ALWAYS. In this example, if the profit is only 25K, not 50K, and I agreed to 50/50 regardless - I only make 50% return, not the 100% promised me.
This little descrepancy may mean little to someone putting nothing down, but means a whole lot to the guy putting up all the cash.
Frank Chin
yard sale - Posted by rm
Posted by rm on July 28, 2003 at 19:11:18:
>As to the Yard sale idea - Actually 2 days before the >closing we put out signs everywhere :“free clothes >and stuff”.
For best results, you’ve got to do an ad- and a decent one. If it just says “stuff” and “free,” you’ll get what you got.
Expanding stuff… - Posted by Nate(DC)
Posted by Nate(DC) on July 27, 2003 at 22:06:22:
Michaela,
Somehow, I find that it always seems that what looks like a manageable amount of stuff, inside the house, turns out to be totally insane once removed.
The last house we cleared out was a 3BR row house with a basement. A fairly large house - maybe 2,500 SF including the basement - and it had stuff in every rooms - but it did not seem that bad.
It took 8 people two full days to empty it and we filled three 30-yard dumpsters.
We didn’t even bother trying to have a yard sale because so much of the stuff was junk. While the dumpsters were sitting there full waiting to be picked up, a few people did come by and climb in to see if there was anything worth taking. I have no idea if they found anything…
Good luck with this rehab!
NT
Re: Just venting - Posted by Jeffery (La)
Posted by Jeffery (La) on July 27, 2003 at 17:07:47:
I’ve heard it said that remodeling (large scale) and new construction kill more marriages than anything else. Imagine what it will do to people that don’t love each other. [
Jeffery (La)
great post, I learned a lot - Posted by Anne_ND
Posted by Anne_ND on July 29, 2003 at 11:53:23:
Frank,
This is very valuable info for working with investors on rehabs. Thanks for describing your deal in such detail.
take care, Anne
Amen! - Posted by Eric C
Posted by Eric C on July 28, 2003 at 21:29:55:
Ah, Frank -
Another great post.
Take care,
Eric C
PS - we need more folks like you to speak up for us little guys who only supply the money.
Ahhh… NOW I understand… - Posted by rm
Posted by rm on July 28, 2003 at 20:15:51:
Makes sense to me now.