Study Hall: Rehabbing Real Estate

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Oh, we start rehab. It's pretty extensive. So the first thing that people have been asking for a long time is like the hardest part of and even this is what Caesar's saying, The hardest part of real estate is finding a good contractor. So you have a contracting company like, what are tips? How does somebody know you fresh just bought a house. You don't know anything about real estate. You're trying to rehab you're trying to fix up a home.

All right?

This is the only way you can vet somebody without actually knowing what to look for. First and foremost. If you know what to look for, then you'll know for a contract that's good or not just by the conversation. But in our demographic in our community is really word of mouth. That's how you can tell. I mean, you know, if he used a contract and you ask him, like, yo, what's up the contract? He's like, nah, even know not

Yeah, exactly. How do you know if somebody the.

Main contract is gonna get over y'alls like your uncles? You know what I mean, Like, nah, my uncle and I do everything.

You know, if you get ripped off.

I mean in the beginning. No, there's really no way to know. There's no way to know. Like man, when we I never forget. Me and my best friend we had a first house at the same time. He decided, by the way to fix this, I decided to sell minds. I just blew minds out and I never forget my uncles of them had did all the plumbing, so his bathroom was done in anything, right, so we couldn't we could.

It was like a model home. You know what I'm saying.

It's like a mouse like staged you know what I mean. How they was able to get over was one, he was twenty seven, I was about twenty eight. We was kids, not knowing nothing about the business. Two the water was turned off from the street at the time, so they had a Sunday the impression that they would fix the house then call the city last to come cut the water on. But it was no plumbing, nothing hooked up, and they just they just did it like that.

When you realize that, I mean, it's it's bad, you knowation it's bad.

It's like but I'm gonna tell you something in that era, back then, it's just what people did.

Man.

People chase the money. They didn't really think that we would make it to this level, you know what I mean. Like, you know, they didn't care about reputation. But one thing about that construction, you will learn it through trial and era. Everybody gonna pick something up and try some stuff on their own. They're gonna pick something up and try. Every one of us did that. It probably took me a month and a half the sheet rock this room all by myself. But I can do it, you know what

So like you talk a lot about the phases of rehab.

So the first one is find the contract and the next one is the demolition.

The constructor scene does that right? First thing is please permits. Somebody got to be licensed. ELLENI is not the cops. Everybody think Elena's the cops. Like you'll close the windows, lock the door, Yo, ELLENI coming down the street. You know what I mean?

Like, Yo, the permit and I felt those are the expenses that people don't really think about, like the materials, but the.

Paperwork, permits, plans, blueprints, that sounds like something extensive right now. They damn they want playing for everything in Philadelphia. If you if I just renovate your basement, they want plans.

What's the pricing on those permits and get those I mean what the permits don't cost nothing, pulling permits in like fifty bucks to eighty one eighty.

Now when you got to get to an architect and you need plans, it costs a little more. It might be two thousand and three thousand, depend upon the job. Now where the permits get pricey at we just I'm just gonna put it out there and talk real. Is you you doing the house and you don't really have a license, So now you want to use his license for him to get you a permit, then a permit might shoot up to fifteen hundred. This is what people do because everybody don't have the credentials.

So the contractor handles all of that.

The contract is supposed to handle all of that.

And so what questions do you do? You ask us?

Are your licensing insured? Are your licensing insurance almost first and foremost? And I'm gonna tell you why, because trying to cut corners always seem to revert back to doing it three times. You understand what I'm saying. So cutting corners always revert back to doing it three times. And you look up and you done spent twice the amount of money that you were spending, thinking you was gonna cut a corner.

Another thing that I think I heard you say. I know Caesars said as well as that you paid contract contractors should be paid in phases exactly.

Yeah.

And you know what, in this era, people are more protected than we was in the beginning because when you get funding, they would normally say, okay. Back in the day, it's like, oh, it's seventy thousand dollars to get it done. They give you seventy thousand, Well, we know we ain't gonna get the job done. Got to get the car and to watch, you know what I mean, Maybe we get the job done later, you know what I'm saying. So now and it's like, okay, one, you gotta put

Worth of work done.

Then they come out and expect it and see it's twenty five thousands were for work done. Then they reimburse you construction loans or reimbursement loans now, which protects everybody because I watch this a contractor right, you give me twenty five thousand dollars, I don't do no work. Right, You burnt out of the twenty five thousand, but you're not burnt out of the whole hundred thousand. You understand.

Don't have to mess the loan up.

So let's say if if a contract to get low on you in the first phase, well what the lender didn't give you no money on the first phase because as they come and inspect, the work is not done. That's another way. You know. Pulling permits will save you too, because you have to get city inspections and you have to get inspections.

From the bank.

You said something about having permits after every phase.

After every phase, so you got to get permits and plans to go in right, demo alterations. After you demo, they got to come out and inspect it. And you want to frame it, frame the alterations, permit boom. After you frame it, you get inspections. Then you got mechanicals, electric plumbing, h BAG. After each McCay, you gotta get electrical inspected to come and inspect electrical. They can put a sticker on your window this hours in Philly to

So like the two O three K loan, which is a renovation loan from a bank, the.

Card is loan in the world. No contract don wants to deal with that. It's too extensive and it's too tight the government. It's not like the government. It's a lot to get your money for a contractor. Yeah, it's a lot for a contractor, a lot of contracts on Like you got some contractors that are just specializing that. Then you got some contractors down they don't want to deal with that. So it's because it's too much easy money. That's I'm thinking to myself.

It's great for the person who's trying to get the home, not so great for the guy who's trying to say exactly exactly.

So what kind of financing do most contractors? Obviously cash, but the majority of people don't have enough cash to pay somebody.

So right now, people staying away from banks like the reason that the market is not really gonna tank. It might slow up and shift, but it's not gonna tank because people are not over exposed with these banks. People are dealing with private lenders. Hard money hard money, not really hard money, and private lending is two different things. What's the probably a private private lend is just a group of people like us, you know what I mean.

Yeah? What about the job, like the materials for the job. Is there a strategy that you.

Use or you buying in bulk or this is what I do? Build a relationship. I don't care. Don't think you can't build a relationship with a corporation. I spent. I spend over a million dollars a year in home depot, so I got a great relationship with them. I'm getting everything with like a three percent markup on some things. So where let's say sheet, where I costs eleven dollars a sheet, I'm paying like seven dollars and thirty cent,

How did you establish that?

I went through what's called a pro rewards account, and I get two percent off of everything I spend every six months. So if I spend five hundred thousand dollars, I get two percent of that and six months and I spend another five hundred thousand. I get two percent of that, So I get that, I get discount on pain. But it's just for everybody, Like, these are just programs that they offer. When you're a contractor, you got to get into You can't just go in there and spend money

So what is the most important part of rehabbing house? Like, is it the walls? Is the floor? Like, what's gonna make the house the most valuable?

Kitchen, the kitchen, the bathrooms, the x steria, curb of pill the extra amenities, finished basement, hardwood floors throughout. What kind of towel you use, what kind of light fixtures you use, Just just the little stuff that catch people at Because I'm gonna be honest with you, I could strip a house down to the bare bone, right, strip it all the way down. That's what we do. We strip it all the way down to the brick and frame it up and do all new electric, plumbing, hpect, everything,

You know?

What I mean.

I just we built this whole house. Like I had a guy. We had built the deck one time and the deck, the back of the deck had leaked, and he said he caught me, like you know, he was like, Yo, you gotta get down there real quick. I'm like, what's the matter. I got this man's leaking in here. So I come, I look at the back of the deck is leaking. I mean, he irate, what are we gonna do?

What we gonna do?

So said, he said, man, what are you laughing at? I said, you watch me build this whole house from ship, excuse me, from nothing, and you complaining about that little teeny leak. And that's how I was able to calm me down. I'm like, bro, you watched me build this whole house like this was a bandominium, you know what I mean. Like you know what I mean. You watch me put it back together, you know what I mean? But people, like I said, people only see the small things.

So so from a contractor standpoint, because you're you're interesting, because you're an investor and you're a contractor, right, right, So we talk about a lot. I realized we've never really looked at it from that standpoint, like from a contractor, like, how how do they go about as far as structuring their business model like you have a like how do they find clients? How do they like a.

Lot of time clients? Let me let me just real quick because I'm gonna tell you something about contractors, just how we lose big with contractors. A contract to give assessment. I want one hundred thousand dollars to fix your house, and.

You beat them up.

No, I can't do one hundred. I could do sixty two, sixty two. I can't do it for sixty two. I could do it for ninety five. Man, I can't. I could do it for sixty two.

That's it.

The man commit to sixty two thousand, You get him a deposit?

What do you do?

Never come back? Right? You know why, because there's no way he's gonna get the job number sixty two thousand. He told you how much the job costs, but he took the money. A lot of times you get contracts that take a deposit and just use jobs like that as cash for like, you know what, I'll make the difference up somewhere else. I just need this money right now,

No, they go, you're sixty two exactly.

So when you do these full gut rehabs right and you walk in, I mean you're seeing how the land you're gonna landscape this thing out?

Is there an architect that works with you?

Like, are not me? Who's doing me?

Me?

Everything you see in my house is me when I got a house out, Like if I ripped this house out right now, if I ripped the building out, we like, I can visualize whatever.

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We room where I wanted that. I've been doing it that once you walk in. Yeah, like I would love for y'all come down one day and see me do it. I come down and run with me and see me do it. But I could rip this whole house out and just be As a matter of fact, if you look at my Instagram, you'll see me laying out. Yeah, that's what I do. I'll visual when you.

Walk in, you're visually seeing like you know what, I can see an open floor space.

That's gonna be two bedrooms up here. We're gonna put the basement. We're gonna add a wall. Yeah.

Well, when you do so many of them, most of them become a cookie cutter. It's four or five different styles. When you do so many of them, you know what I mean. I'm doing hundreds of houses yearly, you know what I mean. So I got stuff going on in different cities that in Cleveland, I don't I don't knock no walls down. I keep the structure structures sound. I

When we spoke to a season heavy, they were like, they have a standard, right they don't. When they do something rehab, they keep the same paint. So everything is very easy feeling. It's a strategy you use. You try to make it.

Yeah.

I got my own paint too, big business gray, in the same home depot word. Yeah, big business gray. So it's a great I use called big Business gray. It's made by PPG Paint and you can get it. And it's the ceiling white. It's called Sky's the Limit white. And I paint all my doors a signature red. It's called Paris Apple reds named after my granddaughter and my daughter. And these legit paints, these legit paints that sell the home depot.

So yeah, you're you're like I said you you're like on a chessboard, You're the red and black, You're both. You're investor in your COTO gives you an advantage because you could look at the house and say, Okay, I know this is how much it needs to be fixed

All right, let me tell you anything that you could turn the profit onw is a good BUYE. Remember I told you this, and it has nothing to do with the structure of it or nothing. Let's say you and I buy a house today for twenty thousand, and we don't know nothing about it. How much is gonna cost? We got one hundred thousand to fix it? We find out tomorrow he come through as a construct contract and

You know what.

We don't want to refinance it. We're gonna sell it. We're gonna do whatever with it. We can get an investor coming. Hey, listen, I want to airbnb this house. Give me fifty thousand, and we're gonna be partners on it. It's so many ways that you can flip it once we have ownership. Once you own it, you in a game.

That's okay.

So how do you know of something because you say you fully demolish everything. How you know something doesn't really need to be fully demolished or it just needs a little bit of.

Work, like when you do a partial reheab man, is.

There any partial rehab al?

All right, listen, listen, I'm gonna be honest with you. So and slower in markets that's jumping, like in Jersey and stuff, I would definitely demo everything out. If they think they got a great comp now and they just doing light rehab, they could set the market. If they rip everything out to the brick. If they rip it out to the brick and do everything crazy over, they could set the market. They'd be super rich.

Set the market. That's like set the market. Comps.

I set the comps. I don't care. Nobody can't tell me, Oh, the comps is only listening this neighborhood.

Just listen.

I make the comps everywhere I go. I make the comps.

How does it all right? So you make the comps by how many houses does it take in the neighborhood to make a comp like one? Really?

One house? Prime example. If I went to Cleveland and I'm buying houses for fifteen, I'm selling them for I'm buying shelves for fifteen. Well, housing need work for fifteen. I'm selling them for eighty five or twenty down. People asking me who am I selling them to. What happens is sell them for twenty down. I do the construction for him, and I'm the mortgage company, so I might put Let's say, if I put twenty into them, I'm all in them. Thirty five people get me twenty down,

So once you sell the first one, Once I sell the first one for eighty five, it sets the trend.

It seys it so.

Normally you might even own the next three on the block.

I own the whole block. But I'm gonna tell you how it goes. That's because people are following. And the thing is this, I'm not really looking to really flip. I don't want my clients to flip. When I sell them. My clients, it's a buying hole because I might sell you yours. Like in the beginning, I was selling for fifty, then it was sixty five, then it's eighty five. So now my people that was in for fifty are trying to sell to make their thirty five thousand profit next month.

That's the new number.

So that's interesting, is that controlling the comps or manipulating the comps.

That's not manipulating the comps. Is if you, my man, and I buy a house for twenty and I sell to you for eighty five, that's manipulating. There's people from all over the world calling me to buy these properties. But this is why they calling to buy them. So even though I'm charging eighty five, they give me twenty thousand down and their mortgage payment is five hundred a month. Right, but I want you to understand that their rental income

I'm crazy.

Yeah, So let's say they make an eight hundred dollars positive cash flow right off of a twenty thousand dollars investment. Like that's ninety six hundred dollars a year. In two years, they make all their money back. What happened to the thirty year mortgage? We just shrunk that up, owner ship three years. You own it, You got all your money back. At least you got all your money.

Back used to get it in, so you said, and we ain't even.

Talking about the refile. I ain't even lay the refied game down. That's that's just me saying, you in something free and clear, you own it, or you in something not no necessarily free and clear, because they still owe me a balance, but they got all of their money back out of it.

So I used to that say, that's why you say comp should be your starting point, not your bottom.

Exact exactly sow me say that said, I'm talking about the homework, and we do a lot.

So I one other questions. I wanted to another video. I thought that was really dope a while ago that you did. You said, the process is you buy it, you flip it, you fight, you buy it, you fix it up, you refine, then the scrow, then you sell. Can you explain that?

Say it again with that?

So you buy it, we buy a proper, you fix it up, and then you REFI the money you put that the refile. Okay, okay, okay, I got saved your time.

This is how you do it. This is what I meant by that. So you buy a house. This is basic. Buy it, fix it, refinance it, rent it. So let me give it. I got to give you everything in numbers. We buy for one hundred, we fix four hundred, we in it two hundred. It it praises that four hundred, we pull out seventy percent, which is too eighty, right, so we pull out too eight We was in it two hundred. We got eighty thousand dollars that we up on the refile, right, I payment it's twenty eight hundred

But when you get to when you get to.

A point like me, Man, I'm forty four years old. I've been in the game since I've been twenty eight years old, and I sleep four hours a day, Like I barely sleep with my wife. I see my wife like one week out of the month, you know what I mean.

Like, b.

That's my boy. Yeah, that's my boy. That's all he wanted to do was dance.

He's like he sat this here a few weeks ago.

Yeah, that's my boy. So when you get to that point, man, you gotta kind of sort of figure out one day, you know, I won't be able to go out and kill my food to bring it home for the tribe. You understand what I'm saying. So I got a cord of sort of have a machine set up in place.

And the thing.

Is, my kids love me and they they follow me. But my son, you know what I mean, I don't want to leave this earth and I leave my children in debt. You know, if you got an extensive portfolio, but you but you refined everything and you bringing in thirty grand a month, but your mortgages is twenty two. Man, you work for the bank. Man, you know what I mean? You work for the bank. My kids walk with eight

See how much?

See how much of an empire you really own? I know people that's man, listen, man, I know I know groups that's buying and building crazy fifty million dollar lines. What happens if something happened to them, their kids got to step up and what and be liable for the Their next to kin is liable for that stuff or

They don't.

They didn't care about the business. The parents thought they had it to the point where they could just leave them the money. We were never taught maintenance. You gotta be ta a maintenance.

Yeah we don't. I mean I don't even know people who parents left them anything. So that's dead. Right.

We're breaking this cyphle right there. We're gonna be the parents. I was in a meeting with somebody not to get along. When I was in a meeting with somebody last week, and he would say, yeah, I just want to you know, I'm not gonna leave man. Listen, if I get one hundred million. I'm just gonna leave my kids this percentage, and I'm not gonna leave my kids all this money.

Fact, all right.

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