Choosing your contractors & estimating rehab costs

[Will Barnard]

A very common question around BP Nation is how to choose contractors and where to find them. Moreover, so many newbie investors ask how to estimate the costs to repair the property to bring it to the highest market value possible. So I would like to start a discussion here to address these issues and do so by asking the you all these questions based on the following criteria:

Criteria #1. You are a newbie (never flipped a single property before), your feet are wet and you have flipped 1-2 properties, you are a novice flipper and have flipped 3 or more.

Criteria #2. You have a job and can not be at the flip too often (especially during the normal construction hours), or you can be at the flip as often as needed.

Criteria #3. You act as the owner builder and hire each individual sub contractor or you hire a general contractor.

Based on the criteria above, how did you experienced flippers select your contractors and estimate repair costs vs how do you newbie and novice investors propose to do so?

Let the games begin . . . . 

[Will Barnard]

I was hoping for more responses prior to chiming in myself but perhaps the timing of my post right before the holidays was not very good so here it goes.

When I first started out doing rehabs, I acted as my own general contractor (GC) as the owner/builder and did some work myself and hired each individual sub contractor for most of the other work. I did the demo and hired a contractor to do framing, stucco, and drywall. I hired a painter, I hired a tile and carpet installer, and I hired an electrician and plumber. I also did the landscaping myself as well as some finish work like installing closet mirror doors, etc. This proved to be a valuable learning lesson as I eventually learned the proper order of things, how much time each service should take and how much it is worth (how much it should cost). I also learned the cost of materials by constantly shopping at Home Depot/Lowes. That all said, I made some misetakes but only minor ones during my first few flips. An important factor I need to mention here is that I was already a full time real estate investor (I did not have a 9-5 job to go to) so I was able to work the jobsite every single day and be there all day. Had I had a day job, there is no way I could have pulled this off and for those thinking that they can come to the jobsite after hours and work weekends to do their own project, you are sadly mistaken. Time is your enemy and you need 5-6 days of full 8 hours work per day with crews to get it done as fast as possible to make money. Every day that is wasted is less money you will make at the end.

Today, I have over a decade of real estate investor experience including 8+ years of rehab projects. Over this time, I have built my own crews and have each and every subcontractor, laborer, jobsite foreman, etc to complete a job from start to finish. This provides me the ability to be a full general contractor and investor at the same time. I have also developed special pricing on materials and labor I job out at discounted pricing to get things done cheaper than most. This can only be accomplished by others over time as you build these teams and connections.

One thing I learned early on is that your average general contractor is NOT an investor, is NOT a designer, and MUST be watched like a hawk. They typically over promise (promise to complete in x time but almost never do), they are inadequate for relying on certain items getting done right or selecting finish materials, and they typically charge a pretty hefty fee for their services.

So, how does one newbie investor who has a regular job pull off a rehab flip project? Simple, you must hire a general contractor with extensive experience and you can be sure you will pay for it. You also need to hire a project manager experienced in investor renovation flips and they need to pay close attention to not just managing the contractor but in selecting finish materials, paint colors, tile selections, landscape design, etc and keeping costs down as best as possible. These two services will cost you as the flipper money and thus, your bottom line at the end of the day will be less, however, if done correctly and you hire the right team members, at least you will be profitable which is the ultimate goal and doing so all the while holding down a regular job.

Now, lets say you are new but you don't have a 9-5 job to be at every day and can spend at least 4 hours a day on your project. Then for your first job, I still suggest you hire a GC but act as your own project manager shopping at HD/Lowes, picking out colors and tiles, and keeping a close on on your GC and his crew. This will afford you more profit at the end (assuming you do not make any big mistakes as the project manager (PM) and provide you a valuable in the filed education on contracting and project management skills.

Lastly, for those rehabbers who are more seasoned and have experience, you can go two ways. You can sub out all the work and act as owner builder/GC or you can hire a GC. The first option affords you more profit but takes up your time. The second option allows the investor more time to find more deals and do more deals at once. In this current highly competitive market where spreads are already tight, one must do more quantity typically to make the money you may have been making several years ago when things were not as tight as they are now.

In closing, the selection of the GC and the PM is of the greatest importance, even more so than getting a good deal at acquisition because these two team members can make or break your deal. It is very important to interview each candidate, ask some very important questions, view some ongoing or previous jobsites they have, and get references (those provided and those you can find not provided). The interview questions should include their years of experience, their qualifications, training, licensing, track records and more. Lastly, one item often overlooked by newbie investors is the design aspect of a flip. This can often lead to lower exit values, longer marketing timelines, and lower profits. Design is not just choosing paint colors, cabinetry selections, and light fixtures, it also includes ones ability to correct a layout or flow of the interior, perhaps opening up walls, moving walls or adding walls to create the best space possible thus increasing the exit value and your bottom line, Contractors are not designers and designers are not investors. With that in mind, you must either be one yourself or hire one. This can be the difference in making a small profit or a hefty one, an easy sell at exit or a difficult one.