Remodeling to Build Wealth

By 2004, homes that Rebuilding America originally purchased for $75,000 had risen in value to an average of $450,000. The assets of the company were strong, but as was previously mentioned, the area did not support an improved-rental-property strategy. The area was switching over to owner-occupied.

The Rebuilding America formula for purchasing a home is not complicated. They look for homes that can be purchased and improved for an amount where the eventual monthly rent does not exceed 1 or 2 percent of the total cost. For example, a home purchased for $75,000 and improved with $25,000 for a total investment of $100,000 would need to be able to support a monthly rent of at least $1,000, preferably more.

Through a network of realtors, whom Jordan refers to as “truffle pigs,” Rebuilding America finds homes that he affectionately refers to as “Wapos.” Wapos is an acronym of for “What a piece of s___.” Around the Rebuilding America office Wapos is a common word and driving through a neighborhood adjacent to the Pensacola Naval Air Station – an area where the company owns and manages dozens of home – Jordan will point out the homes they own and others that he’d like to buy. “There’s a Wapos,” he says. “And there’s another Wapos. We love Wapos.”

Rebuilding, Managing and Spreading the Word

When Rebuilding America relocated to Pensacola from San Diego there was a lot of attrition, but Jordan kept the key players and quickly built a new team in his adopted home town. Jordan’s son-in-law Andy Nadsady has worked with him from the very beginning of Dirty Work Construction. Nadsady is manages the renovation and repair operation for the company. And it is the skills he learned turning hundreds of homes for Dirty Work that help keep Rebuilding America profitable today. Another key player from San Diego, Tracy Matthias, did not initially plan on making the move. Today she is general manager of the company an owner along with Nadsady and Jordan. She came out from California on a temporary basis in early 2006 to implement, upgrade and operate the same financial systems she ran when the company was located in San Diego.

In a little over two years, the company has almost completed its transition from its properties in San Diego to new ones in Pensacola. For tax reasons it was important that capital gains be limited and that the transfers all qualify for IRS 1031 Tax Deferred Exchanges. For the past two years, the work flow has followed a set pattern. Jordan and some of his local real estate pros identify properties to buy. The agents enter negotiations to buy the properties. Once a property is closed, Nadsady and his team of regular subcontractors descend on the property in a SWAT-team fashion. Nadsady is armed with a well-proven checklist for the house. With the goal of minimizing investment to bring the house up to code to make it clean, comfortable and attractive, Nadsady and Kim Strong, another manager with the company decide item-by-item which parts of the home can be salvaged and which parts need to be replaced during the renovation. Items as small as a $300 shower/tub liners have been sources of disagreement between Nadsady and Strong. She will take the side of the future renter arguing for improvements that will yield higher rents and quicker rental turnarounds. (See the sidebar, below, “Renovating the RBA Way.”) An early challenge for Nadsady was educating trade contractors on how they could make money working at with RBA, without charging their usual prices.

“We’ve got a great group of subcontractors in place right now,” says Nadsady. “Once they understood that we had the capability to keep them busy five and six days a week for months at a time, and that we faithfully paid them every week, we earned their trust.”

Depending on the original condition of the purchased property, the home is ready for rental within days or weeks of closing. The quick turnaround, replacing locks, re-roofing the house, repairing a deck etc., painting the interiors and exteriors is key to the company’s profitability.