Rehabbing with CASH and Contractors

[imbeautiful1]

DFW,

I'm not sure whether imbeautiful has been watching too much TV or maybe not enough.  I had a bad virus over the weekend and was forced to lay around watching TV (I hated it).  Last night I saw an episode that had that Trademark Properties you were talking about.  They did exactly what imbeautiful is trying to do and ended up turning a $10,000 cosmetic rehab into a $40,000 debacle.  Great way to lose $30,000 in profit in 5 days!!!  

I can't understand what the hurry is.  Would it be better to take two or three weeks and have the job come in at budget, or is it better to do the job in 5 days and lose $30,000 of their profit.  Ridiculous if you ask me!

Mike

Actually I saw that episode (it's a really old one), that one was little brothers fault not researching the contractor. Trademark usually takes back a nice profit on quick flips. I don't think I have ever seen one take longer than 3 weeks also I could be mistaken.

[kdhastedt]

<<p.s.- Ya'll is not a word>>

It apparently is in Louisiana...and it comes in three variations:

(1) "Y'all" ---> You

(2) "Boaf y'all" ---> the two of you

(3) "All y'all" ---> three or more


Keith

[DFWHoldings]

DFW,

I'm not sure whether imbeautiful has been watching too much TV or maybe not enough.  I had a bad virus over the weekend and was forced to lay around watching TV (I hated it).  Last night I saw an episode that had that Trademark Properties you were talking about.  They did exactly what imbeautiful is trying to do and ended up turning a $10,000 cosmetic rehab into a $40,000 debacle.  Great way to lose $30,000 in profit in 5 days!!!  

I can't understand what the hurry is.  Would it be better to take two or three weeks and have the job come in at budget, or is it better to do the job in 5 days and lose $30,000 of their profit.  Ridiculous if you ask me!

Mike

Well, several points for WHY Trademark does it they way they do.

Trademark buys properties at Auction. They put down 10% of the final sales price with the remaining balance due in a set amount of time. The reason that Trademark puts so many people on the construction site is due in large part to the fact that if the job is not completed within the very limited time they have then they have to come up with the remaining 90% of the money OR LOSE THE HOUSE. So they get the benefits of leverage (only 10% down) without the drawback (closing costs, points, fees from the closing, delays how long it takes to actually close, etc).

Now also consider that Trademark acts as the General Contractor AND the Realtor on the deals and you'll see that they are able to inflate their construction costs (by having so many workers on site working rediculous hours) because they 1) buy the property at auction for substantially less than market value 2) decrease their holding costs by not borrowing any of the money to / not paying inflated closing costs on the acquisition of the property 3) they save money by not paying a GC the industry standard of 20% markup (they act as the GC on the majority of their deals) and 4) they do not pay 6% to a listing agent as they act as their own agents. These 'econonomies of scale' benefits that they enjoy allow them to grossly inflate their construction labor costs and still generate more profit than the average investor.

Trademark has a good business model for how THEY DO BUSINESS. But it's not a model you can imitate without implementing the entire model. The effeciencies from their model are tied to the magnitude of their staff.

In the business world it's known as VERTICAL INTEGRATION as opposed to Horizontal Integration.

If you want me to expound on this concept I can, but suffice to say that it's an effective way to do business, but requires a pretty fair amount of captial to implement directly.

[DannyTheGreat]

DFW,
I'm guessing you majored in economics.

[DFWHoldings]

Finance actually. Economics is an interest of mine and I have some experience with it but its primary usefulness is in understanding the world on a macro level. Finance allows you to understand business and personal issues on an individual or micro level. Both are of use in REI.

[propertymanager]

Well, I must confess that I don't have a degree in either Finance or Economics - my degree is in Engineering.  In addition, I graduated from college quite a few years ago and I don't understand some of this new math.  However, to me it seems absolutely ridiculous to lose $30,000 of the profit on a $200,000 house because you want to get it done in 5 days.  Even if it took 3 months to do it on budget, you wouldn't even begin to spend $30,000 on holding costs, bank fees, etc.  In fact, here in Ohio, we'd just get a line of credit at the bank and only pay the interest on the loan for the length of time the project was being completed.   Whether a realtor is involved or not has absolutely nothing to do with the timeline.  So, whether you call it vertical integration, horizontal integration, or diagonal integration - I call it foolish!

Take a little more time and keep the profit!

Mike

[DFWHoldings]

Well, I must confess that I don't have a degree in either Finance or Economics - my degree is in Engineering.  In addition, I graduated from college quite a few years ago and I don't understand some of this new math.  However, to me it seems absolutely ridiculous to lose $30,000 of the profit on a $200,000 house because you want to get it done in 5 days.  Even if it took 3 months to do it on budget, you wouldn't even begin to spend $30,000 on holding costs, bank fees, etc.  In fact, here in Ohio, we'd just get a line of credit at the bank and only pay the interest on the loan for the length of time the project was being completed.   Whether a realtor is involved or not has absolutely nothing to do with the timeline.  So, whether you call it vertical integration, horizontal integration, or diagonal integration - I call it foolish!

Take a little more time and keep the profit!

Mike

I'm not suggesting that it's the best method of how to do business, in fact I think in most instances it's a less desireable method. I was just explaining why Trademark does it the way they do it.

[JOHNNY Q]

If you have contractor to do the work and promise in that time frame and in writing to finish the job, then he should not have a problem paying 500 a day for any deadline or delay. If he balk at this then you know he can not get the job done.Check his refences.Find out if he is bonded and license. You can check it over the internet .You just need his contractor license number.