Wanna Be a Successful Rehabber? Follow This Recipe …
From Craig Fuhr, The Fix & Flip Artiste …
I’m Italian, so there’s almost nothing more important to me than a massive pot of “Sunday Gravy,” or spaghetti with meat sauce as you non-Paisan’s call it. When its my turn to cook for the family, I know there’s a process. From getting out the right pots, to adding just the right amount of bread crumbs to the meatballs, to finding the very best ingredients, to gently turning (never stirring) the sauce as it slowly simmers. Its a time-tested recipe that I've been taught to follow.
And like my 92year-old Sicilian Nanna, I NEVER deviate from the plan.
Get this: it's the same with rehabbing houses. There is a rehab recipe that you must follow if you want to be a successful fix-n-flipper.
I’m shocked at the number of real estate rehabbers, and even more shocked by the number of contractors, who don’t know the absolute critical importance of what you’re about to learn. I could have saved so much time and money if I’d known this “rehab recipe” when I first started - so learn now from my mistakes. Folks have paid me thousands of dollars to learn this one skill, and there’s a lot of meat here, so I’m going to break it down for you into a few posts.
The "Rehabbing For Success" Formula...Steps 1 Through 3
You just walked out of settlement; your palms all sweaty from signing so many papers, your heart pounding a little faster because you've just spent more money in 45 minutes than you've spent in a lifetime. You’re justifiably nervous, but you have big dreams of starting immediately and getting the rehab done quickly so you can collect that fat payday. Well, where do you start? Here, my friends is your recipe for certain success:
STEP 1. Permits: You will need a building permit in almost every town in the country to do even the smallest amount of work on any house. I’m always asked, “Should I get permits?” The answer is; “YUP! Always!” Whether you plan to just do cosmetics including new kitchen cabinets or even just a small bath… all you need is one angry neighbor to drop a dime, and BAM… you’ve got a big red STOP WORK ORDER (SWO) plastered to your front door. That SWO usually comes with a pretty hefty fine too! Have your general contractor pull a building permit, and make sure your mechanical contractors pull their permits as well.
STEP 2. Demolition: On the day of closing, the first thing I do (just after getting the permit) is head to Home Depot. I make a bee-line to the spray-paint department. I pick up 2 or 3 cans of bright fluorescent orange spray paint, then as I’m driving back to the crappy house, I call my dumpster guy. I want to be sure the dumpster will be delivered either the day of the settlement or the morning after.
Then, with paint in hand, I have an old fashioned tagging party. Go through each room marking every unwanted item; floors, carpet, walls to be removed, cabinets, lighting fixtures, plumbing fixtures, and exterior items like shudders, doors, windows, and even tree limbs. Just mark everything you want demoed with the orange spray paint.
I don’t like to be in the house when demolition and dust is flying - so the spray painted items coupled with a quick walk-through with my demo guy before the hammers start swinging are more than enough description for his crew to do their job perfectly.
STEP 3. Framing: Before you pay your demo crew, make sure your framing contractor has had a chance to inspect the demo. Framing guys are not cheap, so the last thing you want is for them to have to remove walls that should have been removed by your lower-cost demo crew.
During that inspection, your prospective framing contractor should also be tasked with writing up a full material list including all wood, plywood, nails, etc. Take that list to your local building supply store and have them put together a material quote for you.
Rehab tip: You’ll save money if you buy the materials and have them shipped directly to the jobsite, rather than paying the contractor to do it for you.
Now that you have the material quote from your local Home Depot, Lowe's or Menards… you effectively have solved a VERY important piece of the negotiation puzzle. If you intend to get several bids for the work, ask each contractor to bid the entire job, including the materials. Then, when you receive all the quotes - ask each contractor to remove materials from his number. Tell him, you want him to quote labor only.
Now you've got 'em! The quotes you receive may vary wildly, but the negotiation is now MUCH easier because you already KNOW precisely what the materials cost.
When each contractor returns with his labor number, your negotiation will go just like this...
(The following is perhaps the most important part of this post… so take notes...)
You: “Thanks for quoting the job…let me ask you a few questions. First, how long do you think the job will take? How many days?”
Contractor: “We will be done in 3 days.”
You: “Wow, are you sure…just three days? I want you to be fast, but I really need to be sure if you say three days, you really mean three days.”
Contractor: “Yeah, it’s not that much work. Me and my helper can finish the job, for sure in 3 days.”
You: “Oh, so its you and a helper? Just the two of you?”
Contractor: “Yup….that’s all we need.”
You: “Well I want to give you the job and I see here that your quote is $2500. I’ve got lower bids from other guys, and I want to pay you what you are worth, but I have to ask, is $2500 your best price, because you don’t have to go to Home Depot, and you don’t have to buy materials….all you have to do is show up and everything will be here for you. $830 bucks a day seems like a lot of money, doesn't it? Are you sure that’s your best price? You said, Mr. Contractor that, “Its not that much work.”
>Contractor: "Well, $2500 might be a little high. I could come down a little."
You: "Look, I don’t want to tell you what to pay your guys, but I’m going to guess that you pay your helper $20 per hour. Is that right?”
Contractor: "Yeah…that’s pretty close."
You: “Well as I see it, that would be $160 bucks per day assuming you guys work 8 full hours. How about you, I bet you like to get paid $40 per hour.” (Most are lucky to get $25/hour.)
Contractor: "That’s right. Nothing less than $40 per hour!"
You: "Well, I tell ya what…I’ll pay you $45 per hour! That’s $360 per day."
You: “Ok, so let’s look at that quote again. You said, three days…for sure! I’ll pay you $1560 for the job. Get it done in three days, and I’ll be here with a check.”
Then shut up….and wait for your contractor to speak. 99 times out of 100 you will win the conversation!
I’m just getting’ started here. Stay tuned for my next post where I’ll go through more steps of the rehab recipe!
In the meantime, post a comment and let me know how I’m doing so far …