Rehabbing & House Flipping

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Kien Hua
  • Baldwin Park, CA
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Working with Interior Designers

Kien Hua
  • Baldwin Park, CA
Posted Jul 24 2014, 13:32

Does anyone work with interior designers on their flips? My team started a joint venture partnership with a well-known one, but she bailed on us due to it being more work for her than she anticipated compared to the sacrifice she is making in charging lower fees.

If so how did you structure your deal and how was your experience?

CaliforniaLA

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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
ModeratorReplied Jul 24 2014, 17:51

@Kien Hua 

 You don't give enough details for anyone to help you.  What is your role in the deal? I don't know what you mean when you say "does anyone work with interior designers on their flips? "  On the interior designers flips? On flips where you use an interior designer? Are you saying you were doing the rehab, and she was providing interior design services?  You need to give specific details so that we know exactly what you were trying to accomplish, and what happened, etc. 

  • Contractor CA (#680782)

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Kien Hua
  • Baldwin Park, CA
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Kien Hua
  • Baldwin Park, CA
Replied Jul 24 2014, 18:22

Hi Karen, thanks for the questions.

(1) What is your role in the deal? 

My team are the principals in the deal. We put down all the cash and hold title on the deal. We are also the Developers, who hire and are the point of contact with the General Contractor and all other stakeholders, including the Interior Designer. 

(2) I don't know what you mean when you say "does anyone work with interior designers on their flips? " 

To clarify, does anyone hire Interior Designers to work on their flips? How did you arrange it financially? We used a % of exit price as compensation to the Interior Designer, so they would be working for sweat equity. How did it turn out for you logistically? Our Interior Designer bailed on us when we provided our candid thoughts about how the design puts us over budget and we wanted to talk through the design. She was offended that we may compromise her artistic integrity with our financially driven comments. She also felt that she did not have the time for an iterative dialogue on design. She wanted it to be a "linear" discussion. We interpreted it as "her way or the highway" and wanted to clarify that as principal investors, we don't feel comfortable with that approach. We wanted a balanced approach.

(3) On the interior designers flips? 

No, the Interior Designers would not control the deal or have any capital in the deal. Although, our team prefers this arrangement with the right Interior Designer, so that they would have skin in the game and be committed to the deal from beginning to end. 

(4) On flips where you use an interior designer? 

Yes

(5) Are you saying you were doing the rehab, and she was providing interior design services? 

Yes

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Andrew Cordle
  • Real Estate Consultant
  • Alpharetta, GA
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Andrew Cordle
  • Real Estate Consultant
  • Alpharetta, GA
Replied Jul 24 2014, 20:20

@Kien Hua

We use interior designers on all of our flips. But we do not give them sweat equity we simply pay them a fee just as though they were another contractor. We pay anywhere from 500 to 1,500 per house. And that includes everything. 

Example:

Interior/Exterior Paint

Cabinets, Granite, handles

Light fixtures, bathroom fixtures

Hardwoods, Tile, Grout, Carpet

Etc literally everything. 

If you don't mind me asking how much sweat equity were you giving her?

Andrew

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Kien Hua
  • Baldwin Park, CA
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Kien Hua
  • Baldwin Park, CA
Replied Jul 24 2014, 20:33

@Andrew Cordle May I ask how you controlled your renovation budget using Interior Designers? Also, how iterative was the communications with them?

To answer your question about how much we planned to pay our Interior Designer, we offered more, rather than less because:

1) We thought we were building a long-term relationship.

2) Her clientele is mainly high-net worth individuals and celebrities. She charges her clients $300/hr and her projects usually have no budget due to the nature of her clientele. 

Our estimated compensation to her was $16,500. Keep in mind that each deal is different and we determine how much to "give" based on stakeholders involved, how much "meat is on the deal," and perceived upside in a design driven property (vs market cookie-cutter design). She was complaining that it was not enough money and bailed on us.

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Dylan Long
  • Real Estate Investor
  • Forest Grove, OR
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Dylan Long
  • Real Estate Investor
  • Forest Grove, OR
Replied Jul 25 2014, 09:34

It sounds like she was used to working in a very specific fashion and didn't enjoy changing that up. At $300/hr I'm sure she's used to getting her way, so having to "compromise" isn't something she was willing to do, despite the money. It happens, and it's unfortunate. I come across this a lot in Project Management.

I'm not really sure how much a typical interior designer commands, but I'd consider $500-$1,500 low, but that also depends on how big the house is and how involved they are. I would imagine most are independent workers, so I'd expect their rate to cover a decent salary @ benefits, so I wouldn't think that $50 an hour is unreasonable. At that rate, $500 only buys 10 hours, and $1,500 only buys 30, which is about 3.5 days of their time. Doing design and being there in person on a build I'd probably expect at least 1-2 weeks of my time, but that again depends on the overall size and what they're offering. Are they doing mock-ups/sketches, or are they just picking a materials list for each room?

I'm just now getting into interior design myself on the side, and currently focusing on the design/mock-up aspect to give myself an edge, should I jump into that pool and finally decide to stop working for "the man."

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Kien Hua
  • Baldwin Park, CA
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Kien Hua
  • Baldwin Park, CA
Replied Jul 26 2014, 17:13

@Dylan Long You bring up real good points. Regarding your question:

(1) Are they doing mock-ups/sketches, or are they just picking a materials list for each room? All of this. We have As Built plans that she is supposed to propose To Be plans. After that, she was supposed to come up with a decorative plan based on our provided material supplier list.

Dylan, may I ask you what kind of resources are your using to get up to speed on interior design?

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Dylan Long
  • Real Estate Investor
  • Forest Grove, OR
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Dylan Long
  • Real Estate Investor
  • Forest Grove, OR
Replied Jul 27 2014, 07:59

Over the past 5-6 years I've just been reading up on general construction types of books from Home Depot/Amazon on plumbing, lighting, drywall, etc, as I like to do a lot of the work myself. This lets me design things that are realistic to implement.

Outside of this, most of what I do is search forums like this, browse Houzz and Instagram, watch TV, etc to get a better sense of design trends, ideas, etc. At this point I'd consider my design sense to be more on the practical side, and am working towards doing designs that go beyond practical. Looking at it another way, I think my designs fit 200-300k homes well in my area, but wouldn't be suited to 300+ where things tend to get more stylized. But I'm getting there.

I have learned to use the Chief Architect interior design software to a fairly strong degree, and I have spent a few years now just building random rooms and bouncing them off friends/family. My wife, for example, loves to cook, so I can usually get a good sense of what kitchen layouts work well and what don't.

As far as formal interior design training, I don't have any. I haven't studied the "hard" principles of what some would consider "good design." I'm sure it would be helpful, but I haven't hit a point where I feel not having that has inhibited me. I feel like good design is fluid, in that it's whatever fits the needs of the owner, but is also done with future owners in mind. When I encounter specific questions or want to know what the "right" way is the do something (such as the 'kitchen work triangle' for example), the internet is always there waiting :). 

Sorry, this may not help much :).

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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
ModeratorReplied Jul 27 2014, 08:32

@Kien Hua  There's still a lot missing in your posts. What is the price point of the houses you are flipping? What is the profit margins?  

If you hired someone that has celebrity clients and you knew that she was a very high end designer, and in demand, I can understand why she wants things done her way or the highway. It's her name and reputation on the line, and if you have to cut corners in order to meet your budget, it could end up costing her far more than she'd make on your deals, because your project wouldn't meet her standard.

You'd probably be better off finding someone that is more within your budget, and does the type of design that you are looking for. It may be that you can use a stager, there are many in southern California that are really great! 

It seems that you are working on an extremely tight budget and were trying to find a creative way to get design services and pay for it later. You could probably have found someone to do the work and take payment upon sale of the property, etc. Out of curiosity, did you have anything figured for interior design in your cost estimates? 

Did you have any type of contract with her that specified exactly what her job was and what was expected from you and her in detail? 

  • Contractor CA (#680782)

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Karl Pierre
  • Real Estate Investor
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Karl Pierre
  • Real Estate Investor
  • New York City, NY
Replied Jul 27 2014, 08:33

@Kien Hua I think this is a broad question as there are interior designers of different expertise and mindset, because of that we are all going to give you different answers.  With that being said I can share my experience with you.

Rule of thumb is 15-20% of the rehab budget for architects who will be the lead on a job  for extensive renovations and ground up development. That fee should be your all in for design, permits, drafts, engineering consults, etc. Interior design alone can cost you 10% if they are educated (degree bearing, not certificate) and trained in interior design.  After that its going to be lower and rates will vary depending on how someone values their work.  I found that this can be all over the place as many seem to have woke up one morning and thought to themselves today I will become an interior designer and charge fees for work I don't understand.

I would never give a designer an equity stake in a deal it just isn't worth it.  I do have an architect on my management team but he also raises capital and searches for deals in addition to providing his professional services (which I compensate him for separately).  It sounds like the person you hired didn't fully get the the terms of the arrangement and doesn't function knowing that a developers motive is profit margin.  Alot of designers and architects are artist at heart so they don't like to negotiate their art because it doesn't make financial sense for the developer.  They are trained to make an impression and not trained on how to manage budgets or achieve a look for a reasonable price.  They are given carte blanche when trained which is why there are so many horror stories out there.

From the sound of it you wanted someone to be involved in the entire rehab process to guide you through it from an aesthetics standpoint.  I think the best thing for you to do is get your hands on an outstanding new graduate who has business savvy and or a father who was/is a contractor.  What I have found is these types get it and have seen their father achieve looks for less as well as understand the pressure to stay within budget.  A new grad can be molded into the designer you want them to be.

I hope this helped.

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Andrew Cordle
  • Real Estate Consultant
  • Alpharetta, GA
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Andrew Cordle
  • Real Estate Consultant
  • Alpharetta, GA
Replied Jul 27 2014, 14:06

@Kien Hua

Sorry for the delay response. 

So I do houses in Atlanta that range from 500k to 1 million ARV.

My designer will do the following:

1. Laser draw the entire house and give me a drawing of the existing floor plan

2. He will meet with the artichet that is doing the blueprints and work with how the house should be laid off. 

3. He will give me a entire spreadsheet of every last detail that I will need to put into the house and where I need to put it. That is everything from wallpapers to mosaics tiles, paint, shingles, door stops, quartz, cabinets etc etc

The only thing he doesn't really give me is landscape design or staging. He will periodically stop in and make sure my projects are moving along the right way. 

All of that will cost me around 2k to 2,500 depending on the size of the house. 

Now my designer for the most part only works on rehab projects or new construction houses. He is not a designer that designs for random home owners. 

check out some of his work here to see if it is what you are looking for:

http://intowndevelopers.com/

Again these house on this site are complete gut rehabs they not only include all material selection but he conceives the the layout and does the laser drawing.

AC

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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
ModeratorReplied Jul 27 2014, 15:05

Great work! I think you're definitely getting your moneys worth. I don't know of many designers that would do as much as yours for the price! 

  • Contractor CA (#680782)

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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
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Karen Margrave
  • Realtor, General Contractor, and Developer
  • Redding (Orange County CA& Bend, OR.)
ModeratorReplied Jul 27 2014, 15:07

Great work! I think you're definitely getting your moneys worth. I don't know of many designers that would do as much as yours for the price! Congrats.

  • Contractor CA (#680782)

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Rick Baggenstoss
  • Developer
  • Decatur, GA
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Rick Baggenstoss
  • Developer
  • Decatur, GA
Replied Jul 28 2014, 10:41

I've debated a designer as well.  The first couple of flips, I really could have used a good one.  I'm not sure spending $20k per year is a great idea (assuming 10 flips) for finish selection.  

Where it would be valueable is kitchen and bath design.  You can get a kitchen designer for free thru a decent cabinet supplier complete with 3D models.  I use the same designer, cabinet types, a couple of different granites repeatedly so the backsplash tile design is also not something I need figured out each time.

Point is for middle of the road flips, you can reuse the same or similar designs repeatedly only paying for 1 - 2 designs.  

Developer

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Kien Hua
  • Baldwin Park, CA
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Kien Hua
  • Baldwin Park, CA
Replied Jul 29 2014, 11:54

@Dylan Long  You are very helpful. I wish you the best in your journey. I also feel very comfortable interior designing for homes under the $400K range. For homes in the $400K to $600K range, I defer to my team members that are more aesthetically inclined. We also partner with flippers that focus on homes in the $1M to $1.5M range, so we learn a lot from them as well. My team is also ramping up on learning design in the same manner as yourself. Personally, I would like to work with Interior Designers in the manner like @Andrew Cordle  - Andrew, great setup!

@Karen Margrave  Regarding your questions:

(1) What is the price point of the houses you are flipping? What is the profit margins? 

$500K+ 15% ROI+

(2) If you hired someone that has celebrity clients and you knew that she was a very high end designer, and in demand, I can understand why she wants things done her way or the highway. It's her name and reputation on the line, and if you have to cut corners in order to meet your budget, it could end up costing her far more than she'd make on your deals, because your project wouldn't meet her standard.

Agreed. The thing was, she approached us to push the conversation toward the sweat equity arrangement I disclosed. I was clear that we wanted a collaboration as equals: our team with the money, project management, and real estate knowledge; and her team with the design. I felt I was clear that there would have be a balanced approach.

(3) You'd probably be better off finding someone that is more within your budget, and does the type of design that you are looking for. It may be that you can use a stager, there are many in southern California that are really great!

Agreed.

(4) It seems that you are working on an extremely tight budget and were trying to find a creative way to get design services and pay for it later. You could probably have found someone to do the work and take payment upon sale of the property, etc. Out of curiosity, did you have anything figured for interior design in your cost estimates?

Yes, for the project we were working on, it was the $17K disclosed. Each project is different though, depending on how much meat is on the bones and what is needed in design work.

(5) Did you have any type of contract with her that specified exactly what her job was and what was expected from you and her in detail?

Verbal. Big mistake and lesson learned. Will have everything in writing moving forward. Is it normal to have some sort of penalty clause, where if the Interior Designer quits on you, causing delay in the project or worst, a change in the design due to inability to complete that vision, that we could collect damages? How would that look like?

@Karl Pierre Your input is invaluable. Thank you.

@Rick Baggenstoss  We already do a lot of the things you discussed. We're trying to get to the next level on our designs.

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Kj Rustom
  • Kennesaw, GA
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Kj Rustom
  • Kennesaw, GA
Replied Mar 20 2018, 22:00
Originally posted by @Andrew Cordle:

@Kien Hua

Sorry for the delay response. 

3. He will give me a entire spreadsheet of every last detail that I will need to put into the house and where I need to put it. That is everything from wallpapers to mosaics tiles, paint, shingles, door stops, quartz, cabinets etc etc

The only thing he doesn't really give me is landscape design or staging. He will periodically stop in and make sure my projects are moving along the right way. 

All of that will cost me around 2k to 2,500 depending on the size of the house. 

Andrew - Would you mind sharing contact details for your designer? We have a project coming up in Smyrna and are considering a designer. The true value of the designer in our minds is the 'entire spreadsheet'  you mentioned above so we have a well articulated idea of the work product. So far we have not come across any designers who provide an exhaustive end-to-end scope of surface and finish.

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Erica Reiner
  • Los Angeles, CA
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Erica Reiner
  • Los Angeles, CA
Replied Apr 24 2018, 17:56

@Kien Hua I AM a designer on flips :) what kind of questions do you have? I would love to share my knowledge. Or you can tell me about pain points your worried about !

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