The 3 Phases of Every Rehab Project

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Many real estate investors will at some point in their career be involved in a major rehab.

Distressed properties that are in need of rehab are often where the deal is found and value can be added. Properties also often need an upgrade after many years of tenant wear and tear.

All rehab projects, no matter how big or small, have three basic phases. They have a start, they are a work in progress and they have a completion. Each of these rehab phases are similar, yet different. They require differing skills and efforts from the real estate investor. Let’s go through each one.

Related: The 5 Things You Will Probably Forget When Rehabbing a House Flip

The Start

It sure would be nice to just be able to hire a contractor, point to the project and say “make it so.”

Unfortunately, it is just not always that easy. During this phase, you have to know how to design and budget as well as play human resources director by hiring people to get the job done.

To get a rehab project started, you need to figure out what you want to do, how much you are going to pay for it and who is going to do it. There are numerous questions to be answered about the design of the project and the materials to be used. For example, what color and grade of paint should be used? Should carpet or other flooring be installed? What color and style should it be?   And so on and so on.

All of these things need to be decided up front so your contractor so can provide you with a price to “make it so.” Then you can determine if “making it so” fits your budget or if you have to rethink things a bit.

Finally, once you get your plan and contractor lined up, you need to get your contracts with your contractors signed. Make sure you include an estimated completion date, a time frame for payments and a penalty if the work is not completed on time.

The Work In Progress

Once you get things started, you can relax a bit but you need to make sure things keep progressing in order to meet your schedule.

Your job now is to manage, manage both the project and the budget. I like to show up at the job site at various times on different days to demonstrate that I am keeping tabs on things and just to see how things are going. It is after all kind of fun to watch something get ripped apart and put back together again.

More importantly however you need to be available to answer questions and make changes to the project. No project ever goes perfectly. There is always some unexpected bump. Hopefully they are small bumps but they all require you to change course a bit. Be around to both guide the course and make sure things stay on course.

Related: A Busy Man’s Guide to Real Estate Management

The Completion

This phase may be the most difficult one.

It is in this phase where all the pieces have to finally fit together. 90 to 95 percent of everything will fit together nicely (a result of your efforts in the second phase). It is that final 5 to 10 percent that can make you want to pull your hair out. Again you have to manage. Be available to keep things flowing. But you may also need to pitch in a hand or hire more help to get things wrapped up.

Do a final walk through with your contractor to make sure everything was completed in a satisfactory manner. When the job is completed, pay them promptly for a job well done.

Rehabs can be both one of the most interesting and frustrating parts of being a real estate investor. While we can describe for you what the process of a rehab is like, honestly you are going to just have to experience a few of them to get good at it.

You might want to start out small if you are new to the rehabbing world and even be a bit hands on to learn some of the tricks of the trade. In other words, don’t tackle that single family burn out as your first project. Rather tackle one requiring a bit of paint and other touch up in order to learn the rehab process and develop your rehab skills.

So there you have the three phases of a rehab and some of the techniques I use to ensure a satisfactory job. What would you add to the list?

Be sure to leave your comments below!

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About Author

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

13 Comments

  1. Once through the headache of getting utilities turned on (In Memphis, this can be a time consuming and frustrating process), I have felt the rehabs go smooth up until the completion stage. The last 10% sometimes is just as time consuming as the rehab.

    • Kevin Perk

      Alex,

      Yes, the last part seems to be the most difficult. Trying to make all of those pieces fit together can be the most difficult task.

      Thanks for reading and commenting,

      Kevin

  2. I am always on-site for my rehabs, performaing the role as general contractor (and laborer…). I do hire additional labor, which helps too. I can get materials on sale, and with my credit card points. Also, I can change some plans mid-stream if needed. Often, a contractor will only do what you say, and skip the extra fix while you already have the walls open.

    • Kevin Perk

      Eric,

      Yep, you generally have to be there and see what is going on. I have found though that when your work with particular contractors long enough, they learn what you want and if you treat them well they will go above and beyond sometimes. But you still have to stay on top of things.

      Thanks again for reading and commenting,

      Kevin

  3. Peter McCarthy on

    I totally agree with what the folks above have said. I come from a dual perspective here, because I am both a contractor and an investor. I really enjoyed this article, and it rings true for sure.

    My two cents:

    1. Get everything in writing up-front before you start. Including completion dates, deadlines, penalty clauses for non-completion, issues of permitting by authorities, everything. The more issues you specifically address up front, the better. Be sure to lay out a procedure for change orders, and then follow it! Non-construction folks often do not realize how disruptive some changes are to the work schedule, the materials ordered, and the cost. Rather than just make every change and hand them a bill at the end, have a form they sign, and be sure at that time to discuss the pros and cons of that change. It may seem like they really want it when in reality it was a “maybe” in their head. Very good to let them know what is involved before they do it, so they understand the impact on their budget and can be reflective in deciding. Many times I’ve been with clients and they have said regretfully later “I had no idea it would be so expensive! If I knew that I never would have done it!” Then you are the bad guy and you either demand your money (bad feelings all around) or you cut them a break (bad for your business.) Those situations usually work out best, at least in my experience, if you discuss the financial and scheduling impact of every change request at the time it is made.

    2. The last 20% of the job takes 50% of the time. No doubt.

    Glad to be here folks!

    Peter

    • Kevin Perk

      Peter,

      Thanks for the insight.

      You are correct when you say that the more you have written up front the better. It sure makes things easier when you have to change something and when everything is said and done and it is time to pay up.

      Thanks for reading and commenting. Glad you are here as well!

      Kevin

  4. As a realtor that works with builders, I have been involved with many companies who buy properties, and rehab them for profit. I’ve been involved in approximately 200 rehab properties per year, anywhere from northern california, to southern california. Great work, and lots of leaning involved. Great post!

  5. As an architect / realtor / investor, I couldn’t agree with this post more! Great job!! Like Eric states, I tend to simply be on-site as much as possible, in order to be there for the inevitable surprises, and provide a solution immediately.

  6. Kevin, the unknown phase is what scare the living day lights out of me. All the other stuff is some what routine once you being doing this for a while. But the unknown is something you never can prepare for.

    Antonio Coleman “Signing Off”

    • Kevin Perk

      Antonio,

      The only way to erase fear of the unknown is to do it! Sure things are going to go wrong and you are going to make mistakes, we all have. But you have to do it to learn. So find an easy one to start off with. One that just needs some paint and maybe minor repairs and go for it. It will get easier every time and eventually even the big ones will not even worry you.

      Thanks for reading and commenting,

      Kevin

  7. Kevin, thanks for the article. I am struggling with the first phase. I have the property but have not come up with a design of how to fit what I want together. I am getting some easy things done like replacing bad trim boards and a few windows.

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