Let’s begin our journey with what NOT to do.

As an example, let’s say you’ve just purchased a crappy house for $68,000. Because you’re smart, you did your homework and have a pretty good idea that the rehab should cost about $65,000. Comps in the area suggest a back end (ARV) of $215,000. Sounds like a sweet deal, huh? <Shyly> Yeah, its one I just did.

You close on the purchase, and like every rehabber, you’re just busting at the seams to see some dust fly. So you set up a meeting with a contractor. If you’ve been doing this as long as I have, you’ll want to to swing some hammers THAT day! Time is money, right? Hold on there, Speed Racer. First thing you need to do is, get out a fresh pad of legal paper and a shiny new pencil. As you walk through your crappy house, understand (I mean, really internalize) that EVERY rehab no matter how big or small has a rhythm and rhyme. It has a flow. And, you can never go against the flow. Like the Ten Commandments hewn into stone, so is the precise logical workflow of a rehab. Do ya’ hear me? Don’t mess with the flow! You wouldn’t start drywalling before the plumbing was done, right? So, go through each logical step of the flow – and associate each step with a precise cost.

Something like this: demo will cost $7000.00, framing will cost $5500.00, roof $4500, mechanicals $21,000.00, doors & trim; $2500.00, windows… You get the picture, right?

If you follow my directions, at the end of this process, you will have a very basic Scope of Work (SOW). Now, let’s say you’ve decided to let a General Contractor handle the whole process for you, and miraculously, he agrees that you were right – the cost of the rehab will be $65,000.00. The first thing he’ll want is money. Like most greedy penniless bastards, he’ll have the balls to demand 1/3 of that $65,000.00 up front before the first hammer is swung. Get out your calculator. Mine says, “Are You CRAZY? OUCH! Don’t do it! That’s $21,400.00!”

I have a really fancy calculator.

First things first; how about getting something in writing? I’ve never been a fan of a written contract with contractors mainly because I know you can’t take blood from a stone. 99% of these guys have no money, so even if a judge finds them in breach of even the best contract – how do you suppose he’ll make the contractor pay you if the contractor has no money! What I do do (I said, “do do”) is make the basic Scope of Work (from above) into a much more detailed document. This post is not about writing a detailed SOW, so I won’t get into all the gory details here – but know this – once the formal SOW is developed, the contractor then signs it, and it becomes the work blueprint and best contract you’ll ever have.

So you have a signed SOW, and there he is; Mr CON-tractor standing there with his hand out waiting for a super-fat $21,400.00 check. You’re ready right? You’ve got your SOW and you’re swollen checkbook is burning a hole in your pocket. Wait! Hole on! You’re still not ready to go! You can not give him a dime yet. Doing so would be a GRAVE error and would be going against the natural work flow!

Stay tuned. I’m just gettin’ started here. I’ll tell ya more in my next post!

I want to hear what you have to say about Part 1 of How to Successfully Work With Contractors.

Post from: Craig Fuhr

How to Work With Contractors. Part 1

So, sorry for the radio silence on the blog. OK – let’s get to those lessons! When dealing with contractotrs, keep the following ion mind:

I Give You My Word. If a contractor talks too much, promises endlessly and gives you his word – he’s a liar! Don’t trust him. For those of you working in the Baltimore, MD area – take it from your boy Craig; Avoid Joe Chavis of Joe Chavis, LLC. As much as it pains me to say so, Joe is just not a trust worthy guy. If you come across him – read all of the lessons below – and proceed with GREAT caution.

The Money Grabber. Never give money up front. NEVER! Don’t even think about it. Whether dealing with subs, or generals, most contractors will ask for 30% up front. If your job is $10,000 that’s $3 grand. If its $50,000.00 – you’d be shelling out $15,000.00 just to get the ball rolling. While I know it seems crazy – most of us have done this without even blinking an eye.

You wouldn’t pay a heart surgeon before he gave you a new ticker, right? How about a mechanic? Would you pay him for a  new tranny before he put it in your car? Then why – why do we pay freakin’ CON-tractors (notice the “con” as in Con-Man and Con-trary) a dime before they get rolling? Why? My guess; because they have the balls to ask for it! If they didn’t ask, would you offer? Of course not!

If you MUST pay up front – pay ONLY for materials but not for labor.

Tony The Tiger. All contractors – EVERY single one, sooner or later “flake.” NO Contractor is problem free. NONE! Ok, maybe 1% are problem free, but even they “flake.” Knowing that they are all basically ticking time bombs, why then would we offer to give them such large checks before any work is done? But – that is a trap I’ve fallen into many times. If you’re guy is “shit-hot,” and always delivers, ask yourself this – “What if his truck broke down, or his wife left him, or if he got sued, or had a serious emergency?” Who would get paid first? Who would be taken care of first? You or him? And – if his small buffer of savings ran out, how would he use that FAT check you just gave him?

They ALL flake!

Extreme Makeover to Extreme Dud. Be wary of ANY contractor who finishes the demo in a day, then slows down to a grind just after the demo. ANYONE can swing a sledgehammer. A lot of newbies get impressed when they see such a stark change in their rehab in such a short period of time. Again, demo is easy AND cheap. Any gorilla can do it. Don’t be impressed.

The Artist. Some of these guys think they are Picasso. They’ll make you believe that good work takes time. Bullshit! The VERY best drywallers I know are also the fastest drywallers I know. Same goes for painters, trim guys, plumbers…and right on down the line. These guys make money by being good AND fast. You can’t make money in this business by being a quality supplier only. The best guys are stacked with jobs because they deliver quality and speed. Stay away from Picasso!

Quick Draw McGraw. Every job begins with a great scope of work and a draw schedule that clearly defines how the money will be paid once that work is complete. When you’re doing one rehab or ten, its so easy to get away from the scope and draw as long as you see progress. But folks – the Empire State Building was not completed in record time and on budget by straying from the blueprint. A well-defined scope and draw are your precise blueprints for success.

Unscrupulous contractors have learned to manipulate the draw when they start to get behind. Here’s how it works; You don’t follow the rules above and you pay the contractor some money up front. He uses up that money for his growing crack habit – and now he can’t afford to pay for your interior and exterior doors – but maybe his tile guy owes him some money. So, instead of following the draw he does some tile work – then asks, “Hey can I get that money for the tile?”

Your answer should be, “Yup! As soon as you give me those doors!” See, they have to sign off on the scope and draw, and the more you hold that up in their face – the less they have to argue about. Stick closely to your blueprints for success and use every opportunity to point them out to your contractors.

The Partner. This is one of my favorites! Contractors for all their issues are NOT stupid. And, it doesn’t take a brain surgeon to do a little digging to surmise what we investors must be making in profit on these deals. I’ve actually run into guys that felt entitled to a share of the profits. The shift in their demeanor will be subtle, and it usually happens after you’ve done your 2nd or 3rd deal with the same guy.

Here are the signs: The contractor will start to slow down a bit while getting chummy at the same time. Maybe over lunch he’ll say, “Damn – I envy you Craig.” or, “I’ve always wanted to do what you do.”

Then, he’ll say – “Hey Craig, how much did you pay for that house?” or “I saw that you sold that house for $____ dollars – that’s CRAZY!”

Trust me – its happening folks. You’ll think he’s happy for you, but you’re contractor is wondering why he made $5000.00 while you made $50,000.00. At that precise moment, you need to nip it in the bud. Tell him YOU are the investor and that he is the contractor. Period! If he wants a partnership, he needs to put up the money. Period!

Good luck. Follow all of the above, and you’ll be on your way to conquering your contractor issues.

Post from: Craig Fuhr

Getting My Zen On & Contractor Lessons.

So what’s a probate? If you are a real estate investor, you should know (if you don’t) that houses previously owned by dead people often represent great deals. I’ll be frank (as if the previous sentence wasn’t frank enough), I don’t do a whole lot of marketing these days. I really don’t have to. But, if you are wholesaler, you’re number one job is to develop a great buyers list, you’re second most important job is to develop great sources for a never-ending stream of deals. Probates can be an excellent source.

I had an astounding revelation when it comes to marketing for probates, and I’m sharing my brilliant twist with you in the short video below. Check out the video and let me know what you think. Am I on to something, here?

Post from: Craig Fuhr

Video Tip: Make Big Money with Probates

I would kiss my wife (then fiance’) good-bye, load my pockets with a few of my favorite cigars, stop at the Starbucks for a Vente’ black, and I would just drive. It gave me time to think, time to dream, and time to plan. Most importantly, it got me in touch with what the heck was out there. Hell, if she didn’t call me home -- I’d be out there until it got dark.

Learn from my mistakes though. Use your time wisely. Pick a farm area first and know EVERY house in the area. The ONLY way you can do that is to “drive for dollars.” Its all so simple, really.

I don’t really need to do a whole lot of driving for dollars anymore, but as I was driving to my first house this morning I must have seen six or seven houses that jumped out at me. Spring is the VERY best time to find deals. Check the video for why…

Post from: Craig Fuhr

Video Tip: Driving for Dollars

By Ovetta Wiggins
Washington Post Staff Writer
Sunday, April 11, 2010

The house on 29th Street in Mount Rainier is a shambles. Mold and mildew cover the walls. The carpet reeks of urine. A chandelier in the dining room and dingy white curtains in the windows are the only reminders that the house was once a home.

“They let it sit so long it became a crack house,” said Karl L. Granzow Jr. as he walked through the building, looking out for rodents, roaches or their remains.

Despite the condition of the house, it is just the type of property that Granzow, his business partner, Patrick Ricker, and other investors have been snatching up in Prince George’s County since the housing bubble burst about three years ago. Granzow and Ricker bought the home on 29th Street a few months ago.

The properties are inexpensive. They are inside the Capital Beltway. And they are in communities where redevelopment projects and new construction are underway.

Granzow and Ricker said their company, Property and Industry Coordinators, has bought and renovated eight homes in the past year. Most of them are in Mount Rainier and Hyattsville. Bright Lusk Properties, a family-owned business in Hyattsville, has bought three since 2008. All are in Hyattsville, one of the Prince George’s communities hit hardest by the foreclosure crisis.

Last year, Prince George’s had 13,412 foreclosure filings, more than any other jurisdiction in the state. A filing could mean that the homeowner received a notice threatening foreclosure or that the property was sold at auction or was repossessed. The county, with 13.8 percent of the state’s housing units, had 31 percent of the state’s foreclosure filings.

Under the circumstances, housing and foreclosure experts said, it is no wonder that investors are eyeing places such as Hyattsville, Mount Rainier and Capitol Heights, communities with older housing stock near the District line.

“These are desirable locations,” said state Del. Doyle L. Niemann (D-Prince George’s), who has sponsored a number of bills dealing with foreclosure in recent years and who prosecutes mortgage fraud as an assistant state’s attorney. “Mount Rainier and Hyattsville are strong and attractive communities to folks, even in the current economic recession.”

Maryland does not track what happens to homes after they go into foreclosure or how many of those homes are bought by investors, said Raymond A. Skinner, state secretary of housing and community development.

But Skinner said it seemed likely that people would be looking for bargains and that many investors would focus on older communities, where the prices are lower and the chances of resale are greater.

Rebekah Lusk, a resident of Hyattsville and a founder of Bright Lusk Properties, said she chose to buy a house in the county’s Lewisdale section because her company wants to be part of the redevelopment effort in the city. All of its properties have been renovated and are being rented out.

“Our goal is to be active investors and be involved in the community,” she said. “We don’t flip. That’s not our goal. We’re not looking to put properties back on the market when there are so many already on the market.”

Niemann said the properties would otherwise become increasingly blighted or would be scooped up by speculators with no ties to the community.

Ricker said that he has made a living brokering real estate deals and investing in new developments — his company’s offices were raided by the FBI in 2008 during a probe of a proposed development near the Greenbelt Metro station — but that he had to refocus when the market dried up.

As he drives his black Cadillac Escalade through Mount Rainier and Hyattsville, he searches for signs of neglect in the neighborhoods. Brown lawns. Weeds. Missing curtains. He is looking for any possible indication that a homeowner is in foreclosure.

“When the bubble burst, I said, ‘Why not buy some of these homes?’ ” he recalled.

Instead of going to auctions, Ricker negotiates with lenders to arrive at an acceptable price.

He bought one house in Brentwood for about $100,000. He gutted it, installed marble countertops in the kitchen, new appliances and new bathroom fixtures, and he transformed attic space into a master bedroom. He said the house will sell for about $300,000.

“The positive is that they are not fly-by-night speculators who want to make a quick buck,” Niemann said. “Yes, they are making a return on their money, but there seems to be a strategy to make the community stronger.”

Post from: Craig Fuhr

Foreclosures Create Opportunities In Prince George’s MD

Say it with me, CHA-CHING!

That’s brings me to the final episode of our big rehab flip on Kipling Parkway. You’ll recall that this house started out with a super-sleepy layout; basically a 3/1 with an unfinished basement. We transformed it into a open and airy, kick-ass, 4/3 with a HUGE finished basement. I was REALLY worried about turning the existing kitchen into a bedroom, and turning the cave-like sun-room into a kitchen -- I mean, I REALLY worried, but upon listing the house we had a ton of showings, and every last potential buyer loved the layout.

The place was on the market and under contract in less than a week.

Check it out. Shoot me your comments below.

Video

Pictures

Post from: Craig Fuhr

House Flip Story: Kipling Pkwy – Final Update

Even if you don’t have deals, I can tell you where to look. If you do have deals and you need to flip them fast, I can tell you that NO ONE has more cash then me, and NO ONE pays bigger wholesale fees.

Check the video and hit me with some comments, people!

NOTE: In the video I say I paid $6500.00 to the wholesaler. That is incorrect, I paid $65000.00 for another deal. I paid a $2500.00 fee for Kipling. Just keeping it real.

Post from: Craig Fuhr

Sell Your Wholesale Deals to A REAL Investor.

The new iPad is here and as much as I’m a fanboy of all-things-Apple (I would have given a kidney to Steve Jobs), I’m just not sure I see the need to buy one, yet. I dig the form factor and I think its very pretty, but its feature-set wouldn’t make me get rid of my kick-ass MacBook Pro.

Have you checked out the iPad? If so, let’s have some fun. Answer my slick (figured it out myself) survey below!

Post from: Craig Fuhr

iPad. Do I Really Need This?

So how do I do it? Focus, great contractors and a lot of coffee. Sprinkle in a little luck and some pixie dust -- and that’s my formula.  Seriously though, there is a rhythm and flow to every job. There is a process, and like the Ten Commandments, that process is etched in stone and should never change. If you follow the process, and you stagger your buying, you can easily do 13 rehabs at one time.

Here’s the secret:

Post from: Craig Fuhr

Video Tip: Learn The Process of Rehabbing.

Life is pretty good these days, but it hasn’t always been this good. I savor each day. Less than 15 years ago I owned a bar in Baltimore City. At that time I was on top of the world. Business was great and the money was rolling in. I knew that I was destined to be an entrepreneur. Unfortunately, things didn’t work out with my partner – and I was forced to sell my 1/2 of the business. The sale sparked an almost 5 year turnaround marked with a seemingly endless death spiral of cascading debt, endless calls from bill collectors, horrible credit – and worst of all – depression and a complete lack of focus on my “next” destiny.

It really is amusing now, but I actually tried my hand at all of the following before becoming a full-time RE investor; mortgage loan officer, fine-wine sales, liquor store manager, desktop-support, server support, IT security – and finally RE investor. From a monetary standpoint, the jobs in IT were admittedly much better than the others, but I gotta be honest, I hated every one of those “in between” jobs.

Most who know me know that this was a VERY dark and depressing time in my life. Why do I tell you this? I tell you because I want you to know that its never too late to make a 180 degree shift in your life. If you hate the road your on, make a change! It may be a slow change, but if you never start, you’ll never finish.

At 43, and back on top of the world, I’m melancholy (at times) in knowing that so much of my early adulthood was spent in desperate search of something. And now that I’ve found all that I was searching for; my wife, my beautiful children and my dream-like “job” – I’m so sorry that it did not happen sooner.

I don’t wallow in melancholy, though.

So, Happy Birthday to me! Get out there and find what you love.

Post from: Craig Fuhr

Its My Birthday. Another Year.