Even if you hire a general contractor, you will most likely need to do some project management in order to get your rehab jobs completed. Project management is half art and half science, and it’s vitally important to do the work as efficiently as possible. For one thing, every delay you have means one more day you will have to pay holding costs on the property and one less day you can collect rent if you are holding it.
If you have employees, it’s all the more important to get the work done quickly, as each day the employees work on the job site is another full day of salaries you have to pay. These add up very quickly. If you have a three-man crew working on a job at an average of $15/hour, that adds up to $360 a day. And it’s more like $500 when you include payroll, workman’s comp and other overhead.
The first thing to do in order to complete a good project is to not wait until you have closed the deal to put the scope of work together and schedule the project. You should have a general idea of what you want to do and what it will cost before you get a property under contract. But once you have it under contract, you should perform your due diligence to make sure you understand everything that needs to be done (at least as much as humanly possible). Then put together a detailed scope of work and decide who will be performing each of those tasks and in what sequence.
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.
The Scope of Work
Now, some general contractors will oversee the entire project. But many don’t do things such as HVAC, electrical, plumbing, etc. And if you are using subcontractors or employees, you will need to line up the work to be done not just for them, but also for each vendor doing something they can’t do. So after you’ve made a list of everything that needs to be done to the property, you need to figure out who you are going to have do that work. The steps are generally as follows:
- Turn the utilities on (may require repairs to plumbing, electrical or HVAC)
- Structural repair if necessary
- Plumbing, electrical, HVAC (some of this, like faucets and other plumbing fixtures, can be saved for later)
- General construction (interior and exterior)
- Appliances and other amenities
- Systems check and punch out
This is not necessarily set in stone. For example, the structural issues may be minor and only require a few braces or epoxy in the basement — in which case you can just put that in the general construction section. Or you may want to fix the electrical first if you can’t get any electricity to the house in order to do the foundation repair so you don’t have to rent a generator. Or perhaps the weather is really nice outside and your favorite HVAC vendor is booked for a week or so. There’s no reason to wait for him because your contractors or employees won’t freeze or boil while working at the property.
Furthermore, much of it can be done simultaneously. This is not a list that you go through step by step. You can have the HVAC installed at the same time that general construction starts. Or have the trees trimmed while the interior painting is being done. Or have gutters put on while the flooring is going in.
But what’s important is to come up with a plan of attack before the project starts and line up all the vendors you need ahead of time.
Unfortunately, a lot of vendors are flaky. If you are working with a vendor who is flaky and can’t be trusted to make a scheduled date, it’s time to look for a new vendor.
That being said, with contractors who are trying to time long projects, in my experience it is too much to ask to get an exact date of completion weeks before a project will be finished. Almost every contractor I have ever met consistently undershoots it. Things take longer than expected, and you will almost always run into problems you weren’t expecting at the beginning.
Still, you will want to schedule things as tight to each other as possible without causing chaos. If you can have vendors do work simultaneously, like in some of the above examples, do it. For things that can’t be done simultaneously, you want to schedule them as tightly as possible. So for example, schedule the paint to start shortly after the construction finishes and the flooring shortly after that.
Oftentimes vendors are booked out for a while. And if you are ordering appliances to be delivered, there is often a wait. So you need to be proactive and schedule these things ahead of time. Time is money, ladies and gentlemen.
I would highly recommend using some sort of spreadsheet or project management software to schedule everything and keep track of what has been done, what has been scheduled and what still needs to be scheduled. We have had properties completely finished, but one little thing and it ends up sitting for weeks costing us money all the while just because we forgot one small step during the construction phase.
After everything is done, we like to go out to the properties and perform what we call a systems check. Something always gets missed — by you on the scope or the contractor during construction. It’s basically inevitable.
So don’t just believe that everything was done; go out and verify it. I don’t mean just go through the list of items on the scope with the contractor before issuing final payment (although you should do that too), but actually check every system.
We have a long spreadsheet that we go through after the construction on each project is completed. We check every light bulb, every switch, every faucet, every door, etc. Are we missing a door stopper? Do we have an outlet with a hot neutral reverse? Probably somewhere. This is the part where we find all of those little things and make one final list of items. We then have a handyman or employee complete that list and schedule the property to be cleaned.
Of course, every project has its challenges and surprises. This is not an assembly line, and no two projects are alike. This is exactly why it’s so important to get ahead of things, plan out the project early on and be proactive and thorough throughout.
What advice would you give for effectively managing rehab projects?
Let’s talk in the comments section below!