Cash Flow Issues With Rehab Loans

There’s an inherent problem with rehab loans which means the contractor is more likely than not to run into cash flow problems…

With a rehab loan there is no payment until the work is done. And even then 10% is held back until the end of the project. The holdback protects the bank and the home owner, but it creates a difficult scenario for the contractor. The 10% is supposed to be his profit and holding it is supposed to be leverage to make sure he stays around and completes the project. But if problems arise the holdback could mean that he doesn’t have the cash flow to keep the project progressing. Deadlines can be missed, and costs can start piling up.

With most contracting arrangements the contractor gets a deposit at the beginning of the project and that deposit is his cash reserve to help him get through the project since he’ll need to pay for certain things in advance. Thing is, with a rehab loan there is no deposit. This means you need to make sure going into contract that your contractor has a substantial amount of cash in his bank accounts and/or that he has good credit and access to substantial lines of credit. If you’re financing part of your renovation in cash you may be asked to give a deposit on the entire job – not just the portion you’re doing in cash.

One significant risk is if line items come in over budget. In that case the amount over budget will come directly out of your contractor’s available cash and could create cash flow problems.

Another potential problem is if your contractor needs money to cover losses on other jobs or if he didn’t pad the numbers enough to have money to cover G&A items like insurance. In both of those cases his available cash will get depleted and he will start having cash flow problems.

If you ask your contractor to bond the job (ensuring that sub-contractors are paid for their work and don’t put liens on your property) – the bond money will also eat away at available cash. But, contractors who have the cash to bond jobs probably have cash they need to keep the job on track.

When the contractor’s cash flow starts getting tighter you’ll start seeing progress on your job slow down. And the slower it goes the worse the problem becomes since fixed costs are still incurred even though work isn’t getting done. Gradually the contractor can dig himself into a pretty deep hole.

Finances and managing money are a big part of contracting – contracting is far more than just doing good work. The ideal contractor will have a “money guy” who will watch the budget and the cash flow like a hawk and make the contractor stay on budget. If you’re selecting a contractor make sure there’s a money guy that’s part of his team – that could be a construction manager (a “CM”) or it could be a project accountant. Stay away from any contractor who doesn’t have a money guy as a senior member of his team.

Rehabbing a place is difficult enough even when everything goes smoothly. But it can quickly turn into a nightmare if your contractor has financial problems.

FINALLY! 8 Months Later – Electricity!

Electricity!!

At LONG last, a full 8 months after we first requested electrical service, ConEd is finally installing electric in the building today. And it almost didn’t happen today… Alternate side of the street parking was suspended today. I parked over the critical manhole, but then someone parked in front of me – so the ConEd truck couldn’t be right next to the manhole. Apparently some ConEd crews will refuse to work if the truck can’t be next to the manhole (since things get stolen out of the trucks), but the guys who came today just dealt with it.

ConEd workers installing electrical serviceIt probably didn’t hurt that the obstructing car was a Porsche Cayenne. Maybe they thought good cars = less crime…

I’m just SO HAPPY we’re finally getting electricity. Having a generator running all the time is expensive, noisy and fumy. And most importantly, now we can get security up and running (so we can stop sleeping there) and it should help the workers work more quickly.

A/C Units

Speaking of things electrical… A/C condensers have been installed on the roof…

Mitsubishi Mini Split CondensersI woke up a little worried this morning. I was expecting 3 condensers and realized only two were installed. We were supposed to have two smaller higher efficiency (18 SEER) units and one big lower efficiency (16 SEER) unit. Turns out Mitsubishi has upgraded the lower efficiency units so they are also 18 SEER now, so we can get away with two of the larger ones.

In case you’re not familiar with mini split systems, each of those condensers powers 4 room units. So we’ve basically got a zoned A/C system where each room is a zone. It’s a much simpler system than a forced air system – and more efficient. There will be another condenser for the 3 units in the rental apartment – but it will be located in the garden.

One rule we won’t be complying with is that A/C condensers have to be 8+ feet from the lot line. Given that we’ve got a 15 foot lot, there’s no feasible way to comply with that rule.

Then there’s the matter of FDNY access. They need a ladder up and over the bulkhead. Because the dunnage is a bit high, the ladder will need to extend over the dunnage. Then on top of that they need 6 feet clear. The supply lines for the condensers will probably have to be modified to get a full 6 foot clear.

The A/C guys are also installing the mounting locations inside the house for the room units, but there’s less to say about that…

The Front Façade

The front façade has been more difficult than expected, but it’s finally heading in the right direction – just before things get really cold and we can’t do the work any more. They’re having to recast some of the rosettes, but the finished product looks good…

rosette restoredThat’s right after they put the recast rosette into the stone. They still need to clean things up a bit (clearly).

Our Cornice Is Now Restored

While it’s been a rough week with the two robberies and having to sleep at the house in the freezing cold to prevent more robberies, one thing did get completed this week and it looks great – the cornice.

Restored cornice on Harlem brownstone

As you can see, we went with black. Also, the portion of the top floor to the right has been painted – that’s the final version – it looks good, and the color Dan picked goes well with the window color. But we need to get the Bird-X spikes up there quickly before it’s covered in bird droppings.

It wasn’t easy for the guys to fix the cornice. Everything they touched just seemed to disintegrate when the touched it. Here’s what it looked like before…

Crumbling cornice on Harlem TownhouseIn the end it doesn’t look new – there are imperfections in it. But we like the imperfections – it looks like an original cornice that’s in decent shape, which is exactly how it should look…

There’s warm weather this coming week, so hopefully the façade will get done in the next few days. The stoop is getting a scratch and resurface rather than a painting. I think the goal is to get the scratch coat on this week.

UPDATE:

Dan pointed out to me that the cornice isn’t actually black – it’s a dark bronze color that’s so dark it’s almost black. Here you can see it in comparison to the true black cornice two doors down.

cornicesI sorta like the almost black, but not quite, quality of it. You can see the difference a bit better in person – but even then it can fool you, like it did me the first time I saw it.

Our First Night At The House

This week didn’t go so well – our place was robbed twice in under a week and we’re now having to spend cold, dirty nights there to stop the robberies…

Tuesday morning the contractor discovered thieves had stripped all the copper plumbing out of the cellar. His guys hadn’t been down there since Friday, so it could have happened any time between end of day on Friday and Tuesday morning (or given how much was taken it’s more likely it happened several times over that time). He locked up the building better, but then Thursday morning his guys discovered thieves climbed up the scaffolding and got in one of the windows that are still open (because the scaffolding needs to be braced to things inside the building so it doesn’t fall down). This time the thieves got a little bit on each of the top three floors plus a toolbag.

None of this would have happened if ConEd would just get us electrical service. It’s now 8 full months since we first requested service. EIGHT MONTHS. If we had electricity we’d have a security system up and running and absurdly loud alarms would go off and the police would be called immediately upon break-in. But no electricity, no alarm system. No alarm system -> robberies.

And of course we’re staying there in freezing weather with no heat, in part because ConEd hasn’t put in the gas meters. In all fairness the plumber hasn’t plumbed the rads, but if ConEd were faster I think the plumber would be faster too. We like the plumber a lot. The one time I corrected him on something I was wrong and he was right.

So yesterday I went into crisis mode and dropped pretty much everything to get ready to sleep in the house. I got a tarp so we’d have a semi-clean surface to sleep on, and I got 4 battery operated lanterns which we put strategically around the house to make it look occupied. Someone suggested a radio – so that’s something we should add. And today the contractor went and installed battery operated motion sensor alarms. That will help us sleep a little better – we won’t have to wonder what every little sound is outside.

The really sweet thing is that the guy we’ve been paying to clean up around the building was quite disturbed about the robberies. He’s an older Belizean gentlemen and he and his friends “control” most of the block (in a good way). Because he’s the “super” of our building, they see our building as “theirs” and I suspect they see the robberies a challenge to their authority on the block. Yesterday afternoon they put up signs on our construction fence saying a third robbery would not happen and anyone who tried it would have to deal with their “street justice”. From early in the evening up until about 11pm there were people sitting in cars and hanging out watching the building. It’s sorta cool seeing the neighbors care enough to do something substantive to stop the robberies…

We did call the police Thursday morning and the detectives said a building at 122 & Lenox was robbed as well.

Unfortunately job site robbery is the norm in Harlem. I’m actually surprised it didn’t happen sooner, and the 2nd robbery was almost expected as well – once the thieves identify a building, they’ll keep coming back and back if they can. The detective did say that it’s an opportunity crime. I was worried if we stayed in the building we might encounter thieves with guns, but the detective was pretty adamant that that’s not typical. Still, it’s a bit more than an opportunity crime – they appear to have come with snips to cut the pipes.

ConEd first said they’d have electrical service in the building today. Then they said Tuesday. We’ll see. I’m hoping if we have electrical service on Tuesday that we can have a functioning alarm system by the end of next week. Staying in the house is no fun – it’s really cold at night, and it’s dirty. And every time something wakes you up you worry it’s a thief and have to get up to check it out. The shorter we have to do this, the better.

Deciding On A Kitchen Design

We’ve been going around and around trying to figure out the best design for the kitchens…

Our Kitchen

Initially we wanted an Eggersmann kitchen for ourselves and Eggersmann came up with an initial design for us…

Initial Eggersmann design

The black cabinets would have been made out of this wonderful laminate that had this cool texture and a hint of brown in the black – it would have been very sexy…

When that was too expensive they proposed a less expensive compromise design with mostly white laminate (which sounds boring, but is beautiful when they do it…)

Less expensive Eggersmann kitchenThen came the budget cuts to get everything in on budget. We put our discretionary money towards things that are hard to redo later – stairs, windows, etc. The kitchen (we still want) got cut and so now we’re getting an Ikea kitchen.

Ikea kitchens can be fine – in fact they can be beautiful. Ontario designer Carol Reed does some great stuff with Ikea cabinets – and she even references Margot Austin’s country house kitchen – a good friend of Dan’s from university days. Thing is, it’s hard to get the look we want – you sorta have to start with what you can do with Ikea and find a look that’s you’re OK with – they just aren’t as flexible or have as many options as a European modular kitchen like Eggersmann – at least not in the US (Ikea’s offerings in Europe are apparently much better). We don’t want someone to walk in and think “Ikea kitchen”.

At first we thought we would get Ikea’s Nexus birch cabinets and dress them up with a stainless counter. In theory that should look great, but when we see the birch cabinets in person we keep not liking them… Then I thought maybe we’d do white laminate or lacquer cabinets – Ikea has three levels of finish. The “best” one (Abstrakt) looks cool, but it’s a bit too glossy and cold for my taste, the chepest (Härlig) is well, cheap. And we’re not too fond of the middle one either (Appläd) – it just doesn’t look like a quality cabinet – it looks inexpensive which is not the first thing we want people to think when they walk in our house.

There are a few remaining contenders. One is Ikea’s Abstrakt glossy dark gray lacquer with black counter tops – like this display kitchen…

Glossy gray Ikea kitchenThe more I look at that kitchen, the more I like it. Basically we’d be going pretty dark with the kitchen as a whole. The floors will be a fairly light colored white oak – basically they’ll have the color of unfinished wood – maybe slightly whiter. The darkness should work with the dark color of the window and french entry doors.

Our other top contender is Ikea’s Ramsjö “black brown” cabinets – in which case we’ll really embrace darkness. We don’t like the black-brown in the contemporary flat panels (Nexus), but with a traditional framed doors it looks pretty good… Here’s a bit of an over-the-top kitchen Ikea mocked up with the Ramsjö black-brown cabinets…

Ikea black-brown kitchenThe traditional paneled doors would give a more traditional/transitional feel to the space which would be in contrast to the rather modern aesthetic we’re going for generally – but it could work – after all we have dark colored paneled french entry doors in the kitchen.

Dan’s current thinking is to get very shiny nearly-black tile that will reflect a lot of light – sort of like the tile in the picture only darker. His inspiration is the shiny black tile corridors in the Ministry of Magic in Harry Potter…

Ministry of Magic black tile hallwayThe general issue with going dark is that the kitchen is right next to the staircase which is a major white element. The stairs will have white steel and white Plexi sides. The only color is the stair treads which will be the same light colored white oak we have on all the floors. Having something so dark next to something so white may be a problem. Perhaps we can bring in white by doing counters that look like marble (actual marble would be impossible to maintain).

Or we could go with a white kitchen (wood, not laminate/lacquer). The black-brown Ramsjö cabinets in the picture above also come in a white, but the white is slightly pink since it’s a white glaze over birch. We’re not sure we like the pinky nature of the color. They have other white cabinets (Ädel) that are a truer white, but they don’t use solid wood for the cabinet frames. Plus, with white we worry we’ll have too much white everywhere given how white the staircase will be…

One thing we have settled on is the layout of the kitchen. We went through a number of iterations, but we’re settling on this layout…

Layout of our kitchenThat will be an island with a sink, and the appliances will be stainless. While we’d love Sub Zero/Wolf like we had last time, we’ll be getting Electrolux fridge/range to help with the budget. If we go with the glossy gray cabinets, the wall-hung cabinets will be double decked horizontal cabinets – sorta like in the gray demo kitchen picture.

Two weeks ago we went to Ikea in Elizabeth. Last week we went to Ikea in Paramus, and tomorrow we’ll go to Ikea in Brooklyn. Hopefully we’ll see something that will help us make up our minds.

The Rental Kitchen

In addition to the Eggersmann kitchen for us, we initially wanted this honey brown (Nexus?) kitchen we saw at Ikea for the rental. It looked great and we thought tenants would like it…

Initial rental kitchen designIn terms of layout we are still going to do something very close to that… The location of the fridge and oven will be swapped and the space between them will be much smaller than in the demo kitchen, but otherwise the layout is almost identical – it’s just their island will be a peninsula in our rental kitchen. Here’s our current/final design – I think you can see how similar it is to the demo kitchen…

rental kitchen design

The renter will be able to sit a couple people at the peninsula which could substitute for a dining room table if they want to dedicate more space to the living room.

Problem is, Ikea discontinued the honey brown finish we wanted. While we had the layout set, we had to pick another cabinet finish. The rental kitchen/dining/living room is the darkest room in our house. One of the front “windows” (actually doors) brings in almost no light since it’s under the stoop, and the other is shaded from the morning light by the stoop – and the room is rather deep so not much natural light gets back to the kitchen. I thought maybe we should embrace the darkness and go with the Ramsjö black-brown, but Dan nixed that idea.

Instead we’re going to offset the darkness by going bright white… We’ll be doing the Ädel kitchen in the rental – a bit like this, but with different uppers…

Ikea's Ädel in the rental kitchenIt’s a pretty neutral kitchen and should have broad appeal with renters. It’s a bit modern, but also pretty traditional.

Wrap-Up

Honestly, I just want to make a decision on our kitchen and move forward – but I keep vacillating between the different options. Ikea’s limited selection is bugging me a bit.

The upside is that Ikea’s having a 20% off sale on kitchens – that will save us quite a bit of money, which is helpful.

One other thing I should mention is that you can buy your cabinet boxes from Ikea and your cabinet fronts from a place like SemiHandMadeDoors.com (based in LA). We got quotes from them and from another place, but they cost more than we wanted to pay (rift-sawn walnut laminate was about 5 times the cost of Ikea’s Nexus birch not counting the 20% off Ikea’s offering now). If we’re going to pay good money for a kitchen we’d rather wait pay even more and get Eggersmann. If SemiHandMade had been just a little more we would have gone with them…

UPDATE

We went to Ikea this past weekend and settled on the glossy gray cabinets. The black-brown would have been too big of a visual difference from our white staircase. The final design is roughly like this…

Parlor Kitchen RenderingThe extractor hood will be different, the fridge will be side-by-side and the colors aren’t exactly right, but that’s the general gist.