If you want to flip houses like on all of the reality flipping tv shows, you are going to have to fix those houses up. That should be obvious. If it is not, you might want to look for another way to invest.
So who is going to do that work? Are you qualified and capable of making the repairs? If you are, should you be doing the work yourself?
In this article I will be discussing several different approaches to having a house rehabbed so that you can sell it for a profit. I will even share which one I prefer and why, just in case you’re curious.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
Option 1: Fix It Yourself
If you are knowledgeable in construction and home remodeling you have the option to do the rehab yourself. A lot of new investors are tempted to do this to ‘save a buck’, but I think they end up costing themselves money because they forgot that time is money and they just wasted a bunch of it.
When you do-it-yourself, you focus your time and energy on lower paying tasks. I’ve been taught that you should figure out how much your time is worth and hire other people to do the things that you can pay them cheaper than the amount you came up with. That’s sound advice.
Of course there are exceptions to this. There might be some things that you could hire someone else to do but shouldn’t because they won’t be able to do what you do as good as you. Say that fast.
But when it comes to rehabbing houses, you are probably better offer just hiring other people to do the work. That way you can manage them and spend your time finding more deals. The people that do the work themselves tend to do less deals than the ones that hire out the work. One of the reasons is the time spent working on the houses but the other is that they are not able to keep their marketing and deal finding going.
The leads and deals you are getting today are usually a product of the work you put into getting them over the last several months. So when you first start work on that rehab, you might still be getting leads. But this will likely soon end as you fail to keep up the work required to get those leads. This is a real problem as it will take time to ramp it up again once you start to work at finding more deals.
I don’t know about you, but I can’t stand spending hours making trips to Home Depot and Lowes.
I understand that for some people, fixing up the houses themselves is a passion and if that’s the case, go right ahead. Just be sure that it really is a passion of yours and not just an excuse to get out of your comfort zone and delegate jobs.
Option 2: Be The GC
Another option, and a very common one, is to be the GC (General Contractor). When you are the GC you hire subcontractors to do the work for you. You have to find and hire the different tradespeople to do the different jobs required for the rehab.
Your responsibilities also include scheduling all of these tradespeople so that they are not having conflicts and stepping all over each other on the job site. One of the fastest ways to piss off a busy contractor is to schedule them for a job that requires something else to be done first. If that something is done first, they cannot do the work they are supposed to do. When they are busy, their schedule is tight and cannot easily be changed. You will likely have to find someone else to do the work or wait until they are able to fit you back into their schedule.
This happened to me early on in my rehabbing career. I still had a mentor and he was none too pleased. We were wrapping up demo on a large fire-damaged property. The sheetrock had been removed from most of the house and the sheet rockers were scheduled to come in the next day to start hanging the drywall.
They gave us a great price but mentioned that they needed everything prepped properly or they would leave and we would have to reschedule. Being the prudent new rehabber, I stopped by the job site a couple days before hand (I think it was the weekend). To my disappointment, most of the nails from the original sheetrock were still in all of the studs. Either I failed to make it clear to the demo crew or they just forgot to remove them. Let’s say they forgot. That will make me look a little better. 🙂
I was getting nervous. What the heck was I going to do? Nobody would answer their phone from the demo crew (likely because it was a weekend) and I needed this done. Well, I’ll just have to do it myself. I started pulling thousands of nails out of the 2x4s. Talk about time consuming.
My mentor showed up at the house unexpectedly. I thought he would be proud that I was doing what I thought was necessary. He felt differently. He proceeded to tell me how stupid it was. My time was worth way more than that. While he was belittling me (Ok, it wasn’t that bad), I was just thinking, “la-la-la-la. Yeah. Ok. Whatever. I did try to find someone and this isn’t difficult work anyway.”
Looking back though, I understand it wasn’t the immediate work that I was getting a talking to about. It was the idea that I should not be doing all of those things. If I was willing to do that, what else would I be focusing my energy on that I shouldn’t be? The lesson was bigger than just about me spending the time to pull nails out of 2x4s.
We only have so much time in a day. As the years go by, it seems that that amount of time is constantly shrinking.
Be careful how much time you spend on this
You could end up spending too much time handling all of the subs. I’ve heard of some investors that will hire each separate person through craigslist for each job. For instance, they will post a job for painting the inside of a house for $400 or something crazy and hire someone that responds to the ad to paint the interior of the house. They do this for all of the things that need to be done for the rehab.
THAT MUST BE VERY TIME CONSUMING.
I cringe just thinking about it. Especially because whenever I’ve tried to hire someone from craigslist, they were just junkies trying to get an advance on the job to get their smack.
Meeting that many different contractors at the job site and trying to figure out whether they will do the job correctly and on time must be very painful. How much could they really be saving? Are they actually getting references and looking at what other work they’ve done. I doubt it.
Of course, once you find some great subcontractors that consistently give you professional work at reasonable prices, your life becomes a lot easier.
Option 3:Hire a GC
You could also just go out and find a general contractor (GC) to manage the whole job for you. This is the option I prefer. When you don’t have much experience or knowledge of construction, you should start with this option.
A good GC is worth their weight in gold. When you find a good GC to handle your jobs, your life becomes so much easier. You are free to spend your time doing the things that generate the most return (finding deals, getting houses sold, etc.).
A good GC will be able to learn exactly what you expect and make sure that it happens consistently. You will no longer need to check on job sites every day or every other day. When I have a good GC, I check on the jobs about once a week.
A good GC will communicate with you when necessary. When someone comes up that needs your input, they won’t hesitate to get in touch with you and give you your options. I really don’t like when contractors do extra work and then tell me about it. Usually they don’t do what I would have wanted done. That’s a problem.
There are two types of GC’s. There are the ones that just manage their crews. They don’t do the work themselves. These are great but they are more expensive because they tack on their fee to the cost of the job. Some are pretty outrageous and some are reasonable and can easily be worth it.
I prefer the GC’s that work with their crew. They are always at the job site making sure the job is being done correctly and to your specifications. If a contractor is not always on the job site and he is not good at managing his crews, you could get shoddy work that takes longer than expected. They might then try to convince you that there are extras so that they can cover the added expense of the subs taking longer and wanting more pay. Basically, passing the buck on to you…
These tend to be the smaller operators. The guys with the big ads in the yellow pages usually aren’t these type of contractors. These guys are usually found by seeing their work truck driving down the highway with their company name and phone number on the side. You can also find some of them by driving through neighborhoods where lots of rehabs are taking place. Stop in and get a card from them. If the GC is on the job working, your will want to keep their card.
Conclusion – Extra Tips
Regardless of which option you choose to use, be sure to be as specific as possible with what work you want done. Make sure to have the finish materials specified as clearly as possible. You should have SKU’s for fixtures and other materials, paint color codes and sheen to use, etc.
In addition to that, make sure any hired contractors understand what you expect. You expect professional work, deadlines be met, the job site kept clean and secured, extras agreed to in writing before being done, and draws be made ONLY when the work has been done that warrants each draw.
So there are some of the options when it comes to having work done on a fix and flip.
Do you have another option? I’d love to hear about how you approach the fix up on a flip. Please share in the comments below.
Photo: Cindy Cornett Seigle