As my partners and I begin to find some great rehab deals, it has become apparent that we need to begin to develop a system to accurately and easily complete our rehabs.
I am thinking we need to develop a system that has a listing of every piece of hardware that we would use on the entire rehab broken down by room. For example, all the flooring choices we would use in the house would be written down and used over and over again, in every rehab. that way any time we needed to replace a floor, we would know our material and labor costs.
I know other rehabbers use similar systems and in no way is this a unique idea. My question is are any of you willing to share that materials list you use or at least the steps you went through to build it and why you chose certain materials over others?
A book I read once recommends actually having several of these lists. One for lower quality flips, medium quality flips, and upper class flips.
We are still only doing one at a time, so it's not such a problem for us to figure out the costs and quality level of each specific property.
Check out the book FLIP, it had details on how to make your lists, but I lent it to someone and it hasn't been returned, so I'm not sure who the author is.
Sean, I don't go quite that detailed. Once you have done a few you will find your rythm but we break down our costs like this:
Outside
HVAC:
Roof:
Painting:
Landscape:
Windows: (don't do these much)
Miscellaneous:
Inside
Painting:
Floor Coverings:
Plumbing:
Electrical
Kitchen:
Baths:
Fixtures and faucets:
Micellaneous:
I may have left out a category, but that seems like all of them. If you break down rehabs into those categories and leave 20% for miscellaneous, you are usually within 15% of your estimates. Good enough. You will be wasting a lot of time and effort to get much more specific than that on the front end.
Now what we do to contain costs on the labor side is to walk the property and write up a scope of work. For a standard 15k rehab its about 2 pages and is detailed enough that the contractor should be able to understand 90% of what you want without asking. The rest just requires you being available when questions come up.
That might not be the best system in the world but its worked on a couple hundred rehabs for us.
Does anyone else see the banner ad for "Rehab for women" as in drug rehab on this post? That's pretty funny (well not women needing rehab, but their adding being in a rehabbing houses post)
Google placement at its finest.
I was under the impression that most rehabbers who rehabbed a lot have a system developed so that it would be easy to estimate costs.
Edwin, you do not use the same materials in all of the houses you have rehabbed? Rehabbing the hundreds you said had to of been a daunting task that would have been easier with a materials list, don't you think?
Marc, I was thinking of doing the same thing regarding low, middle, and upper class rehabs. It seems like a good way to keep everything moving smoothly based on the type of property. I will have to check out that book, Flip. Thanks for the recommendation!
He is doing multiple rehabs at once and has a pretty detailed blog about his systems he uses with different checklists and so on. I have used them for the rehabs I've done.
Search him out on BP and find his blog, it's well worth to read from the beginning.
As for materials, I generally use the same paint colors, flooring, tile, stone, etc. on most of my jobs. On lower end projects I don't want to spend as much so I will used different materials. What you use is generally specific to the market you are rehabbing in by virtue of what's popular with buyers. Having said that, no two jobs are the same. Some will have more trim work or details that require more labor, etc.
I think you need to add a few categories to your rehab schedule/estimate as well.
Soft Costs. This include architectural, engineering, permits, and non direct construction related expenses. You may not have these on every job but as you become more experienced, you'll find yourself taking on larger projects where these will come into play.
Utilities. You will definitely be paying for these so you better account for them.
Overhead. Do you use office space or use your house for an office? There are expenses for this that need to be factored in as well.
Grey Overrun. I build this into jobs at the beginning as a margin in case I miss something (very easy to do). This amounts to either 5% or 10% of projected construction costs depending on the size of the project and is not money that is necessarily spent. It's a reserve.
Actual Overrun. This is money that comes out of grey overrun when you do go over budget. I find that it helps me to identify areas where closer attention needs to be paid when budgeting.
Categories like these (you don't have to use the same names) work for me because as you can see, you can literally lose your ass on a job when you don't account for them at the beginning. They are just as important as any materials/labor list.
I have found J Scott's blog already and it is indeed awesome. He shares everything there is to share about his rehab business. I also purchased his business plans for flipping and multi-unit properties, probably the best $15 you could spend if you're trying to jump start a real estate business.
Bryan,
you mentioned that you generally use the same materials for every rehab that you do. How do you keep this data organized? Do you personally purchase the materials or do you just give a list to your contractor? Out of curiosity, how many rehab deals have you done?
My GC purchases materials for the projects. We have a good relationship (I'm also a GC) and I trust him. Our cabinets, paint colors, stone, tile, appliance packages, etc., are almost always exactly the same because people that buy in the range we sell at like those types of finishes. I don't know how many homes I've flipped, but it's north of 40.
First, thanks for the kind words...other than the business plans (which I only charge for because I end up spending so much time answering follow-up emails and questions), I don't make any money off the blog, so getting nice feedback like that really keeps me going...
I plan to start writing a regular newsletter that goes into more detail about the systems I use and how to scale (which will address some of your questions). It will be free, so feel free to sign up on the blog.
Anyway, to partly answer your original question (which I didn't see until today, sorry), the way we have evolved over the past couple years is that we keep a spreadsheet of all the materials we might ever use, most of which come from Home Depot. As you suggested, the spreadsheet is broken up into lower-end and middle-end rehab materials (we don't do anything high-end yet), with Home Depot SKU numbers next to each.
At the beginning of each project (about two days before we want all our materials), my project manager or myself goes down the spreadsheet, and marks off how many of each item we need for the project. Once we've done inventory at the house to determine what we need, it takes about 5 minutes to fill out the spreadsheet.
I take that spreadsheet and fax it to a guy at the Home Depot Contractors Desk that I work with regularly. He submits it to get a bid (if you buy more than $2500 at a time at HD, they'll submit the order to corporate for a bid that's generally 10-20% off retail). He calls me a couple hours later to give me the price.
I'll negotiate over the phone a little, and then when we agree, I give him the property address and my HD Credit Card info. He'll charge the card, and they'll deliver the items right to the house. Either my property manager or a trusted contractor will verify the inventory, sign the paperwork, and we're done.
This is how we do it, and it makes things very easy...
Putting together the spreadsheet took a while, but it was a great opportunity to spend about 20 hours in HD getting familiar with the prices and the various materials available. In fact, when I started rehabbing, I had absolutely no construction experience, so this was my first major lesson.
Of course, there will be materials that we have to get from other suppliers; in some cases, we can do something similar and in some cases we have to go to the stores to pick things out by hand. But, these tend to be the exceptions.
As for building materials (paint, lumber, sheetrock, siding, etc), we have our contractors supply all of that. We only purchase the finishing materials. This makes things a lot easier, even if there is a tiny markup in price (it's worth the tradeoff in my mind).
Already on the newsletter list and happy to keep motivating you. i had no problem buying your biz plans because i know that i am a huge waste on your bandwith :) Whatever became of the website REMM you were hoping to put out in july?
back on topic..
It seems like you have an awesome system set up as far as materialss are concerned. i imagine that using a system like this it would be very easy to run down your list and see what each item costs and get a very accurate estimate about rehab costs. This is definitely something that i want to establish.
It seems that most contractors are able to get very big discounts on the items they buy, wouldn't it make sense to have a list of what you want and see if they can get it cheaper? that way you are basically guaranteed the best price.
A couple weeks behind schedule...but working on it! :)
It seems that most contractors are able to get very big discounts on the items they buy, wouldn't it make sense to have a list of what you want and see if they can get it cheaper? that way you are basically guaranteed the best price.
If I want the exact materials I specified (and I do), they most likely will have to come from Home Depot (other places sell *similar* items, but even small differences may make my "designer" very unhappy).
First, when it comes to buying materials at Home Depot, I'm pretty sure that none of my contractors can get a larger discount than I can. They may be able to get the same discount, but unlikely to be more. And if somehow they can get more, the difference is negligible.
Second, if my contractors are responsible for buying materials, that takes up more of their time, and most likely I'll end up paying for that time.
And lastly, I'm big on consistency, and letting contractors purchase materials adds some risk in that area. I like agents who bring their buyers to our houses to know what they can expect. By letting contractors purchase materials, I run the risk of getting different finishes on different projects (if a contractor decides to use a different supplier or if I hire a new contractor).
Of course, if you were to ask my wife or my project manager this question, they'd tell you that I was just too much of a control freak to let someone else handle my finishing materials... :)
I would think that consistency would be a huge plus of using a spreadsheet with the same materials like we are talking about.
I put together a spreadsheet for a very small rehab I am thinking about doing for an apartment. I tried to use homedepot.com and almost immediately decided that I would have to be in the store to really get a feel for the materials I am looking for.
There are a million different options for just about everything. Like you J Scott, I do not have very much contracting experience. How did you, or anyone else, make a solid determination of the materials you would use for each and every aspect? Was it just a matter of looking what was in the neighboring houses for sale, then slightly improving the quality? Did you and your designer just read a bunch of home interior magazines or just buy items that you thought would match well, then learn from trial and error what would work and what wouldn't?
Appreciate the patience and the responses, for some reason this seems to be a big hang up for me in the rehab process.
1. We spent a lot of time looking at the finishes that were in the houses in the same neighborhoods. For the most part, we flip lower-end houses, so the bulk of the finishes are lower-end builder-grade stuff.
2. My wife has the designer touch, so she spent hours in Home Depot with me picking out the stuff we would use. She's also very cost conscious, so we basically picked the stuff that was the best combination of nice/inexpensive.
3. We made sure that everything we picked flowed well with everything else. For example, all the finishes (like lighting fixtures, plumbing fixtures, doorknobs, cabinet pulls, etc) were brushed nickel, so everything had the same look. We made sure to pick the carpet and vinyl flooring before we picked our standard wall paint colors (all paint colors cost the same, not true of flooring). And we picked cabinets and countertops early on to help determine the flooring and paint colors.
If you're doing a lower-end house, my recommendation is to buy the most inexpensive stuff that still looks decent. Buyers in this price range will certainly appreciate the fact that everything is new, but wouldn't necessarily appreciate the fact that stuff is higher-end.
We happen to do it almost exactly the way J Scott mentions: using Home Depot and a spreadsheet for most of the materials. I have the SKU codes and prices, and use that spreadsheet for both the initial estimates and when ordering.
Ordering is as simple as putting the quantities and faxing the spreadsheet to the contractors desk at H.D. $80 for the delivery but they do all the work for you in terms of pulling items off the shelves. Not a bad deal!
Jul 21 '10, 10:51 AM
