Real Estate Investing Adventures

Marketing Plan - First Development

Terry — Wed, 14 May 2008 14:26:27 +0000

As discussed in a previous post, the development we were building in has its own dedicated sales team. It made sense to have them represent us for a number of reasons:

They ran both a national and regional advertising campaign
They typically showed all available properties to potential customers no matter how them became interested in the development
They were physically located at the development and were selling only this development every day (more…)

Managing The Construction Schedule

Terry — Sun, 11 May 2008 10:00:22 +0000

Never enter into a contract with a contractor without a defined schedule as part of the contract itself. Just agreeing on an end date isn’t good enough. Why? Because no matter how far behind schedule your project is, the contractor will always insist he can still make the end date. Without some agreed to schedule definition, it is near impossible to successfully argue the point.

Construction Schedule Level of Detail

You don’t need a 6 inch thick stack of paper with 3,000 activities to manage the typical types of developments a single investor will do. However, at a minimum I insist on 15 to 20 very clear and measurable milestones. These would include items such as: (more…)

Managing Your Construction Contractor

Terry — Wed, 07 May 2008 08:58:27 +0000

You want your contractor to provide you the highest quality project, in the shortest time frame for the most inexpensive price. What we call the three-legged stool. Unfortunately, some of these desires are in direct conflict with one another. For example, it is tough to get the highest quality project when the schedule is very aggressive. In my opinion, cash is still king and this post will discuss a number of ways to protect your cash.

Managing Contractor Payment Applications

You typically pay your contractor from a payment application which lists the various work items, their values, the percent complete the work is for this payment period and the amount due on each work item for this pay period. The estimate listing in this previous post is typical of the work items that may be on a payment application. The AIA has a payment application form that is standard in the industry. (more…)

Construction Started - First Development

Terry — Sat, 03 May 2008 19:02:54 +0000

With the decision to move forward with this real estate development, we quickly pushed the start of construction. The site was cleared, the septic system installed, foundations placed and framing started. Here’s some photos of the actual construction:

Foundation Wall from the Lake

Aerial Photo of Foundation Walls

Framing Underway

Other than a number of framing issues because of the multiple angles and roof pitches, construction went well through this part of construction. However, construction of your project rarely goes perfect from start to finish. This one was no exception as future posts will prove.

The Decision - First Development

Terry — Wed, 30 Apr 2008 09:02:17 +0000

Revised Financial Model

Our last post walked through our revised financial model. In running the numbers, we had a dilemma. The highest priced spec luxury home sold to date on this lake went for $1,700,000. In our latest financial model, we would have over $1.9 million in costs! The model we put together had us selling this development project for $2.3 million (a 35% increase over the highest selling home to date) to make our desired profit numbers. We asked the question, “What would you do?” Build the highest selling luxury spec home to date or start over with significantly lower expectations? (more…)

This Blog is Finally Getting Noticed

Terry — Sat, 26 Apr 2008 18:20:10 +0000

We must be finally making a name for ourselves. In the last week, we have had close to 1,000 separate pieces of trackback spam! What a pain, but it must mean that we are worth the effort to spam.

In addition, our posts are starting to be selected as the top posts for a number of blog carnivals. Recently we have been listed on the following blogs:

http://www.canigetrichonasalary.com/2008/04/blog-carnival-round-upquiet-after-storm.html

http://www.llamamoney.com/carnival-of-net-worth-1/

http://georgiabuyer.com/?p=70

http://daily.hotpads.com/hotpads_daily/2008/03/the-greatsfunny.html

If you haven’t checked out the selections in a blog carnival lately, you are missing the opportunity to read some of the better posts on topic.

Second Real Estate Financial Model - First Development

Terry — Sat, 26 Apr 2008 02:22:06 +0000

Actual Second Financial Model

Our previous post discussed that we would need to develop a second model that more accurately described this real estate investment after we had received a revised design and more accurate contractor pricing. Our initial model was flat out wrong. Our bankers were willing to finance the increased investment. Was the risk worth the reward? Here’s our revised model for our development: (more…)

The Contractor’s Estimate - First Development

Terry — Wed, 23 Apr 2008 10:04:11 +0000

Our contractor did a good job pricing this new preliminary design discussed in our last post. He provided us with a 31 page estimate with the detail we needed to fully analyze this pricing. We couldn’t afford to get this wrong and have to go back to the bank a third time.

The Numbers

The contractor’s estimate came to $1,073,514. Using 4,164 of heated square feet, this equated to $258/SF. We knew we would be over on raw square footage. Now we were also more than 25% higher on price per square foot. When it rains, it pours. The contractor explained that our unheated to heated square foot ratio was way out of whack. We had tremendous amount of outside space in covered and screened porches and decks. We had almost $7.00/SF in just the fireplaces. Then the high end finishes and materials were also driving the costs higher than normal. (more…)

Revised Design - First Development

Terry — Sat, 19 Apr 2008 22:07:05 +0000

In a previous post, we discussed how all of the conceptual floor plans were around 4,500 SF, which greatly exceeded our initial financial model which was based upon 3,200 SF of heated space. We had made some changes to various room sizes and layouts and had sent the architect back to clean up the drawings and present a final floor plan. We were hoping it would be around 4,300 SF. The path forward was to then price this revised plan, re-run our financial model and make a decision on how to proceed with this real estate investment. Build a much larger building and try to sell it even though it would be one of the most expensive homes sold or scrap the plans and start over with much smaller expectations. (more…)

Getting This Real Estate Investment Back On Track - First Development

Terry — Wed, 16 Apr 2008 10:02:46 +0000

Meeting with the Bank

From our previous post on this development you will recall that we just found out we couldn’t build the building we wanted and keep it close to our 3,200 SF we had in our initial financial model. We decided that the first step in figuring out whether to build the bigger building or drastically change our initial concept was to see if we could get additional funding. If the bank wouldn’t lend us additional funds, it made no sense investigating that option any further. We sure couldn’t afford to put $250,000 more of equity into the deal.

Our meeting with the bank was a tough and embarrassing discussion. We had originally presented a plan where funding of $1,250,000 would be sufficient. Now we were telling them that we needed significantly more money. We couldn’t tell them how much yet. We just wanted to know how much additional funding they would lend us. We couched it in a story that we thought the market might be right for a much larger and higher end home. However, before we investigated that option, we needed the bank to tell us if we could get the funding. (more…)