I've completed 6 successful flips or major rehabs in the past 4 years in the Silcon Valley Market, My model is built with my partner and I acting as project managers from start to finish. We operate on an all hands on deck and do not worry about % of ownership but focus on getting a high quality finished home back on the market as soon as possible. We typically are rehabing properties within 10 miles of where we work or live, which enables us to run materials, make decisions faster, and do work on the property ourselves. Also, because we do not hire a GC (general contractor) there are no change order fees and we save ourselves the 20-30% management fee a GC or project manager would charge us. We make adjustments on an as need basis. We both work as realtors, so we have some flex in our schedules.
The downside is the investment of time it takes to manage projects, especially those that involve square footage additions or major reconstruction. We do one project at a time, to not get overleveraged and help secure our goal of net returns of 15% or more on each project. Better to play a great hand rather than 5 average or poor ones.
For those of you who sub out the project management of your rehabs, what advantages do you see to this model? How do avoid costly change orders, mismanagment of workers time, material loss, delays, etc.?
Pay a fixed fee for a GC. GCs can push paperwork but you decide what and where. For COs, your SOW will determine how strong your contract is for those COs, but you can do a contract where you can decide if you want T&M with maximum cost or Fixed lump sum cost. For timelines, you can do per day penalty. Usually my jobs are 1% of project cost, but probably you just want to break even with holding costs. If I was doing the contract that has a daily penalty, I would build in a buffer in my bid so I could pay for overtime when I need to or at least cover my daily penalty.
Great imput and perspective. Thank you Manolo
@Scott Raley Is it legal for you to be acting as the general contractor for non owner-occupied houses (i.e. practicing general contracting without a license)? Everywhere is different but in NC you would not be able to pull permits, even if you own the house, unless you sign an affidavit attesting that you intend to live in the house at least 12 months after the completion of the work. You might want to look into it.
You raise an interesting point. I will look into this.
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