Rehab Question - Allocation of Funds

[Eric Johnson]

Greetings BP members,

I'm looking to purchase a property and rehab it to flip.  My question, is there a rule of thumb about how the funds should be paid out to the contractor?  For example, if a contractor gave me a quote of $30K to rehab my property that will take him/her 2 months, what percentage do I give up front and how should the remaining funds be distributed throughout the 2 months?

Thanks,

Eric Johnson

[J Scott]

Originally posted by @Shawn Thom:

@J Scott i am working up an SOW now based off your template in the fileshare.

Can you give some examples of "Have a VERY detailed schedule, with LOTS of milestones"

I have dollar amounts associated with each bathroom, painting the interior, exterior repairs & painting, wood flooring, carpet, lighting, sheetrock repair, kitchen, demo, initial payment and final payment.  Do you get more detailed than that?

Not sure exactly which fileshare doc you're looking at.  But, this is how I do it (images taken from my BP Flipping book)...

For SOW, first I like to break the project up into the basic rehab components:

Then, for each component, I define the specific tasks that need to be completed.  Here's an example of what the Electrical (Component #13) task list might look like:

The entire task list for all components comprises my SOW for that house.

I'll then provide the appropriate parts of the SOW to the appropriate contractors, and let them provide line-item bids.

For milestones and payments, if I were using a single contractor, I'd take my SOW task list and organize it in sequential order based on scheduling and then insert milestones at various points throughout the schedule.

For example, your schedule would likely be ordered something like this:

Insert the specific list of tasks as they relate to the scheduling order above (so, for example, the Electrical SOW from above would be part of #17 and #33), and then add in your milestones.

In theory, if you had tasks relating to all 40 of the scheduling components above, you might have 40 milestones, and make a payment after each is completed.  You can break up the milestones into as few/many and as big/small as you and your contractor agree. 

But, if I were using a single contractor, I'd want to know that he was doing things in pretty much the order above, and wasn't starting on 10 different components at once, leaving them all half finished.

Does that make sense?