My parents are Italian and German. That makes me 1/2 Italian…the good 1/2, that is. What the hell does this have to do with rehabbing houses? Stick with me, I’m painting a picture here.
Any self-respecting Italian will tell you there’s almost nothing so great as a massive simmering pot of homemade, “Sunday Gravy,” or spaghetti sauce, as you non-Paisan’s call it.
When it’s my turn to cook for the family (and trust me, I can throw down in the kitchen), I know there is a very specific recipe or process that I must follow if I want the sauce to turn-out like PopPop’s, and, if I want the the meatballs (as big as your friggin’ head) to be, “melt-in-your-mouth” tender, like my 94 year old Nana’s. Click on the recipe image to print or download the recipe.
To get the gravy just right, I know I have to start with quality ingredients including, Roma Sausage, and quality meats. I know I have to get the highest quality onions, tomatoes, and cheeses – and the pot I use must be super-heavy, so the sauce doesn’t stick.
It’s a strict process. But, it’s so worth it. Especially when you taste that first bite, and are immediately reminded of your childhood. When I see the smiles on the faces of my family, and the pride on my Mom’s face because she knows that the family recipes are safe, at least for another generation – it’s all worth it.
I had the best Mentors. PopPop and Nana took great care to make sure I learned the exact process, just as their parents taught them – and, God willing, this is how I will teach my kids as well.
AGAIN. WHAT DOES THIS HAVE TO DO WITH REHABBING HOUSES?
I wish I would have learned years ago what I’m about to give you for free. If you’re aspiring to be a FLIPPIN’ Genius, rehabbing houses like a pro, I cannot tell you just how important the following information is. It’s so important, that I’m going to break the info up into a series of posts.
Just as there is a strict process for making really delicious Sunday Gravy, there’s a strict process for rehabbing houses. Go out of order – and you’ve got a mess. Miss a step – and you’ve got a mess! If I ruin the gravy, I just drink another glass of wine and order a pizza. My total loss… maybe 100-bucks. If however, I ruin a rehab, I drink a bottle of vodka because my total loss could be tens of thousands, or even worse!
THE REHABBING HOUSES ROADMAP FOR SUCCESS.
It doesn’t matter if you’re rehabbing a bathroom or if you’re doing a full-gut on an entire house. You must follow the recipe. I call this the Rehabbing Houses Roadmap for Success!
After years of getting run-over by contractors, and feeling like every deal was like starting over from scratch, I knew I had to develop a replicable system and process if i wanted to go full-time as a real estate investor and if I wanted to make serious money.
So picture yourself…You just walked out of settlement; your heart is pounding and your palms a little sweaty – because you’ve just spent more money in 45 minutes than you’ve spent in a lifetime, all on a house that needs a ton of work. You’ve got a lot on the line – so it’s cool to be nervous for minute, but then, you’ve got to focus on getting to the finish line. But – where do you start? Here, my friends, is your Rehabbing Recipe, a rehabbing roadmap if you will, for sure and certain real estate investing success:
I don’t care where you live. In almost every town in these great United States, you will need a building permit for almost all work that requires anything more than a hammer. I’ve spoken in front of thousands of investors, and I’m often asked, “Should I get permits?” The answer is an emphatic, “YES! Always!” You’ve probably heard that getting permits is a pain in the posterior. Not true. Once they get past the line of others waiting for their permits, any contractor should be able to get your building permit in minutes. Remember, you’ll need permits for the building, electric, and HVAC/plumbing. Your general contractor can obtain the building permit. The mechanical subs are responsible for getting their permits.
Maybe you’re saying – “The hell with that, Craig! I’m gonna do my thing without permits.”
It only takes one angry neighbor to drop a dime on you. One neighbor who wanted that house – and who knows you stole it for an insanely low price. One neighbor who doesn’t like the color you chose for the new siding. One neighbor who is pissed by the trucks in front of his house or all the noise. That’s all it takes to get a BIG RED Stop Work Order plastered to your front door. The cost in Maryland for removing the stop work order is: [GULP]…$1500.00!!! The cost of getting the permits? A few hundred bucks and a few extra days added to your scope of work for inspections along the way.
A few days prior to closing, I make a quick trip to Home Depot. Once there, I make a beeline to the spray-paint department for a few cans of fluorescent orange spray paint. Then, on the day of closing, just after signing the papers, I go straight to the house for an old-fashioned “tagging party!”
Rehabbing Houses Quick Tip: Every day counts when the clock is running on your rehab. That’s why I make sure everything is lined-up to start immediately upon settlement. You’ll generate A LOT of trash during the demo and the rehab. To that, be sure to call your dumpster guy the day before closing so that a dumpster is waiting at the house on the day of closing.
Go through each room marking every unwanted item with spray paint. I paint an “X” or line on everything including, “lighting and plumbing fixtures, carpet, tile, cabinets and vanities, walls to be removed. I also mark exterior items like; shudders, doors, windows, and even tree limbs. Just mark everything you want demoed with the orange spray paint. If you want to see an example of how to “set-up” the demo process, watch Myrick’s $58,000 Profit Flip .
Your demo crew should be able to easily see what stays and what goes. Try to be strategic and surgical about what you demo. Many contractors will tell you that it’s easier just to gut the house back to the studs – but it’s not their money! Be surgical and smart!
Finally – don’t pay the demo crew until the job is 100% done. Before you start the next step; FRAMING, make sure your framing contractor has had a chance to inspect the demo. Framing carpenters are not cheap, so it’s very expensive if they have to remove a wall that the Demo contractor missed. Finally, all trash and debris should be in the dumpster and the house should be swept and vacuumed. Every contractor should be responsible for leaving the place clean for the next guy.
During the demo inspection, tell your prospective framing contractor that you’ll need a full material list including all wood, plywood, nails, etc. You can control your costs if you take that list to a few building supply stores for quotes. You can also control your contractors a bit better when you supply the materials. This of course puts more work on you, but it will be much easier to negotiate with the contractors because you’ll only be negotiating labor.
Rehabbing Houses Quick Tip: Generally speaking, Home Depot will be the most competitive when you factor in the Pro discounts you’ll receive. Home Depot and Lowes work with local real estate investment clubs to offer incentives for investors. A yearly membership in your local REIA may get you quarterly rebates on all dollars you spend at Home Depot. Further, you should get to know the manager of the Pro-Desk at Home Depot. They’ll explain how the “Bid Room,” works and how you can save a TON of money on most of your orders.
Now that you have the material quote from your local supply store…you’ve solved 1/2 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.
WINNING – NEGOTIATING WITH CONTRACTORS
This is quite possibly the most important tip of this entire post. It was so important that I decided to shoot a quick video to show you how to ALWAYS WIN when dealing with ANY contractor. This one tip has saved me tens of thousands of dollars!
Once you’ve arrived at a labor price with the framing contractor, you’ll have to decide if you want to have Home Depot drop ship the materials to the job, or if you want the contractor to pick them up. Here’s what you’ll need to consider. The last time I checked, Home Depot charges $75.00 for delivery, but they only deliver to the front sidewalk or driveway. They will not bring the materials in the house (drywall or appliances are the only exceptions). That means you’ll need someone to be at the house when the truck arrives. This is where you may want to just tell your contractor that you’ll pay him an extra $100-or so, to meet the delivery driver to insure the materials are taken inside, rather than stolen!
A crew of three framers can knock-out even the largest framing jobs in less than a week. That’s why I don’t pay them until the work is complete AND inspected. Keep in mind that your HVAC and plumbing contractors will usually make a mess of the framing – and in many cases your framing guy will need to return once those subs leave. That’s why you’ll want to hold-back 10-15% of the total money owed to insure that the framing guy will return.
Who should inspect your framing? How do you know it’s a good job? First, if you were a good little real estate investor and you obtained a permit for the job, your county inspector will have to give you his stamp of approval before you move to the next steps. But, I like to go one step further by inviting my drywall guy out to take a look too! More, on that in the next installment! Stay tuned!
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