Rehab Execution Is Key

Real estate investing is easy once you have an idea of what you are doing but there are many moving parts. The one gear that can make or break a real estate investment project is the execution of the renovation. You could have bought the property for the right price, this is where you make your money, but not properly executing a renovation can kill all the hard work done upfront.

Before I learned how to contract properties, wholesale and/or invest, I knew the cost of construction and materials. I was into DIY before it was mainstream. At first it was by force because my father had me helping him with projects around the house. Later in life it grew on me. It pains me still today to pay for items I know I can do myself but it no longer makes business sense for me to do those items.  I remember a contractor trying to charge me above retail prices because I was young, well dressed and an investor. After I explained the process of the work he was being hired to do, the cost of the material and the time it will take, I asked for a realistic price. Not to my surprise I received an amazing price. I still do this today when contractors try to overcharge and it usually works. In fact, they respect me more for it. While you are not doing the work you want to know what goes into doing the renovation. How can you hire a contractor if you do not know what he is being hired to do? Also, do not judge a contractor only by a finished product but from start to finish. I have walked projects that looked great but once I “looked under the hood” I notice the craftsmanship was lacking.

Trust me I get it. You are learning to find deals, put them under contract, wholesale, analyze deals, etc. and now you have to learn construction. All these skills can be honed over time but it does take time. I have been involved in advising/consulting on real estate investment projects for as long as I can remember. However, the advice usually came along with the property that the investor acquired from me.  At the end of the day I want my investor to succeed so they come back and buy more properties from me. Slowly, I was being sought after as solely an adviser/consultant because the investors were starting to locate their own deals. As a result, I was recently contracted to advise/consult on all the projects for an investor. You may think he’s a newbie or still wet behind the ears but he’s the complete opposite. This investor is a veteran who has been investing since the early 90’s. Recently his last 8-10 acquisitions have been in the red due to overpaying, mismanagement of the projects and dated designs. His current staff had never seen a project on time and on budget until I turned over our first project. We have completed a few deals and netted within a $1,000-$2,000 of the projected net. Needless to say but I will say it anyways, “We now have another 5 real estate investment renovations in the pipeline!”

How is this accomplished? Easy, here are the 5 most important items you need to know to hit your target completion date and staying on budget.

1. Know the cost of labor in your market and the cost of material you use. Now negotiate both of these for less without sacrificing quality.
2. Use the same contractors and materials for all your projects. I recommend having at least 3 contractors per trade. As far as materials are concerned, you should have a materials package/list based on price points. Obviously, you would normally not use marble in a $100K home but will in a $350K+. Paint colors are always the same but I do have a khaki color and grey color. The key is to stay neutral.
3. Have a very detailed contract. Instead of simply stating install faucets I also mention under sink plumbing. Any time a contractor questions whether we agreed on something or not I immediately reference the contract. This will resolve as much as 90% of your headaches in dealing with contractors.
4. Hold the contractors accountable. I have start dates, completion dates and a draw schedule included on all contracts. If the deadline is missed it starts affecting the contractor’s bottom line.
5. NEVER, NEVER, NEVER give contractors a large amount of money up front!!! It does not cost the contractor much for a dumpster and demo to get started. I will front the dumpster charge to be delivered to a property but not demo. It is, however, very important to pay once work is complete. This is the biggest complaint from contractors. I have been able to pull contractors away from other investors’ projects simply because they know I pay as soon as work is complete. Many investors drag their feet when it’s time to pay contractors and it hurts them. Doing this helps with #1 because contractors are more willing to work with me on price.

When dealing with the renovation of properties, you want to build an assembly line similar to new home builders. Once the assembly line is built and running, make sure to take care of the workers, in this case the contractors. Create win-win scenarios and your likelihood of success will increase.