5 Steps to Managing a Profitable Rehab

Construction isn’t everyone’s forte. But just like baseball, you can’t be a great manager unless you know a little bit about every position player, and you can’t be a great real estate investor unless you know a little bit about all aspects of real estate, and that includes construction.

There are many types and sizes of construction projects. All of which have their own strategies and individual necessities. However, after spending many years in the construction field I have found that there are some basic universal principals that apply to all construction that can be very helpful/useful to those who are just starting to get their feet wet with the daunting task of rehabbing a property.

These general rules of thumb below are a great starting point to get you thinking more efficiently when it comes to keeping your costs under control for a potential rehab.

[1] Always get multiple bids: Whether you are renovating (3) rooms or (300) rooms you should always get multiple bids for the work. A minimum of 3, but preferably more. Acquiring multiple bids can do so many things for you. It forces contractors to be competitive, lowers your cost and also will tell you a lot about each contractor. If a contractor can’t put a proper and standard bid together for you, then they probably shouldn’t be trusted to do your rehab work either.

[2] Make sure the contractor specializes in the type of work YOU NEED: This is vital. You don’t want a contractor who specializes in C-class renovations rehabbing a high end apartment building or vice-versa. That is a formula for losing time and money. Make sure you are researching your contractors to ensure their experience is what you are looking for. Ask for references, and details of past projects completed.

[3] Leverage your contactors’ experience: The more knowledge you can acquire about the construction process, the better off you will be in the long run. The best way to learn a little bit about rehabbing is to ask the contractor who is doing to the work. I’m not telling you to stand next to the foreman all day long and pepper him/her with questions, but it is standard to have pre/post construction meetings and also bi-weekly progress meetings with your teams. Take those opportunities to ask questions. Find out why the construction needs to be performed in a certain sequence, how long certain tasks take, how much do materials cost, etc. Being able to answer these questions yourself will eventually help you save money and weed out the bad contactors.

[4] Schedule: To me, the schedule is the most important ticket item when it comes to a rehab. Setting a reasonable, but strict schedule, and keeping that schedule is paramount during a rehab. Schedules are important for a few reasons. For starters, every minute you are rehabbing you are losing income. The faster you can rehab, the quicker you can start generating more income. Another reason have a schedule in place is to hold your contractors accountable. If a contractor knows the importance of your schedule they will game plan accordingly. It is very common to have clauses in a contract that assign penalties to a contractor if they do not complete a project within the allotted amount of time.

[5] Photos and closeout packages: The final piece of all great construction projects is the “closeout package”. They should include all of your paperwork, permitting/sign-offs, engineering tests, warranties, redlines and overall photos. Put it together and file it away. Taking progress/final photos of a construction job in particular is a great way to cover your butt if you ever have to go back and look at something. I have a rule with my contractors, “if you touch it, take a photo of it.” I once had to trench 350ft from a utility pole to a building to install a new underground utility conduit. The contractor I hired filed a permit to do the work but he never had the trench inspected before he filled it back in. The inspector told us unless we could prove the trench was 36’’ deep and had the proper caution tape that we were going to have to re-open up the entire trench for an inspection. We were able to go back and furnish the photos showing him the trench dimensions and caution tape and save ourselves thousands of dollars. Thank you photos!

So, the next time you have to a renovation/development project, follow these simple steps to save yourself time, money, and most importantly, headaches.