Demolition

“The urge to destroy is also a creative urge.” 
― Pablo Picasso

Now that all the junk was cleaned out, the demolition could start. I went through the house with a red can of spray paint and marked anything that needed removing. Toilets, tubs, cabinets, carpets, light fixtures and most importantly that drop ceiling. I really hated that drop ceiling.

I'm working Monday-Friday 8-5 and commute at least an hour each way between Juno Beach and Boca Raton. The surf is better up here in Juno/Jupiter so its worth the drive but the traffic is ridiculous and that commute is not fun. It eats up even more time during the day so weekdays are pretty much shot.


I hired a guy recommended to me by another investor to start on the demo. He worked a few days solo over the week and a day with me over the weekend tearing out carpets, fixtures and other miscellaneous items. He got things to a point that I could start to see what I was working with.


There’s a few ways to go about a rehab project and I had to make a decision about how to move forward with the work.


Doing everything yourself will save the most money but comes at a price. The length of time the project takes is completely dependent on how often and how fast you can work. You might be able to hang and finish drywall but how long will it take you to do a whole house? A professional drywall company might be able to do it half the time and twice the quality. The same can be said for just about any project in the scope of work. Are you really saving yourself money if the project ends up taking you twice as long and looks terrible? Could your time be put to better use? For some people with a lot of free time, a strong background in these trades who are only looking to do one house at a time, this is a decent option. For me it’s not even a consideration.

This means I need to hire the work out to contractors, which isn’t easy or black and white. There are a few options and each one has benefits and drawbacks, deciding what is right for you depends on your schedule, budget and your broader goals in investing.

Option 1- Hire a General Contractor

A general contractor will typically have pre-existing relationships with subcontractors who they hire to take care of specific projects in the rehab. Once they place a subcontractor on a project they are responsible for managing them and the overall progress of the rehab. They usually take whatever the subcontractor charges and add 10-20% on top of it. They are licensed, insured and expensive.

Option 2- Act as a General Contractor

This is the self management route. It involves mapping out the project, deciding what subcontractors are needed, getting multiple bids for each project, deciding who the best option is, buying/delivering materials, scheduling/managing the sub for each project and staying on top of the rehab schedule as a whole. It’s a very involved job especially when you consider how unreliable sub contractors can be down here. The time commitment you make to shopping around for subs and on-site management will be reflected in the cost and speed of the rehab. It's a cost and time effective way to run a rehab IF you have the schedule and ability to manage it properly.

Option 3- Hire a Handyman

Some guys will do it all. Drywall, plumbing, cabinets, tile, painting, you name it they do it. You might still have to hire out the AC, electric or other more technical work but everything else they’ll do on their own (or as a pair/small team). You give them a scope of work, they’ll give you a bid for the labor. They’re probably not licensed or insured and typically cheap. From what I’ve been told, these guys can be great value or they can do terrible work at a snail’s pace.

Sub contractors are notoriously flakey and are even worse here in South Florida...A Sunny Place for Shady People...I’ve had some experience managing subs throughout the construction of my boss' custom home on the Intracostal in Boca so I know what a headache dealing with them can be. Even though I'm working full time I decided to play out the option of acting as a general contractor to see if it was doable.


First subs on the schedule were electricians, plumbers and AC contractors. The brother of The Dude who wholesaled me the house gave me some contacts, I also reached out to real estate investors I know from networking and looked through Craigslist/Google to build a list of subs for each job. The first road block I hit was that more than half the people didn’t pick up their phones OR call back even after multiple attempts. Most that did call back I couldn’t meet at the property fast enough because of my job. I had a lock box on the house and nothing of value in there so I gave them the combo, told them what I needed done and waited for a bid. Only a few of them actually got back to me with a bid and most of those that did were trying to screw me on the price.


At the same time I was also calling GCs and handymen to schedule back to back walkthroughs over the weekend. Not all of them showed up that day but I did walk throughs with 2 GCs and 3 handymen. The one that really stood out to me was a handyman who operated like a GC. He worked in Vegas for a while renovating foreclosures, moved to Florida and now takes on any job, large or small. He has at least 4 subcontractors for any given job which gives him the ability to operate quickly and cheaply (if someone is slacking or is priced too high they KNOW there is someone in the bullpen willing to work faster or cheaper). His construction knowledge seemed strong and he was the type of guy willing to get his hands dirty and do work himself to speed up projects where it makes sense, something a lot of general contractors wouldn’t even think about.


Each person took pictures/measurements and I told them to get back to me with their bids by the end of the week. I got a wide range of prices, the highest coming in at $20,000 just for the labor estimate, the lowest at $7,000. The 7k bid came from a guy that had bailed on our walk-through appointments 3 times, each time not even calling to say he wasn’t going to make it. Crazy low bids from someone like that is a massive red flag.

The guy I had a good feeling about quoted the labor estimate around $15,000 and more importantly he broke down exactly what everything cost. The quotes for each project were directly from his subs and all seemed fair or impressively cheap. He wouldn’t be taking the typical 10-20% GC mark up. Instead he promised a 3-4 week turnaround and a project management fee of $1,000 per week with an agreement to renegotiate those terms after 3 weeks if necessary

I plan on making my focus in real estate investing finding deals and organizing financing. Having a project manager handling the day-to-day of the rehabs would allow me to focus on finding more deals, which in the bigger picture means more money for both of us.  This guy is motivated by the prospect of future projects and wants to show me that he is capable of delivering.

A general contractor would be too expensive for this project, I don't see any way of fitting their mark up and typically higher priced subs into the budget.


Running the rehab myself wasn't very a good option. With my job schedule I don't have the time to aggressively push for multiple bids for each job and effectively manage the work in progress. It would probably end up costing me more money for each job and take significantly longer than if I had someone there pushing things forward all day.


I'm paying holding costs, have a tight schedule to refinance out of my purchase loan and every day without a tenant is money lost. Hiring the handyman as a project manager seems like the best bet. He's knowledgeable, aggressive with subs and motivated.


Not all bets pay off but if you don't push your chips in you'll never win anything.

Before he came in the demolition was partially complete, now it's a blank canvas and ready for work.

Living room / Kitchen

Bedroom 1

Bath 1

Bed 2

Bath 2

Bedroom 3

Hoarder House Clean Out

These posts are a little behind from real time. I’m busy and like my free time..it's a balance I'm working on and this hasn't been top priority so cut me some slack.

This is the house...

The place was a hoarder house. Junk everywhere. One of the bedrooms was filled wall to wall and 5 feet high with random stuff. Dude that lived there was probably a pretty cool guy at some point. He had a bar set up in the den and played in a band. Drop ceilings, shag carpet, fake wood paneled walls. The whole place had a 70's man cave feel to it aside from the accumulation of junk.

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Rented a dumpster and spent 9 hours cleaning it out on a Saturday. South Florida heat in August, smelly old carpeting and no AC or fans is not a fun combination.

This is what the house looked like before taking all the junk out...

 

Still think your rooms a mess?

After I started and saw the pace I was going I planned on leaving the bedroom piled high with stuff for a second day but when I finished the rest of the house I realized I couldn’t bring myself to come back the next day. By that time I had reached a breaking point in exhaustion/disgustion and had left the worst for last.

The room had become a rats nest.

When you’ve got books, clothes and all this random stuff piled deep on top of itself, rats start tearing it apart from the bottom and creating tunnels within the torn apart junk. 8 hours into trashing out this place and I’m staring at a mountain of junk...I can hear the crawling... Bit the bullet and pushed through.

Filled to capacity

What couldn't fit in the dumpster 

After it was all done I realized I should have hired someone to help me out. It would have made the whole thing a lot easier and faster. Doing things yourself to cut costs can be the move for certain things but some cheap help on this part probably would have been money well spent.

Now that most of the junk is out the real fun starts. Demolition.

The Start Up

Home Office

I’ve been on this real estate trip for over two years now. Self-education through books, blogs and podcasts for most of the first year.

Really got into it around year 2 with a direct mail marketing campaign sending 1000 letters a month to homeowners in specific areas of Palm Beach County, Florida. Pretty much looking for needles in a haystack, people willing to sell their house well below market value for a quick cash offer. Since I’ve started, I’ve been taking calls and making offers every day trying to work out deals while working a full time job.

Landed one after a couple months into the first campaign. Bought a 1100 sq ft single family home in West Palm Beach. Closed on the purchase and sold it the same day. No rehab, just a quick wholesale deal. I found the house/seller, another real estate investor found the buyer and the profits were split.

The guy I partnered with on that first deal brought me a house he got through a short sale. Short sales can be a long, drawn out process but they can bring in some nice margins. The Dude bought it and passed it off to me for $87,900.

I don't exactly have $88k hidden under the mattress so I had to consider my options. I could rob a bank but that seemed like a project in itself. I ended up making the purchase with a loan from a private money lender. A private money lender could be anyone. They might have money set aside they actively invest with or maybe they just have money in savings, possibly a retirement fund (IRA, 401k) or a lower earning investment (CD), and they want a better return on some of that money.

I put 10% down and make 8% interest only payments for the duration of the loan. Loans like this are the life blood of real estate investment and vary greatly in terms of interest rates, fees, down payments, and amortization depending on the lender. Private money gives the ability to fund more deals as they pop up and provides the lender with a specified return guaranteed by property.

The place could work well as a flip or a rental. Comparable homes, post rehab, in a ½ mile radius are retailing around $180k. It’s also in a good neighborhood and a solid rental market. Fixed up it should rent for about $1400-1500. My goal here is cash flow.

Whatever's in that jar probably won't cut it

I love to travel. I’ve moved through Australia, Central America, South East Asia and some other scattered spots, mostly hugging the coast and chasing surf. The unfortunate reality of travel is that it costs money.

The way I see it, the question boils down to...

What can you do for money that allows the flexibility for frequent and extended travel?

I’ve decided to use real estate investing as a way to create a balance between flexibility and financial stability. I’ve never been motivated to pursue money for money’s sake. Freedom is what motivates me. Money means NOTHING without the ability to use it flexibly. Profits from a fix and flip and monthly cash flow from rental properties can go a long way in inexpensive countries like El Salvador or Indonesia.

The house is 1370 sq ft, 2 beds/2 bath with a nice sized den I’ll make into a 3rd bedroom/master suite. Rehab estimate is around $30k to get it in rent-ready shape. What gets you a better retail sales price won’t always get you more for rent so the estimate is a little lower than if I was going to flip it. I've tried to be as conservative as possible with this estimate but determining rehab costs is notoriously one of the most difficult aspects of real estate investing.

Purchase Price- $87,900
'Rent Ready' Rehab Estimate- $30k

Total Estimated Project Cost- $120k

Estimated After Repair Value (ARV)- $160k

Rent Estimate- $1400-1500

At some point I’ll break down the details to show projected cash flow and how I evaluate the numbers on a rental deal but for now it’s enough to know that it should cash flow well with very conservative monthly expense estimates.

I’ve tried to be conservative on my numbers but there is risk in any investment. Getting an accurate rehab estimate and staying within that budget, hiring and managing the right contractors, determining the after repair value and placing quality tenants, are just a few of those risks. I’ve done everything I can to plan for the X factors but things can always go wrong. I plan on renting it out but I have multiple exit strategies available if the plan needs changing. This is my first rehab project so I’m expecting things to go wrong at points but I’m in it for the knowledge that only comes from experience.

Let's see how it goes...