Ask me anything about...Construction.
Contractor · Chicago, IL · Member since 2017 · 102 posts · 181 votes
I always see posts from investors asking about the cost of a rehab, a particular estimate or a general construction problem. I have 20 years of construction experience. From remodels, ground up, all the way to developments.
Ask me anything.
Meryl, what advice would you give a new flipper in this scenario? I don't have any construction or rehabbing experience, I want to tour a property and be able to make an offer within the hour.... This requires me to at least have a ballpark estimate on rehab/repairs. How do I come up with an estimate? Is it necessary for me to always have a GC walk a property with me until I am experienced?
Any other help or advice would be appreciated. Anything I can be reading to help speed up the learning curve on estimating repairs?
@Meryl McElwain
Lots of good stuff on here! What’s one trade folks could learn that you don’t really need a certification in but will save you the most from having to contract it out?
Painting? Drywall? Tiling?
@Meryl McElwain Hello! What is the best way to negotiate a contract to a contractor once they put in a bid for their estimate When is the best time to collect insurance and licenses? Is it better to provide them with a scope of work or allow them to draft on themselves:? Also, do you usually cover materials costs or is it better for the owner allow them to buy materials through a pro account at Home Depot.
Ive done it both ways where the contractor would provide their own scope of work or i would provide them with a scope of work during walk through for an initial bid. Seemed to work better when I drafted it myself.
Some contractors show a per hour for labor and some do not. Is it common to negotiate labor hours to lower cost?
Sorry so many questions, just trying to see it from the other side
The best way to negotiate is by telling them what your budget is up front. This is only going to work if you know what it costs ahead of time but I'll get to how the average person can do this. A GC has an overall budget. Each trade gets a line item. When I talk to subs I give them the plans (if it's a job where you need plans), a very detailed scope of work that I wrote, and my budget number. I say this is what I have on the line for plumbers, if you can do it for this let me know. If you're talking to a GC the same language applies. Go through the scope of work and say to them this is what I can afford. No more. If you can do it for that please let me know.
This method has always taken a ton of the stress out of it for me. I've used this method for years. My main motivation for using this method came from how I choose to conduct myself in business. Driving sub prices down because I can is something I just won't do because the tone it sets with the subs I'm about to rely on to get a job done is not one I want to set. Some people live for the deal. They want to know they got a good price out of someone. That they won. They got the other guy to give up something. I don't. I want to know that I paid a fair price, that the sub doesn't feel screwed or insulted by me right out of the gate. That they are being compensated fairly. That matters to me both on a human/business level and on a very practical and logistics level. Lots of guys disagree with me on this, their response is-they won't do the work unless there's money in it so don't worry about whether the sub is making money. Let me tell you how untrue that is. I've had plenty of guys I didn't know agree to do work at a price that I thought was low. This was a long time ago and I would never trust a low number now but it's how I learned. They'll agree to do work for a much lower price than is reasonable and you know what happens? It's garbage work. Because they will find a way to make it cheaper but it will be at your expense. Not theirs. Most of the time guys who agree to underpaid work are struggling financially and robbing Peter to pay Paul. They just need cash to get through the next hurdle. Once they get enough out of you and a better paying job comes along they're out. So now you're 6k deep into a 12k plumbing job that really should have cost 16k but you thought you were getting a good deal with that low bid. Joe the Plumber is gone and you are interviewing Bob to clean up Joe's work. You know what Bob is going to charge you? 12K Because he will tell you everything Joe did wrong. Everything he is going to have to fix. And then you end up paying 18K for a job that should have cost 16K. Sometimes Bob is telling the truth about Joe's work. Sometimes it's BS. But most of the time they just don't want to continue a job someone did half *** and then get blamed for the portion of it they didn't even do. A good example of this would be painters. I once did a house with literal miles of trim in it. Baseboard, chair rail, crown, panel boxes, coffer ceilings. We built the interior doors ourselves from scratch. To say that the nail holes were overwhelming would be an understatement. There were thousands of nail holes. The painters told me it would take them a solid week just to prep the surfaces. In this instance were talking about adding 6500 dollars on for a group of guys to puddy and caulk nail holes. I was like I'm not paying that I'll do it myself. You know what happened? I spent 10 days doing what three guys could have done in 5 and they charged me anyway because they went back and reprepped everything I did. Because they wont take responsibility for a final finish without having complete control. That is so common. I don't even bother trying to save time or money by prepping work for trades with my own guys anymore. Let them do the whole job.
As for materials, it depends. Most subs can get their supplies much cheaper than you can. The drywall sub is buying sheets of drywall from a supply house for a lot cheaper then you can get it at home depot. The electricians are buying wire and switches for cheaper than you can get it at home depot. It is to your disadvantage to try and control costs by buying specialized materials that you know nothing about that they buy every day. At the risk of a huge list here are the general rules:
1. Concrete guys buy all their own materials
2. Framers do not buy lumber, tyvek or tape. They generally provide nails but a lot don't. If you're buying the nails, buy the brand they tell you to. They know.
3. Siding guys get a better deal on siding than you. Roofers get a better deal on roofing than you do.
4. Masons will buy all their own material except for the actual brick generally. If you have a building with 40,000 brick going up you're going to be paying for that up front.
4. Windows and Lumber you can buy. Menards is the absolute cheapest for lumber and windows but it's not high quality stuff. It's mid market.
5. Plumbers buy all their own rough materials. They'd prefer it if you bought the trim. They don't want to deal with helping you pick faucets.
6. HVAC all the material comes from the sub
7. Electricians-All the rough material comes from them, trim you buy.
8. Hardwood and tile guys. You buy the trim material. Hardwood guys usually bring their own glue, paper and nails, tape. You're going to buy the wood. Sometimes they will if it's real hardwood not prefinished. Red Oak is pretty common at supply houses and easy for them to pick up. Tile guys will usually buy the mortar you're buying the tile.
As for per hour labor this is my warning: I do everything by the job unless it simply can't be estimated like that because you don't know what goes into it. Reno's can be like that. Sometimes there is no plan. You're just opening up walls and deciding as you go. Those are beasts of projects and they can be out of this world expensive. If you are not 100% sure exactly how much time something is going to take don't agree to an hourly labor rate. It will never end in your favor. On a side note-new construction is a walk in the park compared to renovations. I built 21 houses ground up before I was 30 and then decided I can do this addition/renovation easy. I almost had a stroke trying to attach a 3 story 16 ft addition and blend the two structures together. That little reno took more time then building 5 houses at one time did. Renovations are not easy. I shudder at the memory.
So to bring it back around to how the heck do you tell a contractor what your budget is when you don't know what it should cost? Pick 3 contractors and have them estimate it. Average those estimates and shave 10% off of it and then go to a 4th contractor and say this is my budget. Toss the outliers. If you get 3 bids- 16k 18k and 25K. Toss the 25K, go with 17K and pull off 10%. No we're at 15,300. I guarantee you'll get a contractor to do it at 15,300 which is 700 lower than your lowest bid and you didn't have to stomp on anyone to get it. Could you have gotten is for 12k? Maybe. But you also might end up with Joe.
My final thought this is: There will be a lot of people out there that say but I have a contract! Joe agreed to do it at 12K! I have a contract! Threaten to sue him! Make him hold up to his end of the bargain. If you subscribe to that line of thought you will never survive in this line of business. While you're hacking with Joe and threatening to sue him you're interest payments are rolling in, your schedule is off, now you're delayed and you're wasting time. You have to keep it moving, always. If a sub is shaky you do everything you can to keep them there. I'm the type of person that will offer to pay Joe more to stay because it saves me time. In this business time is money. You want them to finish. You do not want them to walk off. If that means you offer more money you offer more money. Do what you have to do to get them to finish the job and don't ever hire a sub like that again. This piece of advice is only applicable on small jobs where you will drown in time delays and worlds of hurt. A mid size project say over a million, Joe is instantly replaced with a more reputable sub and no one blinks an eye.
I feel like I've written a book here but I hope this help all of you.
This thread and specifically this post is pure gold. Thank you so much.
Great Q & A
@Meryl McElwain
Lots of good stuff on here! What’s one trade folks could learn that you don’t really need a certification in but will save you the most from having to contract it out?
Painting? Drywall? Tiling?
If you're talking about work for basic rentals you can learn them all, master none, and you'll be fine. Drywall has the cheapest tools. You need a trowel, maybe a router and a drill. Drywall is heavy as hell so if it's just you and you'll be doing this over and over again get a one man lift.
Tile is tough. Tile is usually going hand in hand with pouring shower bases and hanging durock. If you dont know how to line a shower base and pour concrete at a pitch have someone teach you. Or make your life easy and just buy the shower pan. Too many you tube videos get it wrong. If you mess up a shower liner you'll most likely lose the ceiling below when the water from the improperly lined shower leaks all over the place and everything will have to get jacked out only to start again. The visual of tile is also a craft. If it's just rentals I feel like you can use the rentals to get good at the aesthetic of tile but it's a lot of work. You need a wet saw. Theres a lot of room for error. Its also an expensive fix. If you mess up paint, you just repaint. Mess up tile and you're jacking it out. It's a huge mess. The material is trash.
Flooring . Hardwood, laminate, prefinish can be a DIY and it saves a ton. You will never achieve what professional will but you can get an air compressor and a side nailer for 200 bucks. Watch a few you tube videos on lacing floors and you'll be ok. Is the finish going to last a lifetime? Not a chance. Will it win you an HGTV award? Nope. But that's not the goal. The goal is to cut your teeth and save some money.
Paint you can DIY. On your first try spend 600 bucks on a Graco battery powered sprayer with the disposable cup. Amazon sells a spray shield you can attach to the gun and you will feel like a superstar. Watch videos on how to use it. You'll never roll paint again. It's so fast.
What I'm telling you is really only for rentals.
If you're doing a flip you should hire pros unless you seriously know what you're doing. I still have things I DIY 12 years later but its because I know what Im doing and I genuinely really like it. There is no substitute for professionally done floors and paint. They can change the whole look and feel of a house. Professional paint jobs can be the thing that sells a house. A lot of painters, tile guys, flooring guys are truly artists. They're amazing at their craft and they can make a project shine. If you can afford to, hire pros. If you cant, youtube and try to learn floors and paint first.
@Meryl McElwain
Hey Meryl,
Thanks for offering advise!
Me and my friend are thinking about buying a vacant land and building a multi family.
Based on your experience, Can you please throw approx number range for building two 3 bedroom 2 bath, town house with standard fittings in 60089 Suburbs of Chicago, 1500 square ft each, no basement.
(Apologies, u said ask me anything 😃 could not leave the opportunity as a new bee here!! )
Thanks
Vishal
600K and that's going to be basic. Nothing fancy.
@Tony Borman
I always admire people who try to take this on. Wholesaling is a weird animal for me. If you want to make this your profession why not just become a broker? (Besides affordability) If you have another job and you dont want to do this for a living but for whatever reason you have access to properties and information that makes it is easy to contract off market then by all means wholesale away.
An example would be a mailman. We know some excellent mailmen who are excellent wholesalers. They have no aspirations of becoming a broker. But they're in a very unique situation. This might sound a little shady but they see your house everyday. They're on foot so they know the neighborhood. But in addition they handle the mail. The certified letters youre getting, the notices of foreclosure, the tax liens. They see them. They are excellent wholesalers.
I once had a business partner that had a payroll for the mailmen he paid.
Is there value in someone who has access to unique opportunities? Absolutely.
Its getting late so I'm going to have to postpone this to a part 2 but I'll be back.
@Breanna Monique
Can you DM me with specifics?
How do you create an understand the real estate pro forma ? I am a rookie developer in the City of Detroit. I have spent quite a few hard earned dollars on consultants working the numbers for the real estate pro forma..
How do you create an understand the real estate pro forma ? I am a rookie developer in the City of Detroit. I have spent quite a few hard earned dollars on consultants working the numbers for the real estate pro forma..
I'll answer your question but before I do I want to know what you have spent on this?
@Scott Johnson
Is this to flip or to rent out long term?
Flip, ma'am. :)
I am trying to find out what the requirements for a builders license in Alabama but I am having a hard time finding experience requirements? Any suggestions would be much appreciated.
@Meryl McElwain
What is the best way to remove ceramic floor tiles. the floor is very well laid out, no compromises anywhere on the floor
Rotary hammers (also called demolition hammers) will make quick work of it. Harbor Freight has them for about $100 for a one time job situation which can be cheaper than renting. If you see yourself doing this kind of demo a lot, a nicer one can be had for around $300.
@Mike S.
Thanks!
I am in the research phase of possibly developing a modern gated community. Starting out with 15-20 homes, and then adding homes over the course of several years after that. This community will have a pool, gym, main office, and security.
Do you think prefab homes are they way to go here, or just build from the ground up? Also what will investors look for in a development like this? What does a investor and developer contract/terms look like?
Hi Meryl,
I am one half of an investment flipping team. We are looking to acquire SF properties. We would like your insight on the best practices for building a relationship with our soon to be GC team. Considering our projects to be moderate to full gut rehabs, is it best to network further with subcontractors or depend on our GC to provide subs for all aspects of work to be completed? Any input is appreciated, thank you.