When it comes to contracting work, there are three things we all want: good, fast and cheap. There’s also an old saying with real estate investors, “You can have any two of these.”
For those of you who don’t quite get it, this means if you want fast and cheap, the quality of the work is probably going to suffer. If you want good and cheap, it’s going to take a longer time to complete the project. If you want good and fast, it’s probably going to be expensive.
Many real estate investors, myself included, want to keep costs to a minimum. It’s natural to do this no matter how big or small the project. However, it’s important to keep in mind what you are ultimately trying to accomplish based on your investing strategy, so you can determine the level of work the project is going to require.
For example, if you are keeping the property as a rental, you may not require the same finish out as you would with a property you are flipping. If you are wholesaling the property, you may need to get an estimate for both rent-ready and full retail sale because your sale price is going to reflect the work required.
Once you know what you are going to do with a particular deal, you can get the appropriate contractor(s) to help you estimate the scope of work. Most do not charge for this but want to get the business. Keep this in mind so you don’t overuse someone. If you decide to wholesale full time and are not quite comfortable estimating the scope of work, you will need to work with someone that you can pay (a nominal amount) to work up a bid for you.
The Key Traits and Behaviors of a Good Contractor
A good contractor, in my opinion, is someone who:
Is full time in their line of business (i.e., general contractor, electrician, plumber, foundation repair, HVAC, etc.)
Has several years of experience (5+)
Is conscious of the needs of his/her client
Can effectively manage their money (or has someone do this for them)
Has the ability to assess a real estate investor’s needs and can quickly put together the correct repair estimate or scope of work
Can manage their client’s expectations
Above all else, is honest
I know that sounds like a lot to ask for, but such contractors are out there, and you need to find them. How? Ask other investors in your network, and/or get referrals from reliable sources. A contractor who meets the criteria above is one who can give you an accurate assessment of the scope of work needed, along with the cost, and do so in a timely manner.
Once you find this contractor, they need to be added to your team, and you need to find two backups/replacements for them. Sometimes deals move fast, and you need an answer right away. You may not have time to get that particular contractor to the property.
Also, contractors can go bad. There may be changes to the people on their team, they may get overextended, or something else may prevent them from either showing up or doing a good job on your project. You get sideways with your contractor and decide–no more! Hopefully, you won’t experience this too many times before you find the right ones.
Once you get to a point where you have experience and have some projects under your belt, you will be able to keep solid, consistent contractors busy enough that they will take your call. And make sure to pay your contractors on time. You will then have added a key member to your team, and be on your way to having success.
Many of you may know that there have been studies that show that those who write down their goals accomplish significantly more than those who don’t. I know I’m preaching to the choir with some of you here. While others might be thinking this is so cliché and such a waste of time.
If you think it’s a waste of time, follow me for a minute here: How are you ever going to get where you want to be with your real estate investing if you don’t have some idea or goal in mind? How will you be able to measure if you are getting there? Do you really want to leave it up to chance? Wouldn’t it be better to take charge and have a plan?
If you want to go to the movies, do you just hop in the car, start driving and hope you end up at a place with the movie you want to see? Of course not. How much more important is it then, to have a goal for the really important things in your life—like building real income and wealth?
So you need a goal to plan your path and measure your progress. For your goal to be measurable, it needs to be specific. The hard part sometimes can be figuring out what your goals should be. Hey, I get it because I have struggled with this too.
Keep in mind that there are basically three types of investing strategies for single-family real estate: buying rentals, flipping houses and wholesaling. Utilize one, two, or all three of these strategies, with a singlegoal for each like:
Buy one rental house this year to increase your positive cash flow each month by $400.
Flip two houses this year for a combined net profit of $40,000.
Wholesale three houses this year for a combined net income of $25,000.
These are just examples and you can use them, tweak them, or write your own. These are good goals if you are just getting started. If you already have your own goal, great! The important thing is to write it down. Just don’t get bogged down into having too many goals and then never accomplish any of them. Keep it simple and specific.
The best advice I can give you if you don’t know what goal to set is to make it easier on yourself by starting with a single deal, with one investing strategy, and write down one goal to accomplish for 2017. This will give you some momentum, which will only build the further along you get. Hope this helps you have a successful investing year.
If you are into Real Estate and you have a deal in hand and looking for a Hard Money Lender in Texas, please contact us today and we will discuss the details accordingly.
Creating cash flow is one of the many benefits of building a rental portfolio. Just like starting any new business, taking it one step at a time, in the beginning, is important as you will make some mistakes and learn as you progress. Rental properties are no different.
If you are reading this you most likely understand the benefits of owning rental properties and how it is the most powerful tool for building wealth. However, before you decide to ramp up your portfolio at lightening speed, consider the following situation I have seen with many of my clients and what has prompted me to share this with you.
A Common Rental Scenario
Ready to take it to the next level, Joe buys 4 houses within a 45 day time period (with 2 different hard money lenders) and begins the improvements. Joe is building a rental portfolio and these were the first 4 deals he has purchased. Although he is part of a real estate investor training program that provides coaching and mentoring to real estate investors, Joe decides to do it his own way.
Because he is new, he doesn’t understand that buying this many at one time is going to prevent him from refinancing into a lower interest, longer-term, conventional loan (like you can get from Fannie Mae) as soon as his rehab is completed. Why? His limited experience has exposed him to risk that an underwriter is going to reject. The underwriter’s response to someone like this is – “Joe purchased too many properties at one time and we are not comfortable financing them as he has no experience in the rental business”.
The reality is, Joe was told by his lenders not to buy more than 2 properties and ended up being stuck in multiple hard money loans paying high interest for over a year. After a year (meaning after 12 months of what is called “title seasoning”) the level of perceived risk by most underwriters is reduced and Joe can try again. At this point, he is so frustrated with the ongoing process of getting a conventional loan (by going through this same process with 3 other lenders, only to experience the same rejection for the same reason) that he finally goes to a small bank who is comfortable with the risk and is willing to do a single portfolio loan with all properties under 1 note and lien.
However, instead of getting a 30-year note with a low-interest rate, they have a 15-year note with a much higher interest rate (cutting his cash flow in half). Also, the only reason this bank is going to finance Joe’s deals is because he has waited long enough, is creditworthy, and will base the financing off the value and not the purchase price (most small banks will not do a portfolio loan based on the value of the property until after 12 months). Had Joe tried this with the bank 2 months earlier, they would have either said no or would have based the loan on his cost (or value) whichever is less.
I think you get the point here. Be patient with your investing and take it one step at a time. Be sure to get approval from a conventional lender, or a hard money lender who works with multiple conventional lenders, and get their feedback regarding your financial situation and creditworthiness as a borrower. It’s not just credit score and income that determine your qualification. Your reserves and experience impact the number of deals you will be able to refinance at one time. These lenders will be able to tell you what you are qualified for in terms of dollars as well as the number of deals you can do simultaneously.
Search Articles
About Me
Mike Hanna is a real estate investor, mentor, author, and public speaker. He has been an active real estate investor since 2002 in both single family and multi-family properties, and has been in the hard money business since 2005.
Mike Hanna is a real estate investor, mentor, author, and public speaker. He has been an active real estate investor since 2002 in both single family and multi-family properties, and has been in the hard money business since 2005.