November 4, 2009 by admin
Filed under Real Estate Investing
This is a popular scenario that I hear from real estate investors and one which I thought I would shed a little light on, with the intent on helping investors avoid problems in their next experience with a renovation involving contractors.
In these cases, the investor has the perfect contractor, or so they think. In starting this, let me define the “perfect contractor.” This is the individual that shows up on time and claims to finish the work that you line out for them with excellent quality, on time, and on budget. This is what every rehabber is looking for and frequently has a hard time finding.
Most of the time the contractor that you hire will be excellent at one or two of these qualities, but really struggles with other areas. Therein lays the universal problem. Don’t think that you are alone in the struggle for the quest for the perfect contractor that is excellent at all three of these things.
The issue with most contractors is not with their knowledge of construction, but it is an inherent lack of knowledge of business. Most contractors have a good core competency that is the foundation of their business, which is usually a trade of some kind. For example, they start off as a framer. They complete many framing jobs and complete them well. While they are on said framing jobs, they learn other trades, as well as make contacts with other trades people. Then they get the idea of becoming a general contractor that can stop swinging hammers, and start directing people to do so, and they start their own general contracting business. However, the problem here is that they don’t have the business or management training that it takes to build an entire job start to finish. That is where an excellent rehabber and investor comes to the rescue and steps in to make his/her project go the way it was lined out on paper, while still working with the general contractor that you hired.
Its important to note, that while this can be done in the midst of a project gone bad, it is much better to start the process right and lay the ground work up front, in order to set the tone for the relationship as well as the project. There are three things that are imperative to the success of a renovation project. I call it the triple “S” format for rehabbing success. Those S’s are Standards, Scope, and Schedule. This will most assuredly keep you from using too many four letter “S” words during your renovation project.
Standards
The very first thing to cover during your first meeting with a contractor is your standards. This covers everything from the quality of work, to the conduct of workers, and so on.
It is extremely important to establish a code of quality from the first meeting and continue that all through that project and all future projects.
The quality of work that you demand is obviously the number one thing to cover, and if this is done right, all of your other standards will be apparent. The easiest way to do this is to show them a project that you have just finished or that you are modeling after. Another very important standard is that of the workers conduct while completing the work. Punctuality is a must, as well as efficiency and attention to detail. In addition, you should cover personal conduct on the job, as the last thing you need is a potential buyer to stop by a job site and get turned off by something that was said or done on a job site that was less than desirable.
Scope
The scope of work is probably the one area where the most mistakes and miscommunications are made. A lot of rehabbers, some new and some seasoned, make the mistake of walking a project with their contractor and relying on the contractor to create the scope of work during that initial walk through. This is the number one cause of confusion throughout the course of the renovation. Leaving the scope to the contractor is leaving yourself open to incorrect work, missed work, and the ever so popular change order. Contractors love change orders and they are how many contractors make their money. They simply bid the job cheaply and then bombard a homeowner with change orders, which can easily double or triple the cost of a renovation. As you can tell, change order is not a phrase that you want to be familiar with if you want to be a successful rehabber, and real estate investor.
Schedule
The schedule is self explanatory. However simple it may seem, the schedule is another aspect that if overlooked can really hurt not only your budget, and overall profitability of a project, but the relationship with your contractor and more importantly your success as a real estate investor. Establishing a schedule is imperative to a successful project. However, setting the schedule is the easy step in the process. It is sticking to your established schedule that poses the biggest challenge to most investors. Not only is it important to set your schedule up front, but it is imperative that you set milestones and evaluate where progress lies throughout the project. The key is to set those milestones and meet with your contractor at said predetermined markers to ensure progress is where is should be and if not, to determine how to rectify what problems have caused the project delays. Setting these milestones and keeping lines of communication open with your contractor will ensure a successful rehab project and minimize a lot of stressful meetings when things are not going as planned.
Becoming and excellent rehabber does not happen overnight, but by utilizing the triple “S” system in your next project you will be well on your way. The triple “S” system for planning your next rehab will most assuredly make for a smooth project and a much less stressful experience for not only you but for your contractors as well. A less stressful renovation means everyone is making money which means everyone is happy. With everyone happy you can move smoothly on to the next project and more prosperity in your real estate investing career.
As always, feel free to contact me with questions or stories or your rehabbing experiences.
