Ten Takeaways From 3,000 Renovations: Don't Be Fooled!

We started buying and renovating income producing buy and hold/wholesale properties as well as flips back in 2000. After doing over 3,000 doors as a team, there are so many things that need to be taken into consideration to ensure project success. Here are Ten Takeaways that I hope will make your success more sure, but I hope you will add to this list so that this post becomes highly authoritative and worth sharing!

• Covey said "Begin with the end in mind," you must know what the after repair comps are, and keep the equity position you want to maintain in mind from the beginning. Your rehab scope must fit the strategy, whether rent or flip, and it must fit what the buyers or tenants in the market are looking for. Plan to renovate better than your competitors to rent or sell faster! Finishing a property half way between flip and rent doesn't work, it has to be fully one direction or the other to be successful. Don't renovate to the standard you would live in if it's a rental, and if it's a flip, make sure you understand what the market demands in terms of amenities, colors and styles!
• Always hire licensed, bonded contractors who have liability insurance and workers comp. Handymen may be fine for patching a hole in a wall, but if someone is getting on a ladder, working with electricity, or doing roofing, workers comp is a must. It will cost a little more, but not having that coverage could bankrupt you or ruin you financially for a very long time. Get a copy of all of this before work begins.
• Get lots of references, before and after pictures, make sure that you get multiple quotes and scopes, especially when you are first starting out and are unfamiliar with pricing. Angie's List is a great way to get standardized pricing of what can be expected in your market, but they are often high if you are doing volume work. Asking the prodesk at Home Depot which general contractors order the most materials and do good work is a great hint. Rather than just trusting advertising or a friend of a friend, there is probably a good reason the top purchasers of materials from Home Depot or Lowes do so much business. Stay loyal to your contractors that do a great job, repeat business and volume are key to keeping your pricing low.
• Get a signed contract, in many states this is the only thing that holds up in court. Make sure that this contract requires dates for completion and for each draw. Each portion of the work scope should be broken down within the draws so that things are done in an orderly fashion, and you should only pay for work that is completed and has been verified in person by yourself or your trusted appointee (who should have construction experience and be independent of the contractor). If a portion of the work hasn't been completed, don't pay for that portion. You need to always have more work completed than you have paid out. If the contractor walks off the job, it's more expensive to bring someone in to finish off a job that is half way through and you need to be prepared to do that in worst case scenario. Make sure there is a daily penalty for each day the project goes over deadline.
• Any additions to the scope must be approved in writing, and any latent defects must be verified with before, during and after pictures. Receipts for work performed by other professionals should be provided before work is paid. Specify that latent defects are to be done at cost. Always make sure that the contractor knows in writing that they can not do additional work without written permission.
• Find out what the standard construction warranty for parts and labor is in your area, and try to get at least that. We recommend trying for a year, and six months should be a minimum.
• If you can get a contractor to complete the work and take payment upon completion that is great, but this may be more expensive. If you are dealing with out of state or construction from a far distance, consider using an attorney's escrow account, and hire an independent building inspector to inspect each draw before payment is made.
• Upon completion make sure that the general contractor and any other contractor or sub that works on the house signs a lien release waiver. This ensures that they can't later claim that they were not paid and lien your house, causing title problems that may prolong or prevent the sale of your property. Often you will have paid the general contractor but they may forget to pay the subs.
• Have written standards that detail what the completed product should look like. This should be very detailed and have before and after pictures. Use standardized materials so that your product is consistent.
• Make sure that all utilities are turned the day you close the property (provided electrical and plumbing are inspected and in good and safe order). Not having this done can really cost you time. Having a detailed construction plan well in advance will save a lot of time and money.