Fix and Flip Budget Mistakes That Destroy Your Profit | Jonathan Rios

Jonathan Rios (00:00)
Looking at the numbers very well. Now I know this sounds obvious, but when you first jump into an investment, there’s also that emotion, right? We have that emotion of we can make it work, we’ll get it done. And sometimes we put those what ifs to the side, and then you get hit in the face with that what if, and it could be twenty thousand dollar what if. So now it’s measuring, doing a simple math, right? I do the ARV.

Scott Bursey (02:01)
Welcome back to the Real Estate Pros podcast, powered by Investor Fuel. And today, pros, we’re delighted to be sitting down with Jonathan Rios of Rios Interiors Corporation. Jonathan isn’t just a general contractor serving the New Jersey area. He’s on the ground executing fix and flip properties while managing full-scale construction projects. We’re going to dive into the raw, unfiltered side of building, property transformation, and real estate investing.

You’re going to get a master class on what it is and what it takes to scale in this industry. Jonathan, welcome to the show.

Jonathan Rios (02:38)
Lo Scott, thank you so much for having me. I’m excited to be here.

Scott Bursey (02:41)
It’s wonderful having you here, Jonathan, and to help our listeners get up to speed. Please give us the ninety second highlight reel of how your career ignited and where you’re pouring your fuel now.

Jonathan Rios (02:52)
All right, Scott. So I’m Jonathan Rios, owner of Rios Interiors. We are a general contracting firm here in New York City. We perform design builds, interior fit outs. And we got started in real estate, I would say about six years ago. It has been a passion of mine because it goes hand in hand with what we do, right? We we build from the imagination, and real estate allows us to do that as well. So

That has been our trajectory. We’ve been in business for 17 years in the construction trade. And it it felt natural to progress into real estate and to follow this this beautiful journey of of real estate, which comes with the highs and lows of of any business. you learn through dipping your feet in the water, essentially, right? Jumping into these fix and flips, which is what we’ve what I’ve been doing.

And learning as we go, right? learning what needs to be adjusted after each project and eventually creating a track record that makes sense for us through the continuous experimentation of of this real estate, of this real estate game.

Scott Bursey (04:01)
Man, what a journey. Hearing the progression from where you started to where you are now is inspiring. I really appreciate you sharing that raw context with us. And Jonathan, you know, what really caught my attention about you was the way you’ve been able to bridge the gap between high level construction management and active fix and flip investing at the same time. And I know our pros are going to want to know.

What would you say is the one achievement that completely shifted your perspective on how you handle your construction projects?

Jonathan Rios (04:36)
Well, the the good thing is we come with that experience of what needs to be done before a project begins, what needs to be done during the project and after, right? We we come with that experience of of coming in prepared. Right? So being on both sides of the desk, right, as the contractor and the investor, I had to put on both hats, right? I came in knowing

what a budget is, what is a realistic budget. And also knowing that as an investor, you also have the emotion of making sure that this looks great, but at a at a price that makes sense. So I think learning and understanding that you have to mix those two very well when you come into this this game as as a person that whether you’re just an investor or a contractor,

You have to understand the numbers. The numbers are very important. How much the budget is going to be, what the holding cost of this property will be, and and factoring in what the costs are going to be at sale, right? Closing, what the real estate company or agents will will take from that. So all of that has been it’s been a merge of that with the construction and and the real estate investor. I hope I answered your questions, guys.

Scott Bursey (06:43)
you certainly did, Jonathan, and fascinated to hear your thoughts on this. Regarding your strengths in the construction space, how do you ensure quality control when managing multiple jobs at once?

Jonathan Rios (06:56)
So what we’ve what we’ve done, we’ve built leaders in our organization. So we have three supervisors that are key to the success and execution of every project that we do, whether it’s in just the construction that we do here in New York or the flipping that we do in New Jersey. So for every project that we do, there’s always a supervisor that’s dedicated to that project. So there is never a time where we leave a project unsupervised.

There’s always communication and accountability. And especially in in the flipping aspect, we leave a supervisor on site for the majority of the project. They’re not there Monday through Friday, but they are there most of the week. They’re making sure that the deliverables are met, they’re making sure that the inspections are done, they’re making sure that the subs are getting the work done and that everything is organized and that we keep a schedule, right? And we keep as close to that schedule.

as possible. This is construction. This is renovation. Not everything goes as planned. But supervision and accountability, communication and organization of key to any project, whether flipping or or if you have your own business.

Scott Bursey (08:11)
Thinking about the weakness or the pain points you faced, what is the most challenging part of transitioning a property from a demo to a turnkey without blowing the budget?

Jonathan Rios (08:24)
Scott, I’ll tell you, man, the first few homes that I flipped, I made that mistake. Where we we do everything by the book. So we understand when we go into a property, we have to get an architect involved for any type of additions. Let’s say we want to add a half bath, we wanna add another bedroom. When you involve an architect, drawings have to be created. The drawings have to be then sent to the town, approved, and then it could take a month, maybe longer.

For the town to approve and then the permit. And then the permitting, then the inspections, and all of that can extend a project that can take a month and a half to six months. So I’ve had to learn the tough and the hard way that the holding costs, right? I have to make a decision before even purchasing the home. What is the value add? Is this gonna make sense if I have to hold it?

for a certain amount of months, will this bring the return that I seek? So all of those factors need to be accounted for. And that’s a challenge that that I face as a contractor and an investor.

Scott Bursey (09:35)
What did you do and how did you find a simple way to mitigate those budget creeps?

Jonathan Rios (10:16)
Looking at the numbers very well. Now I know this sounds obvious, but when you first jump into an investment, there’s also that emotion, right? We have that emotion of we can make it work, we’ll get it done. And sometimes we put those what ifs to the side, and then you get hit in the face with that what if, and it could be twenty thousand dollar what if. So now it’s measuring, doing a simple math, right? I do the ARV.

Time 70 or 80%, right? Depending on that condensed market. And it’ll give me a simple math, right? If it tells me 420 is the max all in, and the property costs 400, then I know that something is off, right? So now looking at those numbers more than allowing my emotions. Now I have to be calculated when it comes to jumping into a deal to avoid this. And I’m still learning.

I’m still I still make those mistakes where I jump in and I say, you know what, this is the budget. But then it happens and I’m a contractor. We open a wall and then we find out that the sewer line needs to be replaced completely from the home, it’s gonna cost us another five thousand. What do I do? Do I leave it as is and then have an incoming owner deal with this? Or do I make sure that I get this done and and

even though I spent it, everyone’s gonna be okay in the end. So those are the things that we still have to get down and also account for. But then that also means that the deals become more and more condensed because now the the the amount of profit and the price and everything changes. So so those are those are things that we still deal with that we’re continuing to to close those gaps in.

Scott Bursey (12:07)
Are you seeing the most potential right now for someone looking to get into a fix and flip in the current New Jersey market or perhaps across into New York? Where are you seeing the biggest opportunity right now for the fix and flip?

Jonathan Rios (12:23)

Well, let’s say from from my perspective, New York City is very difficult, right? it’s not impossible, but New York City, the returns are so low, right? The houses and the properties here are so expensive that the return just won’t make sense for you to flip. Right here in New York, I’ll give you just a brief rundown. Here in Queens, we’re we’re located in Astoria. We have our office here in Astoria.

You won’t find a home, a single family home for less than $850,000. Now, if you go in there and you have to flip it and you put in $100,000 and you want to sell it, right, for a million or 1.2, it depends. It’s very difficult, right? It’s the returns that you’ll get on flipping here and the amount of bureaucracy in this city when it comes to renovating.

can become very expensive, right? So I would say New Jersey has been an attractive market for me. The up and coming neighborhoods, right? Not the neighborhoods that are established yet because those are very expensive and and I would say a bit more difficult, right? Not impossible. But I like neighborhoods in New Jersey like Newark, Union, Kearny. Newark is up and coming and Newark when we first started investing there was

not a very good place to to invest, right? It was you had to have a vision, but that’s what it’s about, right? In this in this real estate game, having that vision. But New Jersey has I believe a lot more opportunity and ease to get in, right? Without having to jump over so many hurdles as New York. I think just New York is a very complicated city. but there’s potential here as well, right? If you have the capital

You have the time. There’s definitely potential here in New York as well.

Scott Bursey (14:58)
When you look at the threats to your business model, what are you most focused on on regarding regulatory or supply chain issues in in New Jersey?

Jonathan Rios (15:08)
Well definitely one of the things that concerns us is the rising cost of materials, the rising cost of labor. That’s something that is constantly changing, right? So a two by four can change. it a dollar or two can be added to a two by four, and you close on a deal three, four months later, and then now you’re dealing with costs that maybe went up a point and a half. So dealing with that, dealing with labor as well, labor shortages at at times.

not having the right people to get the job done, having a good contractor to be able to help you get to that finish line, is also very important and not the easiest thing, right? And and you’re hearing this from a contractor. I think those are those are challenges that that we deal with in this and also the rising cost, right? The the inflation, the the the prices of of just the purchasing power changes completely as well.

The banks also have become a bit more regulating, stricter on what they deem is a good deal. So you you deal with those definitely those consistently changing factors in this industry.

Scott Bursey (16:17)
What is your go to strategy to stay ahead of the curve as far as it it correlates with the labor and the cost?

Jonathan Rios (16:24)
The good thing is since I have that insight in the construction industry, I always know that year over year we’re we’re looking at an increase in labor, always, right? So if I know that I’m anticipating a deal for twenty twenty seven, I know that we have to account for a three to five percent increase in labor all around. Talking about subcontracting your own labor force.

all of that changes, right? And we have to anticipate the materials will also increase in most of the cases, right? The ki the cost of drywall, the cost of of just these sundries to get this done, and and all of this that’s been going on, right? With the the taxes and also all of these costs that are being imposed on the importers, exporters, all of that affects the construction and real estate industry.

Scott Bursey (17:15)
Digging into the tools you rely on, what is one piece of technology or process that you’ve implemented recently that has streamlined your daily operations, Jonathan?

Jonathan Rios (17:27)
Well, for us when it comes to the construction aspect, we’ve been focused heavily on systemizing our business, systemizing procedures, right? Client interactions, material purchasing, communication throughout the project, and streamlining our business allows us to also translate and bring that into the real estate side, right? The communication aspect. We use for example, just to give you a quick a quick rundown.

We use Slack as a communication channel. And we put every project that we’re working on on Slack. Every project needs to have the project scope, the supervisor of the project, the numbers of the vendors, the numbers of the subcontractors, consistent communication on what is going on in a project, right? And that is key, especially also if you’re an investor. You want to know what’s going on in your home. You want to know.

when it’s going to be done, you want to have updates. You want to be in the know. You don’t have to be the person involved in every decision, but at least be being able to understand where your money is going. So I think that’s very important. Implementing systems that can create ease for you so that you can scale. And in the investor side, if you have a system of communication of how you’re seeking these properties, how you’re purchasing them,

the contractors that you’re using, your life will be much easier and will allow you to scale as well.

Scott Bursey (18:58)
Was the communication tool Slack easy for your crew to pick up?

Jonathan Rios (19:02)
Initially, the the good thing is, Scott, that we make sure that our culture internally we constantly communicate. So I’m constantly telling my team, be open to changes. Do not be resistant to changes because this is how we grow. So I share with my team the vision. I tell them this is where I see our business in five years. And that

gives them motivation and they understand. So initially there was some resistance, but now you can’t get them off of Slack, right? So they’re on Slack constantly. They’re they’re constantly communicating. So I think that that change was a major component in growth, right? The the ability to communicate consistently throughout the project.

Scott Bursey (19:51)
Thank you for highlighting that. And Jonathan, curious to know, what does your professional network look like right now?

Jonathan Rios (19:58)
Well, Scott, we as a general contractor, we do a lot of networking here in New York. We’re part of the Queens Chamber of Commerce, the Building Industry Association of New York City. So we we do network and we do go to these events, and not just those two that I mentioned. We also go to residential, property management events. We we try to be in the room with other investors, property managers, contractors.

And we we like to establish and and build relationships to to learn and to provide value where we can.

Scott Bursey (20:32)
That’s a powerful position to be in. Relationships really are the currency in this business. And Jonathan, please give the pros the play by play on if you had to start your flipping business over from scratch in a completely new market with no capital, what is the first move you would make to secure that first deal?

Jonathan Rios (20:55)
I no capital. Look, I I know that there there’s the ability to wholesale, right? If you’re a person that loves to look for deals and you have the time and you don’t have capital, I would say wholesaling is is definitely a way in the door. If you want to jump into fixing flipping, if you don’t have the capital, I would say either partnering with someone that has some capital.

building a connection with with lenders, private hard money, where you can you can mathematically build the deal, show the attractiveness of the deal so that you can get funded to jump into these deals, right? In in any other market, right? Let’s say you do find a home that’s very economical, that needs a certain amount of rehab, having a good lender, these guys are are great tools.

Having somebody that’s gonna communicate with you throughout the process because we have ran into issues with lenders in the past where they tell me 10%, and then we’re getting close to the closing. We get the HUD statement, and then now it’s 20% or 25%. And then sometimes they don’t want to give you the rental, right? They don’t want to give you 100% of the rental cost. So

It’s very important the communication. If I had to do it all over again, I’d make sure that I’d get a lender, I would communicate clearly my goals, what I can spend, what they can give to me, and make sure that everything is in writing so that when you do close, there’s no surprises. And and I would say that would be a way in the door to to it. But if you’re fixing and flipping, I would say build a bit of a capital first.

It could be 10,000, 20,000, depending on the market that you’re in. Building that, finding a good lender, one to two guys that you can rely on that that will communicate with you, that will be honest with you. And then from there, you can also start building your network of contractors. You need to have a good contractor as well when you’re doing this this game here, right? You need to make sure that you have someone that’s honest, someone that

That’ll give you a detailed, itemized estimate of what is going to be done so you don’t jump into surprises. Always save a contingency for surprises because there always will be one or two surprises. And and then from there, take the risk. The risk is, I think, that’s the scariest thing.

Scott Bursey (23:32)
Pros, there you go. Some rock solid advice. Jonathan, for our listeners that want to keep this conversation moving, stay in your lane or collaborate with you on future deals, what is the best way for them to reach you?

Jonathan Rios (23:46)
They could reach us at my direct line which is 347-776-6029. They could reach us via email. I don’t know if you you want me to to say it here, but they could reach us via email, our website. We we have Instagram, @riosinteriorscorp. We have Facebook, we’re we’re everywhere. So we’ll we’ll be an easy find for sure.

Scott Bursey (24:10)
Jonathan, thank you for joining us today on the Real Estate Pros podcast.

Jonathan Rios (24:14)
Thank you so much for having me, Scott. I really appreciate your time and I hope that I I brought some value to your listeners and to you. and I really appreciate it, man. Thank you for having me.

Scott Bursey (24:24)
And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests, just like Jonathan Rios, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.