Tuesday, December 26, 2017

This Week… The Secrets To Sucess

Hello Everyone,

This week, former REI of VA CEO, Dan Cullather and I, will be the guest speakers. We’re going to cover the key elements that any real estate investor needs to follow to ensure success. You can go from nothing to millions of dollars in assets by following these very simple rules. 

I've made it a point to talk to every real estate investor in our area who has gone under and determine what they did to make their company fail by asking some specific questions. I’ve spoken to all of them that I knew and questioned them on various aspects of investing to determine exactly what it was that made it so they could not turn a profit. A lot can be learned from others mistakes. And it’s quite a bit easier to learn them from others rather than making those fatal mistakes yourself which will lead to your demise. 

It’s smart to watch out who is giving you investment advice. Where did they come from? Were they self made? Or did they start out with a nice pile of cash from either an inheritance or a good job they had or have? This is really important information to know. If you don’t, you could very  easily end up taking advice from a wealthy investor that “thinks" they know how to get off the bottom with virtually no cash reserves to millions. They think that because they see themselves as successful but they don’t realize what it really takes to make it when you’re not flush with cash like they are. 

These types of investors that had an inheritance or a great job to kick off their real estate career may be very successful individuals. But they are much different than you if you are not in the same position as they are. These investors think that they know and fully understand real estate investing but I’ve found that they are completely clueless and most often don’t even understand the most fundamental principals of RE Investing. If they make a bad deal, all they have to do is throw some more money at it to pull through any hard times. They have the money to throw at it. Do you? If so you’re going to be OK just like they were. You’re already on easy street.

Investors that started with nothing can’t afford even one single bad deal. One screw up at the start of their investing career will completely bury them. And within no time they will be investing in a lawyer to help them with their bankruptcy. 

Both Dan and I started at the bottom and worked our way up. We are not  riding by the seat of our pants. The properties we own are proof of that. We also are both are very close to each other on our valuation of properties. That is we both are within a few thousand of each other on what a property is worth. We both fix our houses up in a highly affordable manor and provide our tenants with a clean, painted property where everything is in working order. We never go over the top as this is a business not a hobby. And we are doing this to make money not just have fun. Even though it can be a lot of fun from time to time. 

Both Dan and I have some general guidelines that we go by that ensure success. This weeks meeting we will reveal what these rules of thumb are  and what we do to ensure that we stay within some general parameters on all of our investments ensuring a big win on each and every deal that we do. 

Several of these general guidelines are not known by the typical investor that came into the real estate investment industry with pockets already full of cash. They don’t need to know them. They have the ability to pay way too much for a property and make all kinds of other key mistakes that would put anyone going from the bottom up into bankruptcy. All they have to do is throw more money at the deal and ride it out. These types of investors are very risky to listen to. They feel successful as they have a lot of property but they have no clue how to get off the bottom and their advice will often lead you into a hole you may not be able to get out of if you don’t have finances as they do. 

This week Dan and I will be unveiling the Secrets to Success in our industry. What to do and what not to do. If you follow what we say, you will be parking on easy street in no time. 

See you at the meeting …..

For those who were there last week, I apologize for my lack of restraint. I was very aggravated about some information that I was just given prior to the meeting regarding the contractor we were using for the REI Rehab  which was a total flop. I brought some friends out there and showed them photos of when we just got it.  They confirmed what I already knew. That house only needed minor plumbing moved for a kitchen with no structural changes (1K max), free cabinets ($0), an added half bathroom not far from the sink ($500), some minor work on the piers in the back of the house ($800) with nothing more than a paint job inside ($1,500) as well as outside ($1,000). Painted floors ($500) as well as several other minor lipstick on a pig details, should have cost no more than $6K-7K. And that would pass a rental inspection and have quality workmanship with inexpensive finishes such as the painted floors. Someone who isn’t a professional in our industry may pay at most 10-11,000 for the total job materials and all in that kind of rental condition. Material costs were at about $5,538 for this job and I’m sure you have heard the old saying that in general construction labor will equal roughly the cost of materials. That would be if you were paying full boat and didn’t have any good contacts. 

Our contractor that was doing this job has himself had over 100 houses at one point in time and he is experienced with rehabbing them. He knew and agreed when he took it that the 15K allotted to do the job was  more than enough to take care of it. He also knew that whenever we make any changes, as officers of the group, we are required to contact the rest of the officers and get a majority vote. Which never happened. We just recently got hit with the fact that he “ALREADY”  spent around $21,000. Isn’t that illegal for a contractor to go over a bid to that degree and expect that you will pay them for doing so without notification? Ive been told that it's illegal in the automotive industry to go over more than 10% before legally having to contact you and notify you of the new unforeseen problem.

This house didn’t have a bunch of unforeseen problems. They were all visible. It was a very easy job. An easy job that had more than enough money in the budget. I have been doing this for many years and a little house like that that has 21,000 of materials and labor into it will be in flip condition when all is said and done. We have a big flipper here in town who uses the magic number of 20,000 on every house he buys sight unseen. That gives him more than enough room to ensure that he can get it all the way to flip quality even if it falls into one of the worst he has ever purchased. I can tell you one thing for a fact, that house is FAR from flip quality. It’s still a good ways from rental quality. It isn’t free of code violations and the workmanship that was done in many areas is very sloppy. Definitely not managed by who I was told would be managing it. Who is a perfectionist.

I was initially told by our contractor that the job was complete. Which is a smack in the face to me that he thinks we're that stupid that we would believe that for 21K we get a half way done house back. I’ve been sticking my neck out for this group since we created it and I can not sit by and say nothing when we are getting ripped off to such a tremendous degree. Cleaned out bank accounts with no officer vote and not even telling a single person that he was doing that. Definitely not good moral, professional, or ethical behavior. 

I was also shocked to see that many of the time sheets appear to be in the same penmanship. And possibly the same pen. With inaccuracies adding  up potentially fictional hours. With one that looked legit who wrote hours at the REI house and then hours at some house on Rugby which were added together for REI to pay. Who’s labor bill are we paying and why? Most of the people he has on there at 9 dollars an hour. One at 18/hr that I believe I know and didn’t think he was particularly talented. There are also a couple sheets that are almost exactly identical. As if written at the same time but with different peoples names as independent contractors. And there are no dates on many of these time sheets letting us know when the work was supposed to have been done. As well as no description of what they did. Who gets an invoice for hours and no description or date? 
To be honest, all of this looks real fishy. I don’t know anyone who would look at it and think otherwise. It was not in the best interest of the group for him to proceed to spend money way above the budget without notifying the other officers of the group. The group is owed a nice house in great condition with no code violations or poor workmanship at the 15K materials and labor price we initially agreed on. He said he would not do some extras that we wanted to do if he came too close to the budget. Well, not only did we not get those done but we also have a house that is still a couple months away from being finished and lost rent as additional damages. 

We also have some issues with the bank account and some apparent shuffling around of money that needs to be looked into by someone who is mathematically inclined. And loads of missing receipts. And money to equipment rental companies for the rental of people. Ive never heard they were renting people. We’ve got to get to the bottom of this. I’m sure some of this has reasonable answers but there is no way someone can reasonably turn a 7K job into a 21K job. Especially when they are as experienced as he is. 



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