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What to do when business gets complicated - not for the faint-hearted

Part of a project management process is risk analysis and hedging, before we start a project we must understand the numbers in absolute terms.

1. Purchase price of the property

2. Renovation cost

3. Sale price of the property

In order for us to understand the selling price in an absolute way, we must understand the area, understand the differences between the streets, and know how much our property will sell.

I must before deciding whether to purchase the property for renovation, understand the numbers and build a business plan that will leave me enough profit in the event of unexpected failures.

In one of our projects, after we got started, we received a notice from the municipality about a termination of work - code enforcement.

For work to continue, the municipality required the renovation plans, and each phase of the renovation must be signed and approved by a licensed contractor, which means we need a general contractor with a license, a plumbing contractor with a license, an electrical contractor with a license and a heating / cooling contractor with a license.

A contractor we work with is a general contractor with a license but now needs subcontractors, and suddenly the cost of renovation jumps from $ 70 to $ 115, which means that the profit went…

so what are we doing….

I consulted the contractor, the agent, and began interviewing other subcontractors, at the end of the process, I was able to lower about $ 15 in renovation costs by replacing the subcontractors, but still, I was $ 30 after the cut.

At that point, I realized that I needed to find one contractor to answer everything - one mam show, a contractor that would give me a full shell, and save costs and I would not compromise on the quality of the renovation.

Again, I interviewed contractors until I found a contractor whose cost of renovation was $ 80.

With a $ 10 exception, I can live, when I built the business plan, I left enough space for Blatam and so I left with a profit from the deal.

In other cases, we have identified problems with structures and foundations, and the cost of additions must be taken into account (all properties sold as is or auctions do not always meet all the renovation costs).

Even fundamental problems that at first glance seemed like the repair could cost thousands of dollars, if a correct analysis and understanding of the problem, I brought in other professionals who offered, a test by a highly experienced project manager together with a local contractor could find a cheaper solution than the initial cost the contractor offered, instead $ 15 repair, the cost of repair was only $ 2000.

It is important to examine each case on its own, not to accept the explanation of the contractor or of such or other professional for granted.

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Sagi TraybelAdir CohenNathan Mandelbaum Recent Posters
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Sagi Traybel
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Sagi Traybel

As part of the risk management of each transaction, you calculate the costs and take a 30 percent margin

Adir Cohen
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Adir Cohen

The real problem that actually consumes all the profit, once everything gets complicated with the DOB, is not the extra cost that the unexpected repairs cost (for which you added budget defenses) but the time.
The delay in time actually means that the project's funding cost is significantly higher. And in one second, the project turns, from seven months to a year and seven months (or more, if the authorities decide to drag your feet about your project) and suddenly evaporates another 8-12% (depending on funding) plus the cost of holding the property during this period.

Nathan Mandelbaum
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Nathan Mandelbaum

Beautiful! Code enforcement is a hassle

The Real Estate Investor Forum, LLC is an educational company and is not acting as a real estate broker. Always seek the services of licensed third party appraisers and inspectors to verify the value and condition of any property you intend to purchase. Never send funds directly to a seller but instead use the services of professional title and escrow companies.

 

 

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