4 Painful (But Invaluable) Lessons Learned From a Rehab Gone Wrong

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This year has been full of amazing surprises, challenges, joys, and yes, frustrations too. This week was no different. We had the sale of two new turnkey properties. We’re starting another four to five rehab projects. And we hosted clients from Australia, Los Angeles, and New York.

Turnkey properties are not about just barely rehabbing and leaving the rest of 1972 in the house. I mean, some people are into that. But not me.

To me, the turnkey property is about leaving it in the best possible shape for both the tenant and for the owner. The goal is to minimize capital expenditures, find the best materials that will last the longest, and tenant-proof the heck out of everything.

As I sit here writing today, our team is in the process of dozens of rehab projects and preparing for dozens more over the coming month. That kind of volume brings incredible growth for us as a company. There is a need for the staff to help work through the process for those properties and for depth and ruthless implementation of systems. There is the opportunity to miss or fail within a process or a project. This week, we missed the mark.

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Understand Your Process (and Where it Went Wrong)

It was in the form of a pretty gnarly inspection report back on a property for a first-time client. She wasn’t pleased (understatement of the year), the inspector’s language did not help, and we were in a bad position to explain how we screwed up doing what we say we do a really great job at. #notawesome

One of the things we do really well as a company is define the type of renovation that will happen, plan the scope of work, share it with the client, and have a clear picture of what is happening with the rehab. We then communicate that with the client. We want to have a product that we are proud of, that the client is happy with, and that a tenant wants to move into. Usually, we hit that high bar we set for ourselves.

Related: This Lesson From My Mastermind Group Completely Changed My Real Estate Business

In this particular case, however, we had the scope of work together, but we didn’t execute the plan. Not sticking with our core goal of having this house awesome BEFORE the inspector was in it left us in a bad position. We had to deal with the client and solve a problem that could have been dealt with prior to the report. It left us with many subsequent unpleasant conversations.

wholesaling-mistake

Don’t Rush

Missing the mark sucks, especially when it’s your fault.

When I jumped on a call with our executive team to discuss, we realized quickly that we had set ourselves up to fail on this one. Our timelines were too aggressive. We hadn’t done our usual double and triple checks on site, as we were trying to make the deadline we had set for closing.

It was a stupid idea.

In this case, we went back over the project as a team and reviewed our process. We looked at the timelines and realized they were unrealistic. We needed to build in a little more time and a better process for internal review on every project before we had the inspector and appraiser in the property.

Make It Right

We have gotten a lot of business from clients who have come over from other turnkey providers. Our defining factors as a company have been our extremely high level of customer service, our ability to deliver an exceptionally good product, and own awesome in-house property management.

That’s all great until something isn’t awesome and you are in a position make it right.

It was important to me that we didn’t spend time as a team or individuals blaming anyone or anything. Our problem and our solution were very clear to all of us. There were issues, and they would need to be addressed effectively and timely. Everything would be repaired or fixed per the inspection report. No arguing about it. There was to be no asking for the client to help with this cost or that.

We took the report, we owned our mistakes, and we went quickly into action to solve the problem and fix it.

Learn From Your Mistakes

Sometimes learning is fun. Sometimes learning is hard. Sometimes learning is painful.

In this case, it was definitely of the latter variety. But that’s OK. Out of this experience, we made some immediate but calculated changes. We will market our properties later in the process after acquisition and well into the renovation. This will shorten the overall selling period for the clients. Also, we will have a better understanding of when the project will actually be finished, and we won’t feel rushed to get to the finish line.

We will also start sending our inspector out after the rehab is complete for an internal check first to clear issues prior to the client’s inspection and appraisal. By doing this, we hope to virtually eliminate any possibility for this unpleasant experience (for us or the client) to happen again.

invest-with-purpose

Why This Story is Worth Telling

I wanted to share this story for a few reasons. First, we aren’t perfect. It’s painful to imagine not being 100 percent awesome and perfect all the time. And this moment was no exception. But I wanted to make sure we are clear — things happen in EVERY rehab project that are unexpected. You should expect the unexpected.

Related: 10 Invaluable Lessons I Learned From My Very First Tenant Eviction

That’s why instead of making excuses for things, I encourage you to name them, own them, solve them, and then find bigger, badder, and harder problems. It’s my goal on every house from here on out to not have more than a few inspection items we have to fix.

Will that be true? I’m sure some properties will have more, and some will have less. But we have now had an opportunity to learn and grow. We were able to show our client that we are committed to having the most awesome properties. We took the opportunity to give them the best experience we could from the moment we realized our mistakes.

Always, always do the right thing. In the end, you have nothing but your reputation — and in this case, an awesome turnkey house that needed more than a little help to get to the finish line.

When’s the last time you made avoidable mistakes in your investing business? What did you learn, and how did you make it right?

I want to hear your stories! Be sure to leave a comment below.

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

6 Comments

  1. margaret smith on

    So Nathan, just curious…. What was it that took you by surprise? I was a rehabber- now just lend money to others in the biz- but certainly had some inspections from retail buyers who found small items that could have been a sign of larger items (ex, slight leaking of bathtub pipes under the flooring) , or that had the potential to cause problems in the future ( ex, small opening from under eaves into roof that could invite rodents). It is one thing to have an “As Is” contract to sell to a retail buyer, and insist you are not going to be re-visiting the property with your repairman, but… in the end, small things can and do prevent a wary buyer from going forward with a transaction, leaving you to start the sales process all over again!

    Great article!

  2. Nathan Brooks

    Margaret … thanks for the thoughts and great questions. I think a few things caught us. We rushed to get the clients inspector in, after having delays with bad weather keeping us from working on the outside. We have 22 active rehab projects, so making sure we were managing the system and timelines as well. I think just making sure the process is tight with that level of operation has been a growing pain for sure.

    Best part, is client is awesome, we are still working through it, and we still have a great house to sell. Even the inspector said overall it was a great house. We just have to learn from our mistakes, own them, fix them, and do better next time!

    Thanks Margaret!

  3. David Roberts

    I just had 2 experiences on the same flip that i lesrned from. I vetted out the first contractor i used on this. My new neighbor at my primary home in newer construction had been using him for a honey do list of things, but had also had him remodel a kitchen, floors, trim, paint work at her rental. I went over and personally looked at the work and found it acceptable. And, he was really reasonably priced. So far not really any red flags. I saw his work, he was good enough to do work for my neighbor in a 10 yr old home, and came recommended. So, the first warning sign was about a week into the rehab. As i was leaving the rehab just checking in, he asked me if i had 20 bucks for his lunch and that i could take it off the amount i owed him. Red flag 1. That happened a couple more times over the next couple weeks but i was concerned about him being that close to the edge of catastrophe that what happens if he cant get to my job because his car breaks down or something?

    So about 3 weeks in he asked me for an advance on his money of about 260 bucks to get a few tools. I was gonna owe him anyway so why not right? Red flag 4. It was about 7 weeks of 8 into the rehab and he tells me hes gonna need 2.5 more weeks. I was upset about it but at that point what could i do? Oh and i had been paying him a little here and there including a couple 1k payments for his rehab work, and actually after i had fired him found i paid him 20 bucks short of the entire amount! But the next day after he said he would more time, his transmission went out in his car, and 2 days agtrr he told me that, his cell phone got shut off. I lost 2 more weeks waiting on him into i finally gave up and fired him.
    Dont get ahead in payments with a contractor because you are trying to be nice assuming he will finish. It cost me 2500 more in labor to finish his job, which is nothing to some disasters but its still 2500 in profit that is now an education.

    The second set of guys i hired seemed highly motivated but they were crybabies. I asked them to finish the kitchen and bathroom, drywall in the upstairs, and whatever went with it, but the day we walked thru there was alot of chaos and i didn’t take my time going thru with the new guys. But half way into their job they wanted a payment. I went over to discuss and they wanted to charge for all these little things nearly double, when i felt they should have been part of finishing the kitchen. Anyway they started walking off the job. I calmed them down and we negotiated on the additional stuff. I didnt want to pay more but if they had left i would have had to find another guy and would have taken even longer. I was supposed to meet them on the final day. Thet assured me thet would be done the night before. So i you my checkbook over. When i got there theywere rushing and not done. I paid them trusting they would do everything. Next day i came back and the house was dirty, railings were not hung, paint wasnt touched up (things thet said they would do the next morning)..so guess who eas doing the work i just paid triple for? Me.

    1. Dont pay off contractors until u are 100% happy.
    2. Dont use the cheapest contractor thinking it won’t happen to you. That’s what i did. If i was a good person and did things right i wouldn’t get screwed over. Lol
    3. A 60 year old home won’t be flawless no matter how much money you spend on it. Accept you cant fix every detail.

  4. Chanté Owens

    “That’s why instead of making excuses for things, I encourage you to name them, own them, solve them…
    Always, always do the right thing. In the end, you have nothing but your reputation…”

    Great post, and while I’m sure it’s been torture for you having to “eat crow,” so to speak (especially since you pride yourself on customer service, etc); it’s only when things get tough that you find out what you are TRULY made of, and so do those who work with you. If you communicate and make it right (even if you have to lose a bit of $$ and eat a bit of crow), you’ll maintain your reputation, and throw that in your invaluable pool of lessons learned.

  5. Matt McCourry

    Nathan great article! I am looking expand more into flips/residential redevelopment here in the Myrtle Beach market, although much smaller I believe implementing a few key strategies could really help our small company dominate. Always enjoy hearing about lessons learned!

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