key elements of construction contracts

you have the property, you have the loan, now you need to lock in the contractors. what now?

this is a construction project, right. things can go wrong, over budget, scope of work can be confused. get everything on paper, just in case there is a disagreement. here are some important points to have:

1. basic info: 2 parties of the agreement with names addresses, job site address, start date, substantial completion date
2. scope of work: the more detailed the better so that every one understands what is expected from the contractor
3. material specifications: exactly what materials would be used if agreed to, for example, not just cabinets, but what company, brand, style, etc.
4. cost: unit prices, materials, labor, management, anything that applies
5. insurance: require that the contractor be insured and keep copies of their proof of insurance
6. not to exceed: if a contractor would agree to a not to exceed contract (and not all will) overages not suggested by you would be the contractors responsibility
7. payment schedule: so that everyone is clear when the contractor would be paid, it is necessary to have this on paper. if you pay by % completion or monthly, this should be a part of the agreement
8. drawings and plans
9. change orders: if anything needs to change, the process for doing so
10. compliance: contractor will do all work in accordance with zoning, permits, inspections, local ordinances and codes
11. clean up: contractor needs to keep site clean
12. mechanics' liens: require that the contractor provide you with evidence that subcontractors have been paid for work completed. a lien release might be required by your lender in addition
13. warranties: if any work is warrantied, what is and a time frame
14. dispute resolution: how unresolved issues will be solved (arbitration, mediation, etc.)
15. termination: right to terminate for a breach of contract for reasons such as poor workmanship, failure to meet the contract requirements or bankruptcy or insolvency

as always, make sure you find the right contractor for the job. vet them thoroughly!

this info was adapted from FLIP by Rick Villani and Clay Davis

Networking + Where to Find Us

networking is one of the most crucial parts of being a real estate investor. many opportunities come to you by word of mouth. tell people what you do. whether you wholesale, fix and flip, buy & hold, lend, build, etc. even speak with people who do the same activity as you. they might have a project that doesn't fit their needs right now but will work perfectly for you!

these are some of the organizations that we are members of and attend meetings. go to network, hear the featured speakers, see us! there are many out there, go to a few and see what the right fit may be for you!

Investors Realty Resource of Colorado (IRROC) http://www.irrofcolorado.com/ this group meets the first Thursday of every month at 6pm at the Embassy Suites I25 & Hampden.

CAREI https://www.carei.com/ this group meets the third Wendesay of every month at 7pm at the PPA Event Center near Mile High Stadium

Colorado REIA http://www.coloradoreia.com/ this group meets the third Thursday of every month at 6pm at the Lakewood Cultural Center

we hope this helps you get started!

to improve or not to improve? and what?

when you find a good flip with some profit margin, it likely has a thing or two wrong with it (did you read this in a sarcastic voice? we hope so.) did you get the property inspected prior to purchase - of course you did, you're a pro! anyway, it is not your home that you are going to take care of for the next 30 years, so time is of the essence. but what do you fix? it can't be everything. there simply isn't time/money/margin for everything. here are some things you need to think about, the consequences of missed or miscalculated rehab costs - and remember time is literally money here.

• the direct cost of the improvements
• the cost of the extra time you need to make the improvements (interest, property taxes, utilities)
• will the extra time take you to an unfavorable selling season? are comps trending down?
• are there opportunities you will miss out on due to the extra time these improvements will take?

if the home has a structural, electrical, plumbing issue, it is going to be cheapest to do all fixes necessary as soon as possible. should the buyer call out an item from an inspection, fixing the problem at that late stage could cost significantly more than if it were done at the beginning.

But Does it Pencil?

an investment property, as you might guess, is all about the numbers. unlike when you are shopping for your personal residence, there is nothing emotional about an investment property. you don't care about the cute red door or the distance to the park like maybe the owner tries to sell you on. so how do you figure if a deal is right for you?

This general concept should be used when evaluating an income property. 

common mistakes made in deal evaluation can be caught if you think about these categories. while purchase and sale prices seem fine, some investors forget about the cost of money (whether by bank or private), paying their real estate agent or closing costs, and lastly but importantly how much they will be left with! a list price is a starting point, but don't let that stop you, think of a deal this way, so that you set your buy price. 

Comparative Market Analysis - What to Know

as asset-based lenders, the most important part of the loan application is the property. this differs from traditional (federally insured) lenders where the most crucial component is the borrower. for hard money / non-traditional lenders, the property's value is of the highest priority. how this is generally determined is comparable properties. 

what should you use as a comparable? comparison properties should be at the level of improvement you plan to put into the home.

• if you are adding square footage, use homes with similar square footage as the additions.  
• don't use comparable properties that are so far above the quality that your fix up will be. someone may have paid for those upgraded finishes, but that won't translate to your project.
• location / location / location - neighborhoods are important. the home values on the south side of a particular street could vary drastically from the values of homes on the north side of that street. please pay close attention to the comparable properties you provide to your lender. as much as possible, try not to cross major streets and never highways. below are 2 examples of comparable properties that have been provided - the location of your comps are important. sell yourself!

poor comparisons

better comparisons

if the comparable properties are more difficult to find, a lender may request to have an appraiser perform an after repair value appraisal. not all appraisers offer this service. 

• the more comparable properties you are able to provide, the stronger your deal looks. 
• lenders consider true comparables only to be 'sold' properties. feel free to include 'under contract' and 'active' but these deals aren't closed so they don't carry as much weight.

---

we hope this helps you present your projects as stronger and more desirable to lenders!

Our Loan Process

so you have a deal, now what?! we hope that this info graphic gives you an idea of our loan process, so that you can be prepared when the right deal comes up. remember, that we are accept-based lenders, so the property is the most crucial part of underwriting. and call us with ANY questions! we know it's tricky and we are here to help. 

Get To Know Us!

Have You Met Us? If not, that is a shame! We love the opportunity to get to know our clients in the hard money business.

---

This is Brandi - she is a University of Denver graduate with a wide variety of experience in Project Management.

Meet Alex - she is a University of Denver graduate from the Real Estate Construction Management program with previous construction management and financial underwriting experience.

Finally, here is Todd with the team! He has over 35 years of heavy civil construction experience and nearly the same tenure in land development

---

For those we haven't met, we hope that changes soon. Wishing You and Yours a wonderful New Year and many successes in 2016!

Title Issues

Title Issues crop up on many investment properties due to the distressed nature of the seller in most investment property purchases. It is important to know your risks and how to address these. TABS, LLC has come into contact with all of these scenarios on one project or another and hope to help you. Here are some examples of title issues that have required correcting in the past:

• errors in public records
• liens
• illegal deeds
• forgeries
• undiscovered encumbrances
• unknown easements
• boundary / survey disputes
• unpaid property taxes
• judgements

tip: title objection dates should be a part of your offer should you need to get out of a contract and save your earnest money. 

When working with title companies, TABS, LLC requires certain policies, exception deletions and endorsements for your protection. Use our experience to guard your investment!

progress check #denver #fixandflip #realestate #coloradohardmoneylender #instagood #instalike #like4like #follow4follow

kind words acknowledging our managing partner’s legacy in Colorado’s construction industry | humbled to be able to learn from him #realestate #coloradohardmoneylender #charity #scholarshipfund #passiton #legacy #instagood #instalike #like4like #follow4follow

finding bore holes for soils tests on 80 acres #whackamole #landdevelopment #coloradohardmoneylender #instagood #instalike #like4like #follow4follow

It was a beautiful day in #breckenridge checking out this #newconstruction ⛷🏠 #realestate #coloradohardmoneylender #customhomebuilder #spechome #hardmoney #instagood #instalike #like4like #follow4follow

when your final plat is (finally) approved! #landdevelopment #realestate #coloradohardmoneylender #colorado #hardmoney #instagood #instalike #like4like #follow4follow

Happy Anniversary To Us!

“THANK YOU / THANK YOU / THANK YOU”

Today is a day for THANK YOU's! While we have been investing, developing and lending in real estate for much longer, our branded company is now 2 Years Old! We thank you for allowing us to be a part of your projects in the past, present and hopefully in the future! It has been a real joy to work with all of you and now celebrate this anniversary. THANK YOU, THANK YOU, THANK YOU!

Property Management

“Ninety percent of all millionaires become so through owning real estate.”

— Andrew Carnegie (1919)

• you aren't just looking for bodies to fill your property - you want QUALITY tenants
  • quality tenants who will rent from you for years, so that you don't have to worry about vacancy
  • did they spend a long time renting from their previous landlords? Or do they move every year?
  • do they have consistent job history?
  • do they have non-family references?
  • actually call previous landlords and references - it is VERY important to know who will be taking care of your investment property
  • consider pulling a background and/or credit check
• market your property ahead of vacancy
• put together the right team for success
• be aware of fair housing rules and regulations
• consider collecting rent via ACH - electronic funds transfer
• motivate your tenants to care for your property
• does your contract cover you? or do you need it reviewed by an attorney?

do you want to hire out these functions so that you can spend your time with your full-time job or acquiring other properties? we can refer you to a few companies that can help you with these very key processes.