November 23, 2021
Joe Fairless

JF2639: How to Plan and Execute Your Multifamily Renovation with Van Sturgeon

 

Growing up, Van Sturgeon witnessed firsthand how his parents saved their rental property during a rough economic period through the use of meticulous budgeting and planning. Now, as an entrepreneur with over 30 years of real estate experience, Van uses this knowledge to help people overcome their fears of renovating and rehabbing by helping them break down the details and costs of their project. In this episode, Van shares his best tips for finding good renovation properties and how to create a realistic Renovation Calculator to properly execute your next multifamily renovation.

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 Van Sturgeon Real Estate Background:

    • Entrepreneur, real estate investor, land developer, and owns a number of businesses in real estate 
    • Currently owns and manages over 1,000 units in Michigan, Ohio, New Brunswick, and Florida 
    • Based in Toronto & Miami Beach, FL
    • Say hi to him at: www.vansturgeon.com

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever. We don’t get into any of that fluffy stuff.

With us today, Van Sturgeon. How’re you doing, Van?

Van Sturgeon: I’m doing very well, Joe. Thank you very much for having me. I’ve been looking forward to having this chat with you.

Joe Fairless: Well, I’m glad and I’m looking forward to having this conversation as well. A little bit about Van and then we can get into it. He is an entrepreneur, a real estate investor, a land developer, and he owns a number of businesses in real estate. He currently owns and manages over 1000 units in Michigan, Ohio, New Brunswick and Florida. He’s based in Toronto, as well as Miami Beach, Florida.

So with that being said, Van, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Van Sturgeon: Sure, I’m a product of the 1960s. I was born and raised in Chicago, to immigrant parents who – we, along with my younger brother, lived in a one-bedroom apartment in Chicago, and like every person, I guess, my parents had dream of owning their own home. They were saving as much money as they can to put toward that purchase, and along the way, they discovered or learned that the apartment building that we were actually living in, had gone up for sale. So instead of actually buying their dream home, they took the less traveled road and decided to become landlords.

So they scurried all their money together and borrowed some from friends and family, put their downpayment and they bought this apartment building.

Joe Fairless: Good for them.

Van Sturgeon: Yeah. And at that time, it was a great, fully occupied building in a nice part of Chicago, but subsequently, things started to change pretty dramatically in the late ’70s. Joe, you’re too young to remember probably, but inflation was crazy skyrocketing, even more so than it is today. Unemployment rate, the economy, everything – it was just a malaise in the economy. That was just a miserable time. And unfortunately, this apartment building, this wonderful building that my parents had purchased, all of a sudden started to experience vacancies. The whole neighborhood started to deteriorate. You had gangs and prostitution and drugs and all that kind of elements started to move into the neighborhood.

Joe Fairless: Where in Chicago? Just for anyone who is familiar with Chicago.

Van Sturgeon: Northside of Chicago. In particular, the Edgewater community, uptown Edgewater community. So I’m sure you’ve got lots of folks listening over there in Chicago, and if they lived there during those times, they’ll know the area, and exactly what I’m talking about.

Anyway, it got so bad that landlords were literally torching their buildings. I remember walking around the neighborhood and there was a number of buildings that were just literally — landlords couldn’t take it anymore, the vacancy, they couldn’t handle it, and they would just be torching buildings, to collect on the insurance money.

And we were in a precarious situation ourselves. Our building was 40%, 50%, 60% vacant at the time. And as a family, this was our sole investment, and we had to do everything that we could to hold on to it. As a result, we did everything on our own, from painting, replacing carpets, to doing the roof work, whatever it required for us to do to be able to cut out that contractor or subcontractor or trades out, we did.

So it was during that period of time that we were able to get through, it was a difficult time. But nevertheless, it was a heck of an investment that my parents made, and they did very well from it. We got out of that period of time, and then I went off to university, graduated, and unfortunately, I disappointed my parents. They had these dreams of having their baby boy be a lawyer or something like that, but I decided that I didn’t want that life, and I got into opening up my own company and being a general contractor.

So out there in Chicago in the late 80s, early 90s, I was out in the hustle, trying to build a business, and slowly but surely, I kept acquiring clients and I kept running into the same people; these real estate investors that are running around, either flipping properties or actually buy and hold. That’s when I got started, in the early ’90s, and started  doing flips. That’s how I got started, and then started acquiring rental portfolio.

It’s been a hell of a ride over the last 30 years. I’ve literally done thousands of renovations and I have opened up a number of successful companies associated with it. I never planned this out, but one thing led to another, so from property management to land development to subdivisions… I’ve done everything that you can think of in terms of renovation, construction and real estate. Right now, I’m at the latter stages of my life. I’m in that semi-retirement stage, and I enjoy coming to podcasts like yours to be able to talk about specifically the issues associated with how do you plan and execute a successful renovation, whether it’s on a single-family or multifamily. It seems there’s a lot of confusion out there.

A lot of folks talk about having a successful trade is to be able to find that deal, and that’s great. You need to have that skill set. But another one that’s even as important is actually being able to execute on that renovation rehab, because [unintelligible [00:05:10].17] properties that require some type of work. We’re looking to buy that diamond in the rough, or that’s ugly duckling that requires some type of improvement on it. And where we are able to pull money out, do that BRRRR strategy, or meet the projections that we have, on the syndication side, maybe go to our investors where we say, “Over the course of 3-5 years, this is what we’re going to do.”

So unfortunately, there’s a lot of trepidation with regards to that renovation side, and that’s why I like talking about it,  because I’ve got, as I’ve mentioned, over 30 years of experience in doing it, and then there’s a right way and there’s a wrong way in terms of the systems and processes, and you need to institute it in order to be able to carry forward a successful renovation rehab on any project.

Joe Fairless: And we will talk about your plan and your execution for renovation for multifamily; if we can stick to multifamily versus residential… That’s what most of our listeners are focused on is commercial real estate or want to be focused on it. But before we get to that, this will tie into or segue into the plan and execution… But let’s say we’re looking at a multifamily property, and we can see that there’s rent bumps that we can generate for the property, because the comps are generating those rent bumps of, say, 200 bucks. How do you think about the renovation process whenever you are initially assessing an opportunity? Not the actual execution of it, but when you’re initially assessing deals, is there something that you’re thinking of that perhaps others who aren’t as savvy with the execution of the renovation process are not thinking of?

Van Sturgeon: Well, every successful investor that I know, or just any successful person in general, needs to establish some sort of a process, a system to be able to go in and quickly evaluate a property and make a decision on whether to move forward to invest the time and effort. Because we come across a lot of opportunities. So do you, Joe. And you can’t afford to spend time evaluating a property, because there’s another five or 10 more that come down the chute for you to look at. Time is of the essence in most cases because of this overheated real estate market that we’re in.

So, with regards to how we process or how I recommend individual process it – we have a checklist and we have sort of like a renovation calculator that we use in order to be able to go in, whether that’s the multifamily side… And also, there’s a lot of wrinkles associated with multifamily, from balconies, to underground parking garages… There’s a lot of wrinkles associated with the cost of getting a capital improvement put in, but we start off using that as a basis to be able to figure out quickly what the cost is going to be associated with turning this investment around or this potential investment around, and then based off that number, then we are able to determine whether we would like to actually spend even more time associated with doing our due diligence, putting an offer in. Does that make any sense? I’m hoping that I answered your question.

Joe Fairless: Yeah, yeah. So what are some things on the checklist?

Van Sturgeon: Well, it starts from the exterior, from the roof, all the way down to the actual common areas and individual suites. It’s an actual checklist with a formula associated with it, whether it’s in linear feet square footage… And we plug that number in to be able to spit out a generalized number. And based on that number, then we can apply that to the overall number of calculations that determine whether it’s something that we should move forward on.

Break: [08:24] to [09:56]

Joe Fairless: What’s an example of a couple line items on the checklist? And I heard you say roof, and I heard you say common areas, but can you just say a couple line items? I just want to get a good idea.

Van Sturgeon: Sure. There’s a line item on the linear feet of countertop. So, based on the type of countertop that you want to repair, whether it’s granite or a Formica top, there’s a unit number there that you entered the linear feet, and then it’ll turn out a number. Square footage on paint – if you entered the actual unit, it’ll spit out a number. Those are the types of things that we try to generalize as best.

Joe Fairless: And how do you get that number, square footage on paint? That’s the square footage of the walls that you’ll be painting?

Van Sturgeon: No. Again, Joe, this is just a rough estimate associated with the cost of paint. So, it would just be on the floor. We’re estimating, I think, a standard eight-foot high floor to ceiling… So, there’s a number assigned to that, the floor square footage. So it would be — on a typical one-bedroom apartment, it would be $500, and we would assign a value, paint and material included. So, I think it’s like [unintelligible [00:10:55].25]

Joe Fairless: Got it.

Van Sturgeon: Yeah, you’re having the same issue as we do, that you’re constantly looking at opportunities. So oftentimes, you don’t want to get bogged down on them, so you need to do an overall assessment, plug in some generalized numbers to be able to see, “Hey, is this worthwhile for me to be able to move forward on actually devoting some serious effort into determining it?” and then that’s when you start to find the numbers.

Now, part of that also is that there’s buildings that have balconies, and there’s, as I mentioned, there’s buildings that have pools, and things of that sort. So those are tougher numbers to be able to figure out in terms of does this is require some repair or renovation, too.

A lot of this is also experience, and Joe, you’ve done this many a times. So there’s a wealth of experience that we draw upon to be able to put out numbers, to be able to get a sense of where you can take this property, and how much this renovation or these rehab’s going to end up costing… That new folks that get into that aren’t able to put a number to, and they struggle with that. and unfortunately, there isn’t a book out there or some type of resource to be able to buy to get to that point.

Joe Fairless: So let’s take a step back… Where do people who do not have an experienced team, where do they fall short as relates to renovations compared to the opposite team?

Van Sturgeon: Well, oftentimes, on the multifamily investor/syndicator sides, especially on the syndication side, your projections that you put together associated with this property is going to eventually generate over a course of a period of time, and is based on those numbers you’ve sold that to your investor group. Those individuals, based on those numbers, through relationships you’ve created with these individuals over a period of time, are the ones that put money toward this purchase.

That relationship is different than the relationship that you have with yourself… Meaning, the amount of money that you put into an investment, if something goes wrong, you’re the only person to blame, versus if you take somebody’s hard-earned money and you look them in the eye and they trust you with their money, to be able to carry this forward, that in itself is even more weight on your shoulders associated with making sure that you care for the renovation process and making sure that it’s successful.

So, as you bring those projections and put those together, the numbers associated with it, you need to start to fine-tune the association with what it is that you’re actually going to do to the property, and what you can’t do. Because we all live within budgets. There’s only a certain amount of dollars put aside in order to make sure that this renovation rehab is successful, and it’s going to reach your projections. That’s when the difficulty comes, especially first-timers, because everything is 10x in terms of moving from a single-family to multifamily. And the cast of characters associated with the individuals that will be part of that also change as well. You’re not going to go to a general contractor driving around in a small little beat-up pickup truck. You’re going to have to elevate and go to fair size contractors that can handle this type of renovation, whether it’s from a 10-unit up.

So as a result, there’s a lot of fear and anxiety associated with making that right move to be able to reach those projections when you’ve done your underwriting and you’ve gone to your investors, and they’ve signed off on that. So those are where, unfortunately, experience is really required to be able to make that determination as to what it is that you can do and you can’t do, and the capital improvements that you’re going to make to be able to get the highest ROI. Oftentimes, I find that these are difficult decisions that syndicators and investors have to make, because there’s only so much money in the kitty to be able to put toward raising the property value. And that’s where folks like myself come in and help in the process, because of the experience that I’ve been able to gather, and be able to help folks through that process and being able to determine exactly what it is they need to do to the property, and the cost associated with that, if that makes sense.

Joe Fairless: What’s something that’s typically underbudgeted for?

Van Sturgeon: Well, oftentimes, I find that there isn’t enough dollars in the actual unit itself, that in particular kitchens are miss—often are not calculated properly. There’s a significant cost involved in upgrading a kitchen, whether that’s not just the cabinetry, but there’s electric needs to be moved around. If there’s an introduction to putting in a dishwasher, there’s plumbing that’s involved… There’s a number of tradespeople that are involved in that whole kitchen renovation that if you walk in thinking that’s going to cost $3000 to $4000, all of a sudden, it comes up significantly more.

Joe Fairless: Thank you for those examples. That’s helpful. What is something that you’ve seen more often than not people get right, from a budget standpoint?

Van Sturgeon: On a budget standpoint, what they get right… Fortunately, I tend to see that there’s a lot of stuff that is—

Joe Fairless: What is more commonly right than the other stuff? What is [unintelligible [00:15:36].28] on than the other stuff?

Van Sturgeon: Typically, these are stuff to be able to calculate; like, it doesn’t take rocket science to be able to determine the cost associated with replacing a carpet or putting [unintelligible [00:15:47].03]. Those types of things, on a supply and install basis, you can easily figure out what that is. Unfortunately, if you really dig into each of those, in particular LVP, if you have an older building, and if you have areas where you’ve got floors that are all over the place, then there’s a cost associated with having to do some type of leveling, that often folks will miss that number. And depending on the area that’s required to have little bit of leveling done, then we can talk about some significant dollars for that.

Joe Fairless: What’s something that we haven’t discussed that you think we should as relates to renovations?

Van Sturgeon: I think that what’s incredibly important in the planning out and executing a renovation process is actually creating a detailed scope of work. And I find that lots of folks that get involved and start that whole process don’t plan it out properly and put that whole process down in writing, and creating that detailed scope of work. In detailing the type of paint, the color of the paint, appliances, toilets – all of those things that, in order to be able to get out there in the marketplace, an apples to apples comparison from contractors or tradespeople, you need to have that detailed scope of work. And it takes time, but it’s something that’s required. Because if you just generically send out, make a couple of phone calls to contractors to ask them to give you to price out work in your individual suite, you’ll have a wide variety of numbers associated with that, and also, you’ll have a number of folks that are not interested in quoting.

Coming from the background as a general contractor myself, I’m bombarded with requests of people to price out their jobs, whether it’s on the residential or commercial side. And I am careful in who I do business with. So I learned right from the beginning that I wanted to deal with professionals associated with all of these types of renovations, because I make the most amount of money in the turns that I do, and the amount of renovations that I do. So I don’t get money getting bogged down on a renovation.

So I’m always looking for professionals who know exactly what they want. And if you don’t have a detailed scope of work where you have identified exactly what it is that you’re looking to accomplish in this particular renovation, then I don’t want to deal with you. And that’s one of the struggles that I find new real estate investors, syndicators, when they’re out there trying to tender their jobs, trying to find contractors to quote on their work, a lot of good quality ones won’t, because they’re not prepared. They don’t have their decisions figured out ahead of time.

And so that’s one of the things that I find in the marketplace, whether it’s a single-family and multifamily. There’s a lack of that detailed scope of work put in there to determine, to make sure that you get exactly what you’re looking for, and you can get good quality contractors who are interested in quoting your work, and also being competitive, that you can look at quotes and compare apples to apples.

Joe Fairless: What is your best real estate investing advice ever?

Van Sturgeon: When I got started – I didn’t realize this, but now looking back, I strongly encourage folks when they get into this, that they, especially in the multifamily side, that they’re acquiring properties for cash flow, because that’s what—that’s investments you’re looking for, and you’re able to pay for improvements and put money aside… But eventually, what you’ll need to do in order to create real wealth is acquire properties that will appreciate, and that’s where real wealth is created. There’s pockets all across North America that have a little bit of both, and that’s one of the recommendations that I’ve found, is acquire properties that cash flow. And the numbers don’t lie.

Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Van Sturgeon: I’m ready. Go ahead.

Joe Fairless: Alright. Let’s do it. First, a quick word from our Best Ever partners.

Break: [19:19] to [22:07]

Joe Fairless: What’s something that you do differently from a renovation standpoint, that you weren’t doing, say, five years ago?

Van Sturgeon: Always looking for improving systems and processes. So I’m constantly looking at improving, whether it’s through technology, and there’s been tremendous strides even over the last several years with regards to that. So that’s in the South, where I’ve seen improvement on, is improvement on the technology.

Joe Fairless: What technology are using now that you weren’t using before?

Van Sturgeon: Twilioo is one where your projects are put it in and you can monitor the progress associated with that. There are some proprietary stuff that, in terms of like payment schedules and progress schedules that we have with contractors and trades, that helps in terms of accountability, ensuring that we get what we’re supposed to be paid for.

One of the things that I find, Joe, that I really want to — like, there’s this notion out there that in order to reserve the services of a general contractor like myself, that you need to drop 50% down, and then over a period of time, obviously, you make more payments as work progresses.

But I’m a strong advocate not to do that, in that when you’ve made that type of commitment to a contractor, that you’ve lost all control associated with your renovation project when you put up that kind of money. 50% upfront is an outrageous sum, and the only place that I would be paying that kind of money upfront is when I walk into McDonald’s. McDonald’s requires you to be able to buy your hamburger and you stand off to the side to get your hamburger prepared. None of these guys are a McDonald’s. So I’m a strong proponent of real estate investor syndicators keeping as much of your money in your pockets, maybe perhaps for mobilization and material costs you give them 10% down, but other than that, it’s outrageous. I’ve heard people that have deposits down to 70%. And how do you retain control of your rehab project when you’ve giving that much money upfront?

Joe Fairless: Best ever way you like to give back to the community.

Van Sturgeon: I love being on podcasts like yours. I’ve written a number of articles that have been picked up, and I just really want to bring out the good word on like how to properly successfully plan and manage the renovation, because I find so many folks constantly — every day, I get phone calls from individuals that are struggling, their contractor has skipped out and hasn’t returned to do work or… Just a lot of horror stories out there. In fact, there’s TV shows that are dedicated to these types of horror stories with contractors and tradespeople. So I’m doing everything that I can to be able to get the good word out, and I really am enjoying that process.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Van Sturgeon: I’ve got a website, vansturgeon.com that folks are more than welcome to go visit. There’s a wealth of information there. I also have a renovation calculator that folks can download, to be able to sort of accelerate that checklist, and also a calculator, and I’ve been on a number of great podcasts like yours that talks about how to plan and execute a successful renovation. So that’s definitely the place where folks can learn more about me.

Joe Fairless: Van, thanks so much for talking about the renovation process and some red flags. I hope you have a Best Ever day, and we’ll talk to you again soon.

Van Sturgeon: Thanks very much for having me.

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