Rehabs going over budget, what am I doing wrong?

Question

Hi everyone!!

just wanted to reach out to everyone for some advice. I'm having a little bit of trouble properly executing rehabs without contractor estimates blowing out of budget

im trying to find contractors to establish long term business relationships with but I can't seem to bridge the gap between estimates and true costs

I'll give two examples:

one was a single family home and I received various estimates ranging between 20k to 40k. Ended up going with a contractor who quoted 30k. At the end of the day the project came in at 65k

another is a most recent 4 unit where the estimate was 35k and I'm now approaching 80k in total invoices.

fool me once, shame on you. Fool me twice.. shame on me :)

these where two different contractors and not only did they go over budget but over projected deadlines.

how does everyone here prevent this from happening; I understand 10% - 25% project overages for unexpected items but I've definitely exceeded this range.

What's more frustrating is that at the end of the day; the finishing/prettyness portion of the project is where corners are sometimes cut to stop the bleeding which directly impacts the appraisals and ultimately; the money I get back at the end of the deal.

I know there's an element of luck at play when finding deals (can't see through walls) and if that's the case.. I need to keep away from any casinos that I come across :)

Joe Villeneuve · Answer

There's an old saying in the construction industry that refers to cost overruns:  "You never know what you have until you put your hammer in a wall".  You are experiencing it first hand.

What you're doing wrong are a few things:

1 - You are allowing yourself to be persuaded to buy "deals" where you have to open up walls,...or other hidden areas.  The secret is to keep your standard rehab restricted to areas that are open and exposed, and/or areas where you have few options of potential added cost.  Restrict your rehab to things like floors, kitchens and painting.

2 - NEVER accept estimates.  Get a final number in writing, with detailed list of scope of work.  When you don't, your might just as well hand over a blank check.  As long as you follow #1 above, this should NOT be a problem.  If it is, find different contractors.

3 - Once you establish a relationship with your set contractors, establish set costs for all of these items...and DON'T get cute and start changing things.

4 - Stay in control of the rehab.  NEVER start making changes to the scope of work unless you have to.  In other words, never let you or anyone else utter the words, "what if we did this" (or any equivalent) because the answer the the "what if" part is always the same...cost overruns.

When I taught this, I used to mention the 5 Golden Rules, of which GR #1 is very familiar:

1 - Whoever has the Gold, makes the Rules.2 - If you like it, or change it, it costs more.3 - If you really like it, or make a big change, it REALLY costs more4 - If your wife/girlfriend, the equivalent client likes it, you probably can't afford it.  NOTE:  Before anyone gets all huffy about what I just wrote, let me add that when I said this, all the men pointed to their "others" and those "others" sunk in their seats trying to hide.5 - If you don't put it (#4) in, you'll pay for it for the rest of your life.  NOTE:  Before anyone gets all huffy about what I just wrote, let me add that when I said this, all the women pointed to their "others" and those "others" sunk in their seats trying to hide.