One way to enhance a property value and bring it back to life is to renovate it. But how do you renovate your assets the right way? Sam Wilson’s guest in this episode is Van Sturgeon, a renovation expert at Multifamily Syndication Renovation Specialists. Van talks about getting the highest ROI through common area improvements. Tune in for tips and strategies to renovate your property that adds value to it in a cost-effective way!

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A Practical Guide On Renovating Your Assets To Earn More With Van Sturgeon

Van Sturgeon is an experienced entrepreneur for many years. He successfully created several businesses in the real estate industry that cover land acquisition, development, management, construction renovation. I’m not sure what’s on this list, Van, that you haven’t done. I want to welcome you to the show.

Thank you very much, Sam, for bringing me on. I’ve been a fan of yours. I read your show. I’m eager to jump in and talk the talk.

The same three questions I ask everyone who comes on the show. Can you tell us where did you start, where are you now and how did you get there?

I was born and raised in Chicago. I went off to university. I broke my parents’ hearts and could have been a lawyer and decided I didn’t want to. I wanted to get into renovation or contracting. I started my business in the late ‘80s. Over a period of time, I figured I stumbled upon this whole real estate flipping stuff. I started dabbling in that and that grew. Now I have a portfolio of approximately 1,200 doors.

I’ve got businesses, property management, home building, restoration, general contracting and some great people in place to those businesses. I’m in the semi-retirement stage of my life. I’ve decided to slow it out for years to stop and smell the roses. That’s where I’m at. I help multifamily investors through their first acquisitions and how structure, plan them successfully and manage their renovations to their assets.

A very niche part of the multifamily process to dive into is the renovation side of it. If you’ve got a background in construction, you still own construction companies. You guys are still doing renovations. What about that piqued your interest and said, “That sounds like fun. Let me go help people do that on their first acquisition?”

A couple of years ago, I decided to take a couple of steps back and spend more time with my family because I’ve been passionate about what I was doing and has sucked up a lot of time and taken it away from family. I decided that I wanted to downshift in my life but I became bored, Sam. I’m not a golfer. I’m not a guy who grabs a block of wood and willows it to a coffee table. I got a phone call from a friend who said, “I’m looking to renovate my property. Can you help me out?”

It’s like what I’ve done over the last years, I helped my friend out and I enjoyed the process. I enjoyed the adulation of receipts of having them save a lot of money. It was a seamless and beautiful process. After that, I was talking to a real estate investor, a friend of mine who happened to be also a coach. I told him about my experience. He was like, “You’d be surprised at how many people are out there who struggled with this.” On the one hand, we all talk about money is made on the deal to find a great deal.

Often we forget that you can take a great deal and all you need is to find a lousy contractor, not assess the value like what are the things you need to be done or the repairs associated with that great deal. All of a sudden that great deal turns into a real lemon. When you transition from a single-family home to a multifamily, you’re not only using your own money but you’re also looking out to friends, family, other investors, to put together the money associated with making that down payment and whatever you’re looking to do with that asset.

When you’ve got that commitment from investors, these are friends and family that you look them in the eye and say, “This is a great opportunity. We can make X amount of percentage, whatever the pitch is.” When you grab that asset and you’re looking at all the things that are necessary to be done on it and you realize, “This isn’t Kansas anymore.” We got some things that we need to do here and you’re struggling with it. That’s where I step in and I help people through that process.

Let’s spend a little time there because this is not a topic that we’ve covered in-depth at all. We’ve not covered renovations very heavily. I’m looking forward to this conversation. Break it down for us.

Everybody glosses over this just as important as finding a great deal is that you’ve got to do something with that deal. Oftentimes, we’re buying ugly ducklings all the time. We’re looking for the diamonds in the rough. You got to spend money or make money. Spending that money when you’re dealing with contractors that will tell you one thing and another thing and you’re struggling, you’re scratching your head whether which direction to go. I see that all the time. As a general contractor, I’ve done thousands of renovations from balconies all the way to parking garages and apartments.

 

I’ve got that experience level to guide people and say, “That’s not what you should be doing. You should be doing that.” To answer your question, when I sit down with folks, we always start with identifying the goals associated with this asset. What are we looking at? We want to raise rents. If their rents are at $500, we’ll want to raise them up to $800. That’s wonderful to put that figure down. We’ve gone around and looked at other comparable properties in that due diligence phase.

We’ve put together a number and that was the number that we used in order to do our number crunching to make a decision whether to purchase this asset. You’ve got to dig down into those goals to determine exactly what you want to do whether it’s elements in the common area or individual suites. You need to dial down. That’s a process I help people through in identifying out there in the marketplace what is driving the bus forward or getting you to that goal of whatever that goal is that you’ve established.

Identifying those items and incorporating that within the actual project itself. Goals are where we start off with. Once we go into the goals again, we’re going into the marketplace and validate that and then we’ve got an idea of what we need to do. We move into the budget portion. It’s wonderful. We all know just pour money into something that it’ll give us but we don’t have unlimited funds. We have to be very selective. That’s another thing that I help people through because there are certain items that can be done that deliver a much higher ROI than some other items.

Can you maybe give us some insight on that?

We often walk in assuming that we need to rip out the kitchens and bathrooms and replace the floors. Those typical turn on a unit, if you went through all that expense, you can be up to $15,000 to $20,000, depending on the size of the suite. That’s a lot of money. Sometimes it’s warranty-based on the amount of money that you pay for a property but most often it’s not or you don’t have the funds to do that. One of the things that I help people through is that, if we’re looking to raise the rent, I find that the biggest bang for our buck, the highest ROI is delivered through common area improvements where you look at a lobby depending on your assets.

You look at the hallways, exterior of the property, landscaping, relatively inexpensive expenditures such as adding a coating on the asphalt of the parking that all of a sudden makes it look like it’s brand new. Stripe it and put some black coat down. All of a sudden, it looks like you’ve done something. Before you make the investment into those turns, maybe you should do some improvements and then go to your existing tenants and start raising rents. Sometimes you can get a lot closer to that number by doing these token improvements to raise rents.

It’s something where you can do one improvement that everyone sees and benefits from versus remodeling one unit that only one tenant necessarily sees or benefits from.

Often we forget that you can take a great deal, and all you need is to find a lousy contractor to turn that deal into a real lemon.

You have to put together a process of how you’re going to execute this. The execution usually should be over a two-year span where you are going over an asset that has perhaps 40 units that, “We’re planning this out were every 2 to 3 months we’re anticipating, we’re going to raise the rents on these tenants and X amount are going to leave so that leaves us with whatever we need to do in terms of turns.” It’s a process that when you step into this multifamily space, if you don’t have that experience of understanding what those processes or systems are, there are a lot of struggles and pain. That’s where I help people out with.

I felt like I cut you off earlier. You got right into saying, “These are some of the things we help them figure out what to do and not to do.” You were going somewhere else with it. Do you remember where you were going with that?

Once we’ve been able to figure out and already know the money involved, we need to go into the whole asset and bring out a sheet of paper, not a clipboard and create a needs and wants list. Essentially that is identifying the things that we need to do immediately. A pothole in the parking area needs to be addressed right away because we don’t want people to trip and sue us. There is once like, “That ugly carpet in the actual bedroom, I don’t like it.” If it’s not all torn up, that’s maybe something that you park off to the side and maybe you address if there are bunnies in the budget but if they’re not then you’re not going to do anything with it.

Once we’ve been able to establish that needs and wants list, we have a budget and goal what we’re looking to do to accomplish with this asset then we move on to the most underutilized item, which is creating a detailed scope of work. Sam, as a general contractor in a commercial space, there isn’t hardly ever a renovation that I don’t price out that doesn’t have a detailed scope of work. That detailed scope work can be created by an engineer, interior designer or architect. There is a detailed scope of work and that’s how we price things out.

In a single-family home, probably 95% don’t have anything like that. Even in the multifamily space, I find that individuals aren’t going through the process of creating a detailed scope of work and don’t even know what a detailed scope of work is. How many varieties of toilets and paint there are and each one of them has an assigned value. Also, I want to tell contractors and trace people that before you paint that wall, I want you to make sure that’s clean because if you paint it over a dirty wall then that paint is going to flake off, which means more money on top of that.

These are the types of things that you should be putting in a detailed scope of work and these are things that have accumulated over 30 some odd years. These are the types of things you should be putting into this detailed scope of work so that you put contractors and trace people on notice that this is what I’m looking for in my renovation rehab. It’s amazing what you attract when you have something like that and you tender it out in the marketplace. You’ll then attract good people who will appreciate the detailed nature of what you’re looking for versus this laissez-faire attitude.

I had that. I don’t deal with clients like that. I’ve built a successful business that I need to get into moving products. I don’t like getting involved with individuals who don’t clearly understand what they are looking for or what they’re looking to accomplish. If I came across an individual that knew what they’re doing, I want to have a relationship with that person because I make more money that way because I’m doing more turns and renovations. Scope of work is something that I encourage. Once we get to that, it’s the whole tender process and how you strategize.

 

I find so many folks dropping 50%, 60% down payments to these GCs, trace people. Once you’ve done that, you’ve lost control. Where does this whole idea of giving this lump sum money upfront for something that hasn’t been delivered? It makes no sense to me but it’s commonplace, especially not as over the real estate market where I find many people struggling. They’re begging people, contractors and trace people to price out their jobs. I’m like, “I’m not begging anybody. That doesn’t make any sense.” You lose whole control over it.

You’re hitting on a few different things there that are important especially on the scope of work side of things. At what point in this process, in the pre-buy or post-close process are you developing that detailed scope of work? Is that before you ever buy the property? What’s that look like? It’s due diligence but that’s weeks of intense work for one person going, “Make sure the walls are clean. Make sure we’re replacing outlets.” You have to have somebody who knows what they’re talking about. Secondly, it’s a heck of a big job.

Once you’ve gone through the process, you can use that for the rest of the turns you have. You’ve standardized something. Customization versus scaling. We want to get away from customizing. We want to get into a situation where we have something like a boilerplate that we stamp out then something that we can tweak along the way. We have something in there that we put everybody on notice that this is what we’re looking for.

To answer your first question about when to start, the sooner, the better but typically that is happening shortly after a close. You got the assets and then you start going through that process of figuring out what exactly it is that you’re looking to do. Some of the preliminary work can be done beforehand like establishing goals and validating those goals in the marketplace in terms of exactly what you need to do to your assets to get to that goal. That can be done prior to that.

Once you have keys in your hand, that’s when you’re going in. That’s when you suggest you get the nitty-gritty scope of work dialed down. How do you forecast the budget for repairs or for CapEx without a detailed scope of work ahead of time?

What I have is a tool. A Renovation Calculator that I’ve developed for my own business and I’ve made it free for individuals to download also. It acts as a checklist but also as a calculator to determine in a rough sense what it is that we’re looking for to put aside to the kitty toward the renovation budget. That can be devoted to common area improvements but also individual suites. That’s where some of the difficulty comes for multifamily investors and syndicators is that we have X amount of dollars. Typically, those X amounts of dollars aren’t enough to address all of these improvements that we want to do.

You’ve got to dig down into those goals to determine exactly what it is you want to do.

Which ones do we identify to get us as close and quickly as we can to that dollar figure of whatever that goal is in terms of raising rents as an example? There are situations where there are individuals that walk in and are looking to flip a property. You will structure your approach differently than if it’s a buy-and-hold asset.

Before we jump into the final four questions, I want to touch on one other comment you made. You were talking about how you don’t want to be begging for contractors. That’s a common complaint, labor, in general. How are you working your way around that scenario?

Even though I have been in business for as many years as I have, I use the analogy that it’s a big old bucket with a hole at the bottom. You’re constantly putting in contractors and trace people into that bucket and then you’ll have losses. There is a mistake in the notion that once I’ve established a relationship with this one individual, they’re going to be there forever and ever. That’s not the reality of life. The young, aggressive person that you might have met and they’re doing great work, all of a sudden get overwhelmed by other people, obligations and commitments or they got married and kids.

That person that was reliable and gave you great prices, all of a sudden isn’t that individual anymore. Depending on the type of work that we’re doing, you need to structure your relationships with those types of individuals that can handle it. The guy driving around in a beat-up pickup truck is not the person that you’re bringing in to do all the countertops in your 50-unit complex. We got to identify the parties that can do business and create those relationships but constantly be on the look.

This is one of the things you always have to do. Unfortunately, part of the nature of the business is always keeping feelers out, going through the process of tendering and trying to recreate relationships with other individuals to tweak the numbers and reduce costs. It’s a trial and error. You’ve got to keep doing that, unfortunately.

I like that you’ve broken it down simply that there is a hole in the bottom of the bucket. Having been in contracting myself for a number of years, I can tell you that you’re spot-on correct. Everything you’ve said about how you think you can rely on someone and you’ve done business together for years and then all of a sudden, where did they go? Why aren’t they answering the phone? They’ve disappeared. Time to start over and find somebody else.

It’s a constant and frustrating hunt but as long as you know the rules of the game before you get in, what else are you going to do? Van, let’s jump here into the final four questions. You’ve given us a ton of things to think about the renovation side. Before we do the final four questions, you said you had a free Renovation Calculator. Is there a place for our readers can go find and download that?

I’ve got my website. It’s VanSturgeon.com. Aside from the Renovation Calculator, there is a bunch of resources that I’ve written over the years that have been published in Yahoo News and Yahoo Finance. A bunch of podcasts has appeared and talked about the same topic. If there are individuals out there who want to download that or learn more about the whole renovation process, go to my website and learn more.

The final four questions are these, what is one tool or resource you find you can’t live without?

The smartphone is an incredible piece of machinery. I remember the good old days walking around with a block phone, pager and beeper thing. You had to call into service and back and forth. Those days are gone. Now at our fingertips, we got communication. I could speak to somebody in Italy, China, whatever. It’s amazing. There are always constantly things that we’re looking to do in terms of programs and systems as technological things that are coming in CRM. To boil it down, the smartphone.

If you can help our readers to avoid one mistake in real estate, what would it be? How would you avoid it?

The one mistake that I made in real estate was walking in and I often find lots of folks as a single-family home side. Expect that they can find deals on good old MLS. They crack open on MLS and they pour hours into it trying to find that great deal. There are millions of other people doing the same thing too. You’re not going to find a deal there. You got to go out there and make relationships. You got to go out there with your real estate brokers, mortgage brokers, wholesalers, bird dogs. There are so many opportunities out there. There are deals all around us.

 

I hate when I hear people tell me, “There are no deals.” Yes, they are. I look at deals all the time. My email box is filled. I deal in four areas in North America and every single one of them I created power teams and relationships with each of those areas. I’m inundated with opportunities and I pick and choose what I want to do. When I hear the excuse of, “There aren’t deals,” there are. Get away from MLS, go out there and do some work.

If you say there are no deals, you’re right. That’s the way there is. There are no deals because you’re not looking for them. It’s like the person that says, “I can’t.” You’re probably right.

I’m a big proponent of mindset. There are opportunities all around us. Who the hell knows the next street over, that individual is struggling with their mortgage payments? There are opportunities around this.

Van, last question for you. You already answered this. If our readers want to get in touch with you, what is the best way to do that?

I’m on social media. There is my website that I encourage people to go to. I love the interaction. I’m doing this because I’m passionate about it. I enjoy it. If anybody has any questions with regards to whatever they’re looking at, accomplishing or doing, they’re more than welcome to reach out to me and I’ll do what I can to help them.

Van, thank you so much for your time. I do appreciate it.

No problem. Thank you for having me.

Important Links:

• Van Sturgeon
• https://www.Instagram.com/vansturgeon
• https://www.LinkedIn.com/in/van-sturgeon-029018200/

About Van Sturgeon

Van Sturgeon is an experienced entrepreneur of over 30 years, who has successfully created several businesses in the real estate industry, that cover area of land acquisition, development, management, construction and renovation.