Rehabbing with CASH and Contractors

Okay, I will hopefully start my first rehab this month. I also plan on financing this rehab with one of my private lenders, so I will be cashing out 35k at closing. This is a cosmetic only rehab, so I only plan to spend at the most 15k on the rehab and just pocket the rest. But since I want ash much cash to stay in my pocket as possible (as we all do), I am looking for ways to save. What I was thinking is instead of letting the contractors shop for me and invoice me, I will go will them, and let them use their contractor discount, but I will just pay for it right then and there with my debit card. That way they can’t inflate my materials prices. Ohh, I also plan on getting the labor prices, and the time line in a contract so they can’t up on the labor, or take longer than agreed. I will also request that I have at least 25 workers on site WORKING at any given time, Monday-Saturday from 7am to 11pm (hopefully).

Off topic at little but this rehab is a 1500 sqft 4 bed ONE and a HALF bath, nice big kitchen, and a nice living room. I just want to quickly flip this but do ya’ll think I should add another bath?

Also, ya’ll know that onld paneling on the walls of old homes. Well, do ya’ll think they have sheetrock under them or not? Please tell me the best wat to deal with these types of walls.

The first way you can save is not to over-finance your property. Your simply going to pay it all back with interest in a couple months.

Shopping for materials with your contractors seems a little overkill to me. There are other ways to let them know that your not going to be taken advantage of. When you get quotes from your contractors let them know that it is only one of 10 your looking at. That will keep their prices true without holding hands.

How do houses in your area sell with 4 bedrooms/1.5 baths compared to a 4 bedroom/ 2.5 baths? If the difference is worth it then add the bath. I probably wouldn’t though.

Theres only one way to determine if theres sheetrock under wood paneling (X-ray vision) just paint over it you don’t like it.

I will also request that I have at least 25 workers on site WORKING at any given time, Monday-Saturday from 7am to 11pm (hopefully).

25 people all working in a 1,500 square foot house? Very unproductive!!! If you’re going to hire a contractor, then let him worry about the employees and you just keep track of the time line.

What I was thinking is instead of letting the contractors shop for me and invoice me, I will go will them, and let them use their contractor discount, but I will just pay for it right then and there with my debit card. That way they can't inflate my materials prices.

A reputable contractor is going to mark up the materials to cover his overhead. Someone must pay for the time the contractor is shopping, the delivery, shrinkage, etc. Trying to nickle and dime a contractor isn’t a good idea. A better solution is to get a bid for the work and make the contractor stick to it.

Good Luck,

Mike

Thanks for the advice ya’ll.

Mike I plan to require at least 25 people on site working at all times, because yeah I can just give a timeline in the contract, but a timeline is just that, time has to pass to see if it is being adhered to. On the other hand if I have a timeline and a minimum amount of workers on site, if I show up and I don’t have 25 workers working, well I can see sooner rather than later, that the contractor may not be the best, and if he/she won’t stick to one part of my contract what would make metthink they would stick to any other. On top of that I want my house 75% done by the end of the official week one (the official week one will start 2 or 3 days after close), and I want it ready for open house, by the end of week two. And I want to have a few people on each activity to get it done faster like lets say after demo, I ant about 8 people on the roof, 8 people sheetrocking, and 8 people doing floors, and my 1 general contractor. I want the floor and wall people to float around each other. Like 8am sheetrockers are in bedroom 1, they are done by 9, and the flooring people come in.

Sounds like this is your first rehab. Your gonna get this thing done in two weeks, hey? Watching to much TLC and Richard Davis. Listen man I wish you knock this thing out in two weeks. I really do. Reality tells me that there are always hiccups, delays, etc. It RARELY goes as you want it to go. That’s the nature of the beast. Going to the stores with your contractor is not cool. If you worried about them jacking up prices on materials tell them to bring you the reciept that day so you can pay them at the job site. My contractors do not increase their prices on materials cause I tell them that I will pay for them myself. Either I shop for them or pay them at the jobsite. I have a 12K rehab that I’m hoping to have done in a month using a grand total of 3 contractors and my sweat equity. Use your money smart, be good to the people who are working for you, and learn as much as possible.

Nate-WI

Dude…remember the contractor needs to make money in the deal…Lets see…25 contractors working at all times from 8AM to 11PM that would be 2 shifts and 50 guys a day…Humm…lets say they make $12hr avg thats $4800 a day in labor for 2 weeks (we give them sunday off) thats $57600 in labor the contractor needs to pay out… Oh wait…where does he get the money to pay his laborors…from the personhiring him…

Now a normal job…fix/replace sheetrock and painting will run you $5,000 range…carpet/tiling less than 2500-4000, update bathrooms can be done for $1000 or less, new kitchen applicanes ($1000) new cabinets w/installation $5000, some landscaping and roof work $5000 and repainting in/exterior $4000, puts the tab in the $25000 range… this is of course all estimates. not looking at the deal or know your area and prices… But for me, avg rehab in SoFl runs about $40K with me doing all that but placing a new tile roof on house, and usually stamping the driveway…

Be realistic on your rehab… get quotes from contracts. If anything, give them a bonus on work being done early…and a penalty if it gets delayed through fault of their own…

andrew

I agree with Andrew - you’ve been watching too much TV! There are a number of reasons that having 25 workers won’t work, here are a few:

  1. The vast majority of contractors don’t have 25 workers or anything close to that.
  2. 25 workers in a 1,500 sq ft house won’t work. The workers will be bumping into each others, tempers will flare, and you’ll have the most unproductive worksite in history (and guess who will pay for this unproductive work environment)
  3. The cost would be HUGH. As Andrew said, just the hourly wage would be $4,800 per day at $12 per hour. However, that does not include all the payroll taxes that the contractor has to pay (worker’s comp, social security, medicare, unemployment, etc). Also, this doesn’t include ANY profit for the contractor and no contractor is going to work for free.
  4. Having more workers doesn’t mean that more work gets done. Often, construction workers work in crews. A well trained crew of 2 could easily outperform a group of 10 slackers. Bodies do not equal work.

I’d suggest networking with other successful investors in your area (local REI Club). Get the names of a few reputable contractors. Get some bids and pick the one you like. Then, supervise the job but don’t micromanage it.

Good Luck,

Mike

LOL, ya’kll are so funny. Sometimes I don’t know how I graduated from high school when I was 15, LOL, I just had an uhhduhh moment.

So a quick run thorugh.

I will ask for the reciept anf pay at the job site, I never actually thought about that, thanks gordo.

But… I still want my house done in two weeks, the reason for that is I know suprises pop up out of no where, but I also know that it can be done. As a matter of fact the house next door to me (I have a coner house), has just gotten totally rehabbed, from Katrina, with flooding and all, (meaning everything had to be totally gutted, including the siding), and it has been just over two weeks. I walked through it yesterday, and it looks like all they have to do is put in the appliances, and finished the landscaping in the back yard. I want post the name of the company, but I spoke to him as well as the owner of te home yeasterday, to see if they would tell me how much thae job was, and this was the convo word for word

Contractor: “It was $20,000”.
Me: “For what”!
Contractor: “Everthing in the interior and exterior, except the cabinet work”.
Me: “Does that include the electrical, plumbing, and the roof”.
Contractor: “Yes”.
Me: “Now that was the cost for labor, so how about materials”?
Contractor and Homeowner: “Ha ha ha, chuckle chuckle”.
Contractor: “No ma’am, that was the cost for materials AND labor”.

I will say that at the most they had about 8 workers on this site per day, and they got it done rather quickly, but I still want a set amount of people so that can can see ASAP, that they are sticking to my contract.

And I never thought about the cost before, looks like I’m off to think, and do some more research.

For simple cosmetic rehab there is no reason why it can’t be done in 2 weeks. That may even be too much time. Plus you will need to get it done before the next hurricane destroys it.
As a rehabber, you should be paying wholesale prices on materials and labor. This is one of the few times that I would agree 25 people is too much. On an extensive rehab I would hire atleast that many- several on the roof, several doing siding, etc.

p.s.- Ya’ll is not a word

I paid for my tuition at OSU as a contractor.

The more people you have on site the less efficient the workers are and the more likely that the contractor is going to “pad” the labor costs…Your asking for trouble by specifying a number of workers on site…Hire a good contractor with years of experience and references and trust that they know how to manage the worksite.

Also, don’t pocket money at closing that you are paying interest on. It may “feel good” to have $35K in your pocket at closing, but this is a material benefit to the lender not you.

Ok, well let us know how this goes because I am very skeptical about any contractor that 1) has 25 ‘spare’ guys to work on a ‘cosmetic rehab’ and 2) will even entertain the idea of you dictating how many workers are on site.

I don’t know a single contractor (or any business for that matter) that allows you to dictate how they do their job. They make a bid (which includes the margin they need/want to make) and then you take it or leave it or amend it based on a scope of work.

Any contractor worth using either subs his work out or has enough business to have multiple sites going at one point. The ones that sub it out can’t dictate how many workers are on site at any given point (nor would they want to) and the ones that have their own crews wouldn’t bother with wasting time by paying workers to sit around when they could be on another site earning their money.

If you get a company to agree to these terms, I’d be very interested to hear about the project after it’s completed because you’ll be darn lucky to get a company that is at all competent.

You really have been watching too much of the ‘Trademark Properties’ show.

As for the $20,000 cost for the other house. Sounds like the homeowner got a great deal because even if it is a 1000 sq foot house that only $20 per sq foot for a complete gut. I sure wouldn’t expect those numbers if I were you.

Sheed, don’t come down here and say that. I guess more people would understand if I said you all, I guess. Actually YA’LL is a word, since it is in the dictionary, though we spell it differently down here, I think the dictionaries will catch up.

you-all (yôl) also y’all (yôl)
pron. Chiefly Southern U.S.

You. Used in addressing two or more people or referring to two or more people, one of whom is addressed.

Regional Note: The single most famous feature of Southern United States dialects is the pronoun y'all, sometimes heard in its variant you-all. You-all functions with perfect grammatical regularity as a second person plural pronoun, taking its own possessive you-all's (or less frequently, your-all's, where both parts of the word are inflected for possession): You-all's voices sound alike. Southerners do not, as is sometimes believed, use you-all or y'all for both singular and plural you. A single person may only be addressed as you-all if the speaker implies in the reference other persons not present: Did you-all [you and others] have dinner yet? You and you-all preserve the singular/plural distinction that English used to have in thou and ye, the subject forms of singular and plural you, respectively (thee and you were the singular and plural object forms). The distinction between singular thou/thee and plural ye/you began to blur as early as the 13th century, when the plural form was often used for the singular in formal contexts or to indicate politeness, much as the French use tu for singular and familiar “you,” and vous for both plural and polite singular “you.” In English, the object form you gradually came to be used in subject position as well, so that the four forms thou, thee, ye, and you collapsed into one form, you. Thou and thee were quite rare in educated speech in the 16th century, and they disappeared completely from standard English in the 18th. However, the distinction between singular and plural you is just as useful as that between other singular and plural pronoun forms, such as I and we. In addition to y'all, other forms for plural you include you-uns, youse, and you guys or youse guys. Youse is common in vernacular varieties in the Northeast, particularly in large cities such as New York and Boston, and is also common in Irish English. You-uns is found in western Pennsylvania and in the Appalachians and probably reflects the Scotch-Irish roots of many European settlers to these regions. You guys and youse guys appear to be newer innovations than the other dialectal forms of plural you. See note at you-uns.

Anyway, I haven’t made my final decision yet, but I’ll let ya’ll know what it is when I reach it.

Lol. I was just messing with you.

Except it’s still not a word in the english language. However it may be a word in the unique and exotic language of the South. It’s right up there with “ain’t”.

DFW,

I’m not sure whether imbeautiful has been watching too much TV or maybe not enough. I had a bad virus over the weekend and was forced to lay around watching TV (I hated it). Last night I saw an episode that had that Trademark Properties you were talking about. They did exactly what imbeautiful is trying to do and ended up turning a $10,000 cosmetic rehab into a $40,000 debacle. Great way to lose $30,000 in profit in 5 days!!!

I can’t understand what the hurry is. Would it be better to take two or three weeks and have the job come in at budget, or is it better to do the job in 5 days and lose $30,000 of their profit. Ridiculous if you ask me!

Mike

It can be very cost effective to have a couple dozen people on the job site at once. I do it all the time. However it’s absolutely essential to keep an experienced manager on site to keep it from turning into a playground. A manager can always find work for people to do and if they are done the job they are excused. Orchestrated madness gets jobs done quick, reduces holding costs and promotes a lot of activity that converts to sales activity.
The exception is quick and easy cosmetic rehabs.

Actually I saw that episode (it’s a really old one), that one was little brothers fault not researching the contractor. Trademark usually takes back a nice profit on quick flips. I don’t think I have ever seen one take longer than 3 weeks also I could be mistaken.

<<p.s.- Ya’ll is not a word>>

It apparently is in Louisiana…and it comes in three variations:

(1) “Y’all” —> You

(2) “Boaf y’all” —> the two of you

(3) “All y’all” —> three or more

Keith

Well, several points for WHY Trademark does it they way they do.

Trademark buys properties at Auction. They put down 10% of the final sales price with the remaining balance due in a set amount of time. The reason that Trademark puts so many people on the construction site is due in large part to the fact that if the job is not completed within the very limited time they have then they have to come up with the remaining 90% of the money OR LOSE THE HOUSE. So they get the benefits of leverage (only 10% down) without the drawback (closing costs, points, fees from the closing, delays how long it takes to actually close, etc).

Now also consider that Trademark acts as the General Contractor AND the Realtor on the deals and you’ll see that they are able to inflate their construction costs (by having so many workers on site working rediculous hours) because they 1) buy the property at auction for substantially less than market value 2) decrease their holding costs by not borrowing any of the money to / not paying inflated closing costs on the acquisition of the property 3) they save money by not paying a GC the industry standard of 20% markup (they act as the GC on the majority of their deals) and 4) they do not pay 6% to a listing agent as they act as their own agents. These ‘econonomies of scale’ benefits that they enjoy allow them to grossly inflate their construction labor costs and still generate more profit than the average investor.

Trademark has a good business model for how THEY DO BUSINESS. But it’s not a model you can imitate without implementing the entire model. The effeciencies from their model are tied to the magnitude of their staff.

In the business world it’s known as VERTICAL INTEGRATION as opposed to Horizontal Integration.

If you want me to expound on this concept I can, but suffice to say that it’s an effective way to do business, but requires a pretty fair amount of captial to implement directly.

DFW,
I’m guessing you majored in economics.

Finance actually. Economics is an interest of mine and I have some experience with it but its primary usefulness is in understanding the world on a macro level. Finance allows you to understand business and personal issues on an individual or micro level. Both are of use in REI.