Monday, June 16, 2014

How to Handle Contractors - Get the Job Done On Budget and On Time

If you're involved in real estate investments, then unless you're involved in notes, or wholesaling, then you're likely going to run into repairs, renovations, demolitions, new construction, additions, etc. at one time or another.

This post is intended for professionals in the industry who do not normally get involved with day to day project related work.  This is not intended for project managers or general contractors (GC) as they already use these tips as common practice.  

For owners, it's good to understand some of what your GC or project manager does to ensure that the jobs are done on time and within budget.  If you're using a GC, then it's a good idea to use these tips in your contract with them.  Never forget that the more time a job takes, the more money it will cost you if you are using financing or not.  Even if you use all cash, your cash is being tied up and not earning anything for you while it's used in a particular project. In other words, for you cash buyers, the situation is exactly the same for late jobs.  Lateness from your contractor = you losing money as a result of the lateness.  These tips will help you avoid delays by empowering your contractor to get the job done quickly and efficiently.
The whole point of hiring a contractor is to ensure the job is done on time and on budget.  The primary objective of a contractor and that of the owner are not entirely aligned.  The contractor wants to do the job at as high a price he can get competitively.  Once they have the job, they are interested in getting change orders that will put more money to their bottom line and to get the job done with the least amount of work time spent.  The Owner however is interested in getting the job done at the lowest price while getting the job done professionally in the least amount of time.

Sometimes changes or extra work cannot be avoided, but it's important to ensure that the job is bid exactly as you want it BEFORE you sign the contract so there are no misunderstandings.  This requires thorough planning from your Project Manager or GC.  Make sure that every detail is captured in your bid on what you want your contractor to do.  If you leave anything out, he is not obliged to do it.  Typically commercial scopes are very detailed and leave little or even no room for interpretation, while on the residential side many problems appear because the details are not captured fully, or issues arise that were not anticipated.  These considerations add cost and add extra time to the jobs.  Let's discuss now how to form a good contract to help avoid the delays and higher costs associated with job delays:

1) As I've mentioned, ensure everything you want the contractor to do is captured in the bid.  This must include everything down to the fine details and thorough broom swept clean-up and disposal of all construction waste at job end.

2) Ensure that you ask the contractor for the longest time he will require to do the job.  He should give you a specific date.  Write that into the contract and then place a penalty clause for every day that he doesn't meet timing.  This is usually written as a penalty price per day that is deducted from any amount owing to the contractor.  This is motivation for him to finish on time.  He can't complain about this because he's the one who gave you the date.  Penalty clauses must reasonably cover your delay costs and not be excessive in relation to the job.  Calculate them and put them in the contract.  Always remember to ask the contractor for the longest time they will need to complete the job before presenting the penalty clause if this is the first time you've used the contractor.  If you've used them before, they will already know you will be using the penalty clause.

Now, please do note that if there is work that needs to be completed in front of contractor 2, for example, you have to ensure that that contractor 1 has completed what he had to do before contractor 2 starts their job.  You can't reasonably enforce a penalty onto contractor 2 if contractor 1 didn't finish his job on time that needed to be done before contractor 2 started.

For Example:

Rough framing is late and not inspected by the city, so your electrical contractor cannot start until the rough framing inspection is approved.  Your electrical contractor in this case is not responsible for framing / inspection lateness.  This is all a matter of being reasonable.

By imposing penalties onto the contractor in this manner, it's efficient and they really can't complain because it's their date and you are of course being fair.  Just remember to ask them something along the lines of...., "from the start of your portion of the job, what is the maximum time you will need?"  Once they give you the time / date, that's what you write in the contract.

3) Ensure your team member has daily direct contact with the contractor.  Either be on site every day as the Owner or ensure you have an employee to represent your objectives on site.  This is ideal, and is best, but realizing that sometimes this can't happen, it's important you get an update every day for work in progress from the contractor(s).  Ensure someone is on site to review the work done every day if possible and NEVER at the same time.  Your team member should mix up the time they come to the job site so that the contractor knows they can be surprised at any moment.  Don't have your project manager or GC wait several days before inspecting the work that's being done.  This allows the contractors to ease up and perhaps leave your job site to go to another job since the, "squeeky wheel gets the grease".

4) Ensure each scope is fully completed and signed off by your rep / team member or you before full payment for that scope is paid.

5) If you have a contractor that does not finish the job by the time they agreed to and they do not come back to finish within a reasonable period of time (this time frame should be in the contract explicitly, by the way), you will have the unfortunate situation of having to bring in another contractor to finish.  They will likely charge you more than you expect at this point because they are coming in to finish someone else's work.  If you've handled the finances well to this point by using progress payments per the contract, you should be able to complete the job reasonably close to budget, even though it's late as a result of the previous contractor's work.

This is by no means an exhaustive list, but it does give several practical pointers to make sure your jobs are completed on time and within budget.

Until next time....

Thursday, May 22, 2014

4 Strong Reasons to Invest in Commercial Real Estate

I realize that many of you reading this can't imagine yourself getting out of making small deals in residential real estate and moving into the commercial real estate arena.  Quite understandable as many of us don't like change or have some fear of it.

What you need to realize is that in commercial real estate, it's not about your personal resources that matters but it's a reflection of the deal itself...IT'S EXACTLY ABOUT THE PROPERTY.

Reason #1

Cash flow is king!  Commercial real estate when purchased right will produce much higher levels of cash flow compared to residential.  This is intuitive, isn't it?  Not really for some people because if you think about it for a moment, a single family home that needs renovations will produce zero cash flow.  Additionally, your money is tied up until at least the renovation is over and if you're flipping a home after renovating it, you must factor in holding time again after the repairs are done.  So, you could have zero cash flow for months or even years!  (Yes, years!).  Without cash flow, your business will grind down or even come to an abrupt halt.  

Reason #2

Related to Reason #1, commercial real estate offers less risk when the right systems are put in place.  If you lose a single tenant in a single family home, you have zero income but when you lose a tenant in a 100 unit apartment building, you've lost 1% of your total income.  I'm sure you get the idea...

Reason #3

Building equity takes less time with commercial real estate.  Bigger total payments from tenants mean your mortgage (if you have one) gets paid down in bigger lumps compared to residential rentals.  Additionally, value appreciation over time also creates more dollars for you in comparison with residential.

Reason #4

Forced Appreciation - This one is the best of the lot if executed right.  By increasing income and/or decreasing expenses, you can effectively increase the value of a commercial property by $10 for every $1 increase in income or decrease in expenses.  This is an average value with the standard understanding that average investors are looking for a 10% rate of return on their investment.  The powerful thing to take away from this is that $1 more in your pocket translates to a $10 increase in value....powerful stuff and very true!

i.e. this comes from the standard commercial valuation formula of:

Rate of Return = Income / Total Value 

By re-arranging this formula, we get Total Value = Income / Rate of Return

and with our example the total value increase, assuming we want a 10% rate of return = $1 / 10% = $10.

If you need a primer on commercial real estate, you may want to pick up a copy of Trump University Commercial Real Estate Investing 101, which is written by David Lindahl with a forward by Donald Trump.  It's a very good beginner's book and a great reference for the more seasoned professional that I highly recommend.  Check it out below.

 Order Here

Monday, May 5, 2014

Low Interest Rates Got You Down? How Does 10%-17% Annualized Sound?

It seems as though low interest rates will be with us for some time yet.  So how can we obtain higher returns and minimize risk?  Stock market?  Speculation in other areas?  Both of these options can produce tremendous returns, however the element of risk is substantial also.  For those people who don't have a stomach for high risk or the ups and downs of the daily markets, let's consider a viable, comparatively low risk option:  VALUE-ADD REAL ESTATE.  

Let me explain in layman's terms:  Value-add real estate is real estate that we can increase the value over a relatively short period of time by executing a viable business plan to extract that value as profit.  

What kind of returns, you may ask?  

Our track record shows 10%-17% annualized returns over the past several years, which we pay our investors.  Don't take my word for it at all!  These numbers can be checked through the public records.  We have never lost money on any deal we have done.  Are we lucky?  No.  We carefully pour over hundreds and hundreds of deals to find the diamond that makes economic sense and minimizes any possible downside.  By this approach, it's almost improbable to lose once we get into a deal.  As I mentioned before, we have never lost on any deal we have done.  It's a winner before we start, not by some appreciation due to market action.  We control the appreciation because we know what it is worth now and what it will be worth at the time we sell it within a small margin for error.  Additionally, our investor's money never passes directly to us and is protected by multiple layer's of insurance.  It is always handled through escrow through their chosen attorney! 

If you are looking for a viable option to generate a healthy 10% - 17% annualized return, then why not take a moment now and send us a quick email?  We can discuss your objectives and see if they coincide with ours.  If they do, great!  If they don't, no problem at all!  Let's start a dialogue today.... 

You may contact us at: or toll free at 1-888-799-7740 ext. 129 at your convenience for further information.

Until next time....

Friday, February 28, 2014

US Banks Reporting Healthy 4th Quarter

The FDIC reported on February 26, 2014 that U.S. commercial banks and savings institutions that the agency insures stated that aggregate net income was $40.3 billion in 4th quarter 2013.  This is up approximately 17% compared with 4th quarter 2012.  Bank earnings have enjoyed a year-over-year increase for 17 of the last 18 quarters, which is good general news.
53% of reporting banks had year-over-year growth in quarterly earnings.  Unprofitable banks now comprise just 12.2% of the total as of the 4th quarter 2013, down from 15% in the 4th quarter of 2012. The FDIC also stated that the number of unprofitable banks was reduced in number from 515 to 467 during the 4th quarter of 2013.  This is just about half of the high of 888 at the end of the 1st quarter of 2011. Two FDIC-insured institutions failed in the 4th quarter of 2013, which is down from eight in the 4th quarter of 2012. For all of 2013, there were 24 bank failures, compared to 51 in 2012.  
The value of 1-4 unit residential REOs held by banks declined from $6.79 billion in the 3rd quarter of 2013 to $6.64 billion in the 4th quarter, which is a reduction of 2.2%. This is the lowest level of REOs since the 3rd quarter of 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO on their books.

Enjoy your day!

Thursday, December 5, 2013

Economic Reality vs Typical Media Driven Misleading Information

Now, don't let me bore you if you're not Canadian, since this first paragraph is really only for Canadians, but if you're American, go straight to the chart below and read on.  You may find this information refreshing, positive and contrary to popular media and public opinion on the state of the United States economy. For some time, I have been telling Canadians that investing in United States real estate is a prudent, and profitable approach, and with the near par level of the Canadian dollar vs the US dollar, that the time to take advantage of low market prices, and a high relative dollar value was now.  Well, "now" was best just about a year ago.  It's still a great investment opportunity in general for Canadians to invest in US real estate now, however we have seen prices on the rise, as well as the US dollar rising significantly against the Canadian dollar recently which will likely trend in the same direction towards long term historical norms.  The biggest additional factor that will influence the exchange rate is interest rates.  The US dollar is rising and interest rates have not begun to creep up yet.  They will definitely go higher, the only question is how soon, as the US Federal Government moves towards paying down the national debt with cheaper dollars with higher interest rates.  The exchange rate as of today is 0.938 US$/CAD$.  Just a few months ago it was above par on the flipside.  I believe what we are seeing is the beginning of a consistent and long term drop of the Canadian dollar vs the US dollar as we have seen in the past.  I recall working in Troy, Michigan from 1997-2000 and the exchange rate was as low as 0.6311.  Now, let's take a look at a very interesting chart and how it relates to what I mentioned above.

United States Federal Debt as a % of Gross Domestic Product (GDP)
1940 to 2012

The great recession took its toll, but it seems that we can safely say that the worst is behind us.  Regardless of what the naysayers and pundits are saying, we must look at facts rather than conjecture AND SELF-INTEREST, which is a predominant difficulty with listening to the media and the hoards of "experts" that they put on television and radio and print.  

Take a moment and look at the attached chart and make your own judgement...Real numbers do not lie.  Clearly the debt / GDP ratio was significantly higher at the end of the second world war in 1945-1947 than it is today.  It was significantly higher, so where the media tends to put "experts" on telling the world how bad the fiscal situation is in the United States, the real story is told by this simple chart.  The absolute value of debt is irrelevant.  What is relevant is the GDP compared to it as it shows the ability to repay this debt.  Since the United States paid down debt significantly after 1945, then it most certainly can do it again since the levels are significantly lower now in comparison when we look at GDP and not total dollars.  Now, don't misconstrue what I'm writing here.  The national debt of the United States is very high in a vacuum, however we do not live in a vacuum.  The fact remains that this chart tells the truth more than anything that I have seen anywhere else.  There are clearly economic complexities that will drive the general economy, however, when we look at how the situation is now compared to the past, it's much more positive than we have been led to believe.  As interest rates rise and the debt is paid down, and more foreign investment of "scared money" goes into the United States, look to have that impact the Canadian dollar in a negative way.  An additional factor that will certainly influence exodus of money from Canada into the United States at least in real estate is that prices are sky-high in Canada compared to the United States in a relative way.  Looking at all of these factors, we can certainly expect that the Canadian dollar valuation relative to the US dollar will tend to trend downwards.

I hope this information has been of help to clarify reality in a rather easy to understand manner.

Until next time.....

Friday, November 22, 2013

The Real Deal: How to Exceed 12% Annualized Return With Low Risk

For those that have an interest in low risk and high returns on investment (third party verifiable), I will detail below what we do:

As we move forward with our business, we steadily provide our investor partners with very strong (and notably very low risk) returns, never offering less than 12% annualized ROI.  Now, this level of return may appeal to some of you, but let me explain that these returns are based on very carefully selected acquisitions that limit risk to a very low level for our partners.  Contrary to the high risk stock market, where you can immediately lose money and the risk profile is very high in comparison, our focus is to only acquire assets at very low prices relative to current value to offer a risk profile that is very low.  We achieve this through a multi-pronged proprietary approach with our entire focus to minimize risk for our investor partners, while maximizing their returns.  There is absolutely no risk comparison between the general markets and what Almavesta Group Inc. does.  We offer a stronger, better investment solution because of our years of investment in systems that produce bona fide results.

We prove our results with 3rd party reports.  We are different and are transparent to sharing this information with our partners.  Integrity, transparency and a desire to exceed our partner's goals are of paramount concern.

Should you have an interest in learning more about how we can help you exceed your financial goals, you may contact me personally (Alek Musulin) at: or by dialing +1.888.799.7740 ext. 129.

Until next time...........

Monday, September 30, 2013

Can You Show a Real Track Record?

There are many people who claim to have a successful track record in real estate, but when the question is asked for some examples of their success, there is no substance provided, but rather a change of subject matter tends to be the norm.

I find it also very interesting that there are many people attempting to sell courses, seminars, training, and that's perfectly fine, but are those people really doers rather than theory pushers?  My advice in this regard is to vet anyone you intend to pay for their knowledge.  Just because someone wrote a published book or two, doesn't mean that what they are giving you is useful, practical knowledge.  It may just be pure theory.  How will you know the difference?  I'm sorry to say that you just have to do more deals.  There is no secret to the business, but if there is a "secret sauce", it is simply doing more deals.  It's as straight forward as that.

Just make sure you are getting your information from someone who has actually walked the walk and not just talked the talk.  These days it seems with social media there are far too many talkers and not enough experienced people sharing their knowledge of real-life deals.

So, for those of you out there that want to be in the Real Estate education business, I believe it's important that you have had a fair share of success in real estate and can demonstrate it with HUD-1's etc. if someone asks the question.  Being transparent only solidifies your authority and helps those who want to do business with you to have confidence and trust in you.  

Conversely, for those newer people who feel they need more knowledge or education in the business, let me just say again, that the best education is actually doing deals.  If you're not doing deals, you're not in the business.  Don't over-analyze.  Just make sure you buy low enough to ensure you can make a tidy profit.  If you buy too high for the neighborhood you're in, then you won't make much, or worse, you could be in a loss situation.  Remember, you make money when you buy, not when you sell.

Until next time.......