Mistakes I Made In Construction This Year

[Ryland Taniguchi]

A little bit my background. I run 3 hedge funds currently and have worked 3 years as a framer and finish carpenter. I have done more than 300 construction projects and development projects. I also studied for my certificate in Construction Management at the University Of Washington. Nevertheless, I made so many mistakes in construction this year that cost me over $400,0000.

1) Mistake #1. Don't be your own GC on rehabs. I have now been a GC four times over the last 16-years. What I learned is that the cost of risk management is the same as the cost of direct labor and materials . The risks of being a GC include aesbestos fines, lead based paint fines, OSHA safety compliance, safety training costs, employee issues and complaints, HR risks, labor and industries risks, worker injury, litigation costs, construct defect management costs, quality warranties, settlement fees, construction delay penalties, work redos, workers milking the clock, inadequate project management and inadequate construction management 

2) Mistake #2. Know construction contract law inside and out. In Washington state, the GC has no rights pretty much to go after subcontractors. The GC cannot lien a property without the proper disclosures in the contract. A subcontractor and any employee in my state can lien the property easily. Have a construction lawyer prepare all of your contracts.

3) Mistake #3. Don't get the wrong supervisor. Just because someone knows construction very well, does not make them a good construction supervisor. The mistakes is costly and compounds. You need a supervisor that knows how to motivate construction workers. They set the pace, use vacations as worker incentives, and use job location placements as incentives.

4) Mistake #4. Better to hire a GC and get solid construction contracts to keep them accountable. Better than being your own GC and subcontracting out the work. 

5) Mistake #5. In the long run, you cannot do rehabs cheaper than the market averages per square foot. You may do it cheaper in the short run but just like driving without auto insurance, it works until you get into a car crash. After the car crash, it will cost you more to try to do things cheaper.

6) Mistake #6. Don't hire your own labor force. Maybe it's my state but more workers opens the can of worms for more regulation.

7) Mistake #7. You build your construction crews in the winter. During the summer, it is impossible in a hot market to build a crew in a hot construction market.

8) Mistake #8. Don't be a GC for other investors. It is suicidal because they most investors get crappy deals and underestimate the construction costs by 50%. Then they will blame the GC.

[Ryland Taniguchi]

Originally posted by @Margo CLayton:

How far out are building permits in King County Washington? This was a big factor why we stayed out of King County. 

This is all so fascinating. Yet a little scary for me just trying to step back into the rehab market. The cost is way different and I need to get back up to speed before trying too step in. Does anyone have suggestions on reading material for someone that's been out of the industry for 15 years?

 Depends what area for permits.

Seattle and some Eastside STFI are super fast.

For urban townhomes, the 10-week review period for non SDR or full design review is back logged by 8 weeks. So it's taking 18 weeks now.

Tacoma has been horrible. Been taking 5-months for gut-out rehab permits. 

Anything in Non-Incorporated King takes ridiculously long so much so that I would never buy anything in Non-Incorporated King

My attorney says LNI (Labor and Industries) is targeting flippers this year. Not just GC with a lot of employees. I believe LNI increases costs here by 40% to 50%. So much for affordable housing.

Kind of adding to the point about whether you can beat the market rates. From my experience you can but at the expense of time to complete the project. With hard money costing 8% of ARV per six months, I would rather pay market and get it done faster. Also, time greatly factors into the velocity of money and IRR. All things considered, better to pay the market rate and get projects done fast. In Seattle at least, you can only pick two of speed, quality and affordability. Quality is a given. So it's either speed or affordability.