What is YOUR process for rehabbing/remodeling a house

What is YOUR process for rehabbing/remodeling a house

Member since 2008 · 42 posts · 2 votes

Hello BP, I haven't posted in quite some time! I thought it would be interesting if we all shared what our rehabbing/remodeling process looks like. I am currently on my fourth investment property, my strategy is buy and hold. My rehabbing process is usually to go in and a large amount of the work myself. My last rehab took me almost a year because of this. On my new project I am looking for a good balance of keeping costs down while at the same time not killing myself by trying to do Everything. I have gotten quotes from general contractors, which would make it pretty much a hands off rehab for me, and I really like the idea of it being hands off. The problem is that the general contractors want way more money than I can justify. When I can get the house done for about 5k in materials and they want 20k to do the job I just can't bring myself to pay it.

I would love to hear what your remodeling process looks like, maybe I can get some ideas to find a happy medium!

-Brett

0Reply
130 views

Most Popular Reply

Derreck WellsPro Member
Specialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
13y
Originally posted by Alex Baev:

As a learning process, I still got multiple bids for nearly every major task I did myself, and realized that In my area the cost of construction materials is about 15-25% of the cost of project, the rest being labor. Finishes are more subjective and personal, and costs vary a lot more.

As a contractor this statement just pisses me off. Unless you paid for these quotes, you were just stealing from the people that you called to come give them to you. These people all have better things to do then drive to your property and work for free. If you have no intention of hiring a contractor, don't call one just because you're curious about what something would have cost you if you didn't do it yourself. You are stealing time and money from them. Yes, money. It costs a lot to keep gas in the trucks we have to drive. It takes 3 to 4 hours of time for every quote. The drive to the house, talking to the client, looking up current prices, and writing up the proposal all takes time. Time that that contractor could have been getting paid for by an honest client. Time that could have been spent with their family. (Yes, we have families too.)

Any good contractor is working on a job most days (if they're not, you have to ask yourself why). That means that we have to do quotes at night, when we should be spending time with our kids. Or we're pissing off our current client by taking time away from our work to go meet you and see your property.

You wouldn't expect your lawyer to consult for free. You wouldn't expect your accountant to work for free. You wouldn't expect your real estate agent to work for free. YOU wouldn't work for free. Why do you expect contractors to work for free?

See this reply in the discussion

47 Replies

Jump to latestLatest
  • Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
    13y

    I do no work myself other than project management. I can hire out the labor to handy-men for $11 - $15 per hour. If I do any of the labor myself, I am effectively working for that same amount. And I can't support myself and my family on that. But I do see the value in doing my own "contracting" and project management. When you start bringing in GCs, the prices go through the roof.

  • Matt LavinderPro Member
    Real Estate Investor · Bristol, TN · Member since 2010 · 59 posts · 31 votes
    13y

    If you count your holding costs and opportunity costs, you may find you paid a lot more than 15k over that year.

  • Miami, FL · Member since 2013 · 98 posts · 27 votes
    13y

    I'm a little uneasy hearing the same thing over and over from experienced investors that you need to hire everything out, lost opportunity cost, your time is more valuable, yada-yada-yada ;)

    Yes, when you've grown your business past the infancy stage, hire it out and focus on more valuable tasks then drywalling, absolutely - but not everyone enters REI after spending a decade socking away $$ in a corporate world, and some just enjoy the challenge and want the opportunity to learn the process so they could have a better finger on the pulse later on - and that's the case with me

    I chose to remodel my primary residence 90% by myself. I welcomed the idea that i could apply for an owner-builder permit, which allows me to be my own general contractor in my own residence, provided i still research and do things to code and can pass inspections. I subbed out a few critical tasks, like electrical, HVAC and some masonry work, but I've learned how to manage those contractors in the process. I gave myself a generous two year time frame to complete a remodel - which will allow me to benefit from capital gains exemption when I sell - but my "carrying costs" are non-existent, since they are still less then i was spending on rent previously and no landlord can tell me i can't have a doberman digging up my back yard (free landscaping!). After this house sells, and I'm wiser for it, I'll take the critical mass earned and scale immediately.

    As a learning process, I still got multiple bids for nearly every major task I did myself, and realized that In my area the cost of construction materials is about 15-25% of the cost of project, the rest being labor. Finishes are more subjective and personal, and costs vary a lot more.

    Since it sounds like you already understand the process quite well, know materials and work and can manage people, my advice is to sub the work out as soon as humanly possible money-wise. After all, the scalability of REI is the best thing about it

  • Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y

    If you enjoy doing drywall, hang drywall. If you like painting, go out and spray some paint on those walls. If you like digging in the yard, get the shovel and have at it. However, while your breaking your back, just keep in mind that you could be sitting in the office creating a new marketing piece, scrubbing a list, putting together a mailer, making offers on MLS properties, or following up on old/stale leads. Don't let those thoughts leave your mind for one second while your busting your hump doing a blue collar job. Eventually, it'll sink in that spackling, painting, and digging holes are best left to those with calloused hands and bad backs, and your time is best spent hunting more deals or even hanging out with the family. You'll never grow your business with a shovel in your hand, but keep at it. It'll sink in eventually.

    On a side note, don't forget a lot of these old houses are full of asbestos and lead paint, not to mention whatever else toxic crap they put in building materials back in the "good ole' days." So, while your doing the spackling, painting, and saving a few bucks, you're probably also breathing in massive amounts of toxic dust. That's one reason why I think most contractors don't last for more than a few jobs. Most people think they just disappear or go back to prison. I think they all eventually just kind of keel over dead in front of the TV gripping their Budweiser can, never to be heard from again.

    Not that I do a whole lot of rehabs, but on the few I do every year, I only looked at them twice; once when I closed and walked it with my contractor and again when he says he's done so I could do a punch list. But now my assistant does that for me as well. I'd much rather go fly fishing or to the gym.

  • Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y
    Originally posted by Brett O:
    The problem is that the general contractors want way more money than I can justify. When I can get the house done for about 5k in materials and they want 20k to do the job I just can't bring myself to pay it

    I don't pay my contractors a premium on materials. You can buy them at HD yourself and deliver them to the job AND get a discount by using the pro desk. I'd look around for a contractor that is only going to charge for labor and will pick up the materials himself. It took me a few years, but I found one. He even pays for the materials then gives me the receipts to reimburse him. My guy was doing maintenance for a property management company. He liked my gigs much better than running all over town to change light bulbs and unclog toilets.

  • Derreck WellsPro Member
    Specialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
    13y
    Originally posted by Alex Baev:

    As a learning process, I still got multiple bids for nearly every major task I did myself, and realized that In my area the cost of construction materials is about 15-25% of the cost of project, the rest being labor. Finishes are more subjective and personal, and costs vary a lot more.

    As a contractor this statement just pisses me off. Unless you paid for these quotes, you were just stealing from the people that you called to come give them to you. These people all have better things to do then drive to your property and work for free. If you have no intention of hiring a contractor, don't call one just because you're curious about what something would have cost you if you didn't do it yourself. You are stealing time and money from them. Yes, money. It costs a lot to keep gas in the trucks we have to drive. It takes 3 to 4 hours of time for every quote. The drive to the house, talking to the client, looking up current prices, and writing up the proposal all takes time. Time that that contractor could have been getting paid for by an honest client. Time that could have been spent with their family. (Yes, we have families too.)

    Any good contractor is working on a job most days (if they're not, you have to ask yourself why). That means that we have to do quotes at night, when we should be spending time with our kids. Or we're pissing off our current client by taking time away from our work to go meet you and see your property.

    You wouldn't expect your lawyer to consult for free. You wouldn't expect your accountant to work for free. You wouldn't expect your real estate agent to work for free. YOU wouldn't work for free. Why do you expect contractors to work for free?

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y

    There is absolutely nothing wrong with doing work yourself vs. hiring it out. The problem is when people do this and convince themselves that they are running an investing *business*. As long as your business comes to a standstill if you're not there to hang sheetrock, replace a toilet, sending marketing, talk to sellers, etc., you are just an employee, not a business owner.

    Now, that said, removing yourself from a rehabbing business is VERY hard (I haven't been able to completely do it yet). I don't know many (any?) rehabbers who have completely removed themselves from the business. But, that doesn't mean they spend their time on doing the renovations. If you're going to be an employee, at least get paid well for it.

    You can do this by focusing your energy on those tasks that generate the biggest returns. I can hire sheetrock work out for $12/hour, so if I'm doing that myself, I'm essentially an employee working for $12/hour. But, every new deal is worth $15-50K to me, so if I spend 10 hours working on marketing and generating leads to get a deal, I'm now an employee working for $1500-5000/hour.

    Which type of employee would you rather be -- the one earning $12/hour on his time or the one earning $1500+/hour on his time?

    Now, as Alex said above, when you're starting your business from scratch with no money, you may have to do the lower-cost tasks yourself (even Bill Gates started Microsoft as the sole employee, doing all the sales and code development himself). But, don't aspire to keep it that way. Have a plan to eventually start running your business like a business, and each step of the way ask yourself, "What is the lowest value task I'm currently doing myself, and can I hire that task out?"

    Eventually, you'll find that you're only working on those $1000+/hour tasks and you can think to yourself, "If I'm going to be an employee, at least I'm getting paid well for it!" :-)

  • Investor · New York City Metro area, NY · Member since 2013 · 39 posts · 12 votes
    13y

    Well, as rough as that sounded, I have to agree with Derreck. I had a situation recently where I was quoting a job that quite honestly, was a true waste of my time. Yet, I was pressured to do all of their homework in giving out numbers. I won't go into great detail about that particular scenario. Lets just say when I came back with an initial figure, he came back with an unrealistic number. So much so, it was offensive. Which is why, I have reevaluated my business and making a shift that would benefit me and keep me competitive in the marketplace. Rehabs and flips are on the horizon. I thought to be my own client.

  • Derreck WellsPro Member
    Specialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
    13y

    Martha, I have wasted so much of my time on people like that that I now simply give estimates. Such as "Your deck will cost around $3500-$4000. If that's in your price range, we can sign a contract, get a deposit, and convert the estimate to a proposal." I don't bother to get actual prices or a materials list together until I know they're serious about having the work done. It's cut the wasted time in half, now I'm just wasting my drive time and gas money, not the 2 hours actually putting a quote together.

  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    13y

    I definitely started out doing a lot of rehab myself, or managing contractors to do the rehab work. My first properties were 2 hours north of where I lived and one was left gutted and had to be put back together.

    But being involved in this level does give you some benefits:

    a) Appreciation for what it takes to get the work done, so that you appreciate the skills your contractors need to have

    b) Basic understanding of what needs to be done, so that if you are getting bids, you can talk intelligently to a contractor (I find this to be extremely helpful as a woman as contractors will talk down to you)

    c) Idea of what time frame you are looking at for completion of work and in what order things have to be done

    But it's also a good idea to start distancing yourself from this. I personally have started doing that and realizing the benefits in more time to build relationships with other investors, work on more deals, and more free time.

  • Derreck WellsPro Member
    Specialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
    13y

    Martha's comment about me sounding rough made me re-read my comment.

    For the record, I don't sugar-coat things. I call 'em like I see 'em. If I see someone being an ***, I'll call them on it. If that offends someone, well, don't be an *** and I won't call you on it.

    Some call it rough, others call it refreshingly honest.

  • Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
    13y

    Like I said earlier, I do almost none of the actual labor on a rehab any more. I've taken that thought so far that I've sold my lawn-mower and I don't even mow my own yard any more. I can hire it out for $30 and use that hour working on finding my next deal, or fishing at the lake. This business allow one to make very good money on a per hour basis, so I try very hard to hire out as much stuff as I can. I even hire a Realtor to list my houses even though I am also a Realtor (we co-list it, so I'm really only paying her a half commission). But I just don't want to be spending my time taking photos and putting the info into the MLS. There's more valuable things to be doing.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Derreck Wells:
    Martha, I have wasted so much of my time on people like that that I now simply give estimates. Such as "Your deck will cost around $3500-$4000. If that's in your price range, we can sign a contract, get a deposit, and convert the estimate to a proposal."

    So, you require your customers to sign a contract prior to your giving a firm bid?

    While I completely understand not wanting to waste your time giving bids where you don't get the work, asking your customers to commit to giving you work without a price is much more ridiculous. As someone who hires a LOT of contractors, I can't imagine ever committing to using someone without knowing exactly how much it will cost me.

  • Contractor · Anchorage, AK · Member since 2012 · 351 posts · 196 votes
    13y

    Hey Brett, being that you like the idea of being more hands off, yet want to keep costs down, you might consider getting your contractors licence and establish a second business. That way you can hire subs and manage the projects yourself while having the ability to pick and choose what work you want or need to do yourself. Your contracting business can then charge your investing business which has advantages a well.

    What I think is important is to evaluate properties base on what the going rates are if you were to hire all the work done. If you have a health issue or another opportunity presents itself, the money is there to switch gears and keep moving forward. It also helps you learn what truly is a good investment when you see it. Its human nature to see what we want to see... To rationalize and justify our way into things because we want them. As long as one continues to allow for... "if I do that myself, the numbers will work", he will continue to be run by his business and at the end of the day, a victim of circumstances he created for himself.

    Congrats on your fourth property. All the opinions aside, you should be commended for taking action and making things happen. Im sure youve learned a great deal thru the process. Sometimes the best thing we can do is remember to step back and look at the big picture now and then. Out of that, we can set goals for both what we do and dont want for the future. Once goals become solid in our hearts and minds, the questions disappear as the answers become obvious.

    Best of luck!

  • Miami, FL · Member since 2013 · 98 posts · 27 votes
    13y

    @ Derreck Wells

    I completely understand your frustrations and I can actually relate - but they are nothing new and just the nature of the beast. I've never worked 9-5, and have been a freelancer since college. I've worked in a very subjective and creative business for a decade now where my time has been valued between $100 and $10,000 a day, and I make bids all the time. I've learned that it serves me no good getting frustrated with wasted bids, and it just pushed me to bid better - and not necessarily lower. Your time spent even on this forum has an opportunity cost and opportunity gain - these are complex choices we make every day.

    If you don't want to come and give me a bid, for example, that's ok. You're probably at that stage in your career when you don't have to bid on everything. I've noticed that as construction industry picked up in my area over the last 18 months plenty of busy contractors wouldn't show for bids, and that's fine too. I'm filling inefficiencies in the system by letting younger or hungrier tradesman refine their skills by bidding on my projects while I learn the process myself, and the few that I like but don't use for now I simply keep for near future use.

    It's not rocket surgery - just the freelance way you and I chose

  • Investor · New York City Metro area, NY · Member since 2013 · 39 posts · 12 votes
    13y

    Whether it's rough or sugar-coated, that's not the issue. The point and bottom line are the challenges and how its measured the same way for contractors. There are some areas in the home that if the property owner wants to handle, they are within their right to do so. But, as a precaution, I would advise them of the potential hazards of certain tasks and the time it takes should be considered greatly. I'm not oppose to giving estimates, and I see producing a range can be a benefit. I've also approached it as "what's their budget" first and then advising what can be done with that figure. Now, its understood that this doesn't always apply to all aspects of a renovation. But if a client is looking at redoing their kitchen for example, this works quite well. I always give the client to choose the budget range they're most comfortable in. For the most part, they tend to work with a mid-range. So, I help lead them to options that would fall within that category and they are pretty content with the selections and at same time there's no second guessing what's going into their kitchen. From cabinets, flooring, countertops, you name it, down to the knob. Its all about finding a middle ground, while at the same time not compromising your system and procedures you've worked so hard to put in place.

  • Real Estate Investor · Greenback, TN · Member since 2012 · 269 posts · 115 votes
    13y

    @Brett O , I'm a recovering DIY'er and can relate completely to your desire to stop doing the work yourself. The last time I remodeled a house myself, I remember telling myself.....out loud..."this SUCKS!" Everything took forever to finish and I went home soar and tired every day. I started to hate the business.

    Eventually, I realized that the reason I was doing the work myself was because I didn't know anyone that I trusted to do the work. The obvious solution was to go to work looking for the right person to do the work so I could get back to working ON my business instead of working IN my business. It was the best thing I could have done. Now I'm really enjoying the business again.

    It took me about four months to find the right contractor but I'm extremely thankful that I took the time to do it. You might have to fire a few contractors along the way but it will be worth it in the end. I have an incredible contractor now that does EVERYTHING including buying and delivering all of the materials. I meet him at my houses once a week to check progress and give him a check. Now I put less than 10 hours in my projects.

    To make the business model work though, you will have to adjust your purchase price point. ARV never changes so if it's going to cost you an extra $15k to complete the project, you obviously have to buy the house for $15k less than you would if you did the work yourself. Don't let that bother you though. It took me a while to realize the enormity of opportunities that it opened up. I couldn't be happier that I've made the transition. Now it feels like a business instead of a job.

  • Derreck WellsPro Member
    Specialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
    13y
    Originally posted by J Scott:

    So, you require your customers to sign a contract prior to your giving a firm bid?

    While I completely understand not wanting to waste your time giving bids where you don't get the work, asking your customers to commit to giving you work without a price is much more ridiculous. As someone who hires a LOT of contractors, I can't imagine ever committing to using someone without knowing exactly how much it will cost me.

    No J. I don't require it before, I just wrote that quick and out of order. I give an estimate, it's different from a proposal. $3500-$4000 for a deck build for instance. If that's out of the ballpark, then I don't need to waste my time on an actual proposal. I can't afford to waste 4 or 5 hours for nothing. To firm it to a proposal, I charge $100 non-refundable deposit, which will come off the bill if I get the job so it doesn't cost the client extra. Then if they take my materials list and use it to do the job themselves, I still got something for my time. Obviously if I've done work for the client before, then I don't bother.

    I completely understand the bidding process and I've fine with the competition, I know the quality of my work and it speaks for itself. What pisses me off is when people who have no intention of hiring anyone have contractors out to bid just so they can use the quote to get insurance money, or they plan to do the job themselves right from the start and they just want to know what they're saving so they can brag to their friends. "That would have cost me $3500 if I hired it out, but I did it for $1500!" They are stealing from the contractors.

    Like you said... "Which type of employee would you rather be -- the one earning $12/hour on his time or the one earning $1500+/hour on his time?" Why would you expect contractors to work for free? Writing quotes is part of a job, it's work. We have families to support and bills to pay too.

  • Electrical Contractor · Vail, CO · Member since 2010 · 40 posts · 10 votes
    13y

    It's cut the wasted time in half, now I'm just wasting my drive time and gas money, not the 2 hours actually putting a quote together.

    All your estimating costs should be built in to your overhead. That way you get paid for your time and expenses without having to charge for estimates or getting frustrated with the tire kickers.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Derreck Wells:
    To firm it to a proposal, I charge $100 non-refundable deposit, which will come off the bill if I get the job so it doesn't cost the client extra.
    ...
    Why would you expect contractors to work for free? Writing quotes is part of a job, it's work. We have families to support and bills to pay too.

    Yes, writing quotes is "part of a job, it's work." But, so is taking continuing education courses -- should your customers pay directly for you to do that? Buying tools is part of your job -- do you charge tool costs directly to your customers? When you get your insurance bill, do you hand it to your customers and ask them to pay it?

    Of course not -- these things are overhead expenses that every service business must deal with. For most service professionals, giving bids/quotes/proposals is also part of the overhead. I couldn't imagine ever paying money for a quote; my attorney doesn't charge me to put together a firm proposal for legal work, my CPA doesn't charge me to put together a firm proposal for accounting work, my mechanic doesn't charge me to put together a firm proposal to fix my car, etc.

    I certainly don't think contractors are special and can justify charging for a bid when no few other service professionals do.

    Again, it's not my place to tell you how to run your business (if it's working for you, that's all that matters). But, in my opinion, your attitude about "working for free" by giving quotes puts you in the minority when it comes to service professionals -- most do it and recognize that it's just part of the job.

    And I will say that if you want to work with successful investors (and most homeowners that I know), this is not the formula.

    Just my $.02 as a customer...

  • Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    13y

    I just got two bids for blowing in attic insulation. I have done the job in the past , it wasn't fun.. Last time I got a quote which was basically the cost of materials at Home Depot, so obviously I hired it out. This time I will hire it out if the money I save DIY isn't worth it. So the contractors are bidding against me as well as their competition. I don't want to do it, but I will if the price is too high.

  • Investor · White Lake, MI · Member since 2013 · 165 posts · 41 votes
    13y
    Everyone seems to talk about the highest and best use of their time during a rehab saying that you are an employee and not an investor if you are doing rehab work yourself. I consider myself an investor and I do some work myself and hire the rest out. If you are only doing 1 house at a time and able to get the work done fast, then what is the big deal? The highest and best use comment to me implies that you have unlimited amounts of money and have many houses going doesn't it? How do you guys get so many deals going at once?
  • Matt LavinderPro Member
    Real Estate Investor · Bristol, TN · Member since 2010 · 59 posts · 31 votes
    13y

    @ Brad T - I think most of us started out doing work ourselves because we didn't have the money, systems, or connections to hire it out. If you want to get to the next level and make it a sustainable business, you have to invest your time in finding and funding deals. Every hour you spend swinging a hammer is an hour you give up finding deals and other people's money to fund them. I understand you have to do what you have to do getting started. But, long term, the opportunity costs of swinging your own hammer are really high.

  • Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
    13y

    @Brad T - I have two rehabs going right now. Had three going earlier in the year. How did I do that many at once? At least in part because I have spent some time trying to increase my lines of credit.

    Also, if you don't have the money right now to do more, you could be wholesaling or bird-dogging. Earlier this year I made $1000 just be sending an email to a guy to tell him about a property that was for sale. I didn't come across that property by rolling paint.

    Basically, if you're doing work that you could hire out for $10 per hour, then basically you are yourself working for $10 per hour. I don't think that any of us on here think that it's "beneath us" to work with our hands or to work for $10/hr - but I just can't make a living at that. There are many great people who are happy to work for $10 - $15 per hour, and I am happy to give them all of the work that I can if they do good work.

    It really boils down to the concept of leverage. There's only so many hours in a day that I can work. But, if I can have 10 people working for me, then I can make money off their work. And even more money if I have 20 people working for me. Same thing with the money. I have a finite amount. But, if I can partner with other people who have money and buy more deals, and then hire 30 people, I am now making even more money. I'm not there yet myself, but the concept is sound. Even if I have to split the profits 50/50 with a partner, the concept still hold true because 50% of $20,000 is a lot better than not having that deal at all.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Brad T.:
    The highest and best use comment to me implies that you have unlimited amounts of money and have many houses going doesn't it? How do you guys get so many deals going at once?

    We get multiple deals going by spending time raising money and finding lots of deals instead of swinging hammers and hanging drywall.

Join the conversationCreate a free account to reply, vote on answers and follow this thread.