What nobody tells you about renovating investment properties
I’d spent almost $60,000 dollars renovating a house and we weren’t even done yet.
Today I'm sharing 13 things I've learned about the house flipping business that you've got to look out for.
#1: Don’t underestimate trash removal costs after your rehab
The first thing on our list is, you don't want to forget about the trash.
We did a crazy amount of demolition in this house, and I seriously underestimated how many of these giant dumpsters we were gonna need.
This dumpster is a 20 yarder and it cost me $345 for a week.
We've gone through probably four or five of these already.
So you do the math.
Tip number one: don't underestimate your dumpster bill!
#2: Estimating your rehab labor and material costs
The next thing you want to look out for is being very clear about your labor estimates and your material estimates.
So my drywall guys are actually finishing up today with a drywall job.
My drywaller gives me an estimate for labor and I pay that directly to him.
But then he also works up an invoice at the local drywall supply of all the materials he's going to need.
He gives that to me as well, so I've got the labor charge that goes directly to him and then I pay for the materials directly from the drywall supply.
People do it differently. That's the way I have it set up, but you want to make sure that it's clear.
You never want to get a labor-only charge and think that includes materials because it's going to blow your budget when you have to pay for all of the materials.
Next, I'll tell you a few things we learned from doing a recent rehab.
#3: How to estimate your rehab budget
Next up on the list and probably the rehab question I get the most is not understanding how to correctly estimate different parts of your rehab budget.
Typically with any project, I split my contractors up into specialists and installers.
Specialists usually charge by the unit.
So my tile guy, he's a specialist and he charges per square foot.
My carpenter who does all of my trim work, he's a specialist and he charges per linear foot.
Then I also have an installer, and she charges by the day.
So she's going to come in and install the cabinets, the countertops, the shelves, and the appliances.
Regardless of which type of contractor you have, understanding how they charge is going to help you better estimate your rehab cost.
For example, let's say that I have 300 square feet here and my tile guy charges me $1.50 for the labor to do the install.
When I multiply those two together, that tells me that this is going to be a $450 labor charge.
And my box of tile says that it covers 12 square feet.
So if I need 300 square feet, and each box covers twelve, I'm going to need about 25 boxes.
Let's say the boxes are $5 each.
Then I'm going to spend $125 dollars in terms of the actual tile.
This is how you can get a very rough but pretty accurate rehab estimate as you go through line by line.
How much tile do I think I'm going to need?
How much does my tile guy charge per square foot?
Put them together, and I've got a rough estimate.
This is also going to help you identify the contractors you don't want to work with, because they're charging you some exorbitant amount.
If you get three quotes and two of them are charging a dollar fifty or a dollar sixty per square foot, and the other guy is charging you $3.50 per square foot, you’ve got to ask yourself two things.
Is he just trying to rip me off maybe, or is he just so amazing at doing tile work that his tile job is going to be so much better than the $1.50 guys?
You have to answer that question for yourself, but at least you know to ask it!
#4: How to set up your contractor payments
So next up on our list is something that I made a mistake with on this latest project, and that's setting up your payments.
So typically I do 50% of labor up front and I provide the materials, and then 50% of labor when the project is done.
But what I'm changing to doing is paying 45% of labor up front, 45% of labor once they say they're done, and then I will come and pay the final 10% after I do a final punch list.
The reason is because there's little things like when the tile guy got grout onto the outlet, and that needs to be cleaned up.
So when I did the 50% up front and then he told me he was done, he would get the last 50%.
I wouldn't hold back that last 50% for that, but if I was doing 45%, 45%, and then 10%, I would hold back the last 10% for something like this.
I've got the same issue with touch-ups for my painters.
One time, the painters painted but they left a little room around the outlet box, which is typical because usually the plate's going to cover it.
But there's a gap between where the plate covers and where the paint is.
And so this plate needs to be taken off by the painter and they need to come back and touch it up.
Now I have a really good relationship with my contractors, and so everyone will come back even though they've already been fully paid.
And they’ll go ahead and fix these things up, mainly because they want to continue working with me and be able to get the next job.
But in the future, having just that little ten percent for the final punch list is gonna give me assurance that they'll come back and get it done.
And it's gonna let them know that the little things like this mean that the project is not done yet.
#5: How to handle drastically different contractor quotes
So I have a guy who quoted me a job for $1275, I've got a quote for $845, and I've got a quote for $3992.
This is an interesting situation because these are all guys that only do wood flooring.
Sometimes when you have a drastic difference in quotes, it's because you're working with a general guy versus a specialist.
For drywall, I can get somebody cheap that won't do a great job or get Chewy, who only does drywall all day, every day.
He's going to be much more expensive, but it's because he's a specialist.
He's going to do a great job.
These three guys, they're all wood floor refinishers. That's all they do.
So why are their quotes so different?
This includes a third coat of finish but that third quote is costing me $637 dollars, so that's still not making up for it.
It's not making up for all the difference, you know. I don't know.
I think one thing I'm going to do is just call references and check their reviews and stuff like that.
But yeah, it's really really interesting. Really interesting.
#6: Defining contractor timelines
The next thing you want to make sure you take care of is understanding and defining timelines with your contractors.
There needs to be a set start and end date, which is something I'm getting better at.
But some people will have a punishment charge for projects that are going long.
I don't personally do this because I don't think that everything is in the control of the contractor themselves.
There could be material delays or something could just take longer to do right.
And you don't want them to rush and do it wrong just so that they end on the right date or else they lose some of their pay.
But you do want to set clear expectations about when the project should start and finish.
That way you can schedule out the contractors after that.
I found that if I don't know exactly when one project is going to end, then it makes it harder to schedule the next guys in line.
And what happens is you get gaps where, “Oh, I want this drywaller, but I didn't schedule him correctly and so he's a week or two weeks out. And now nothing can happen on my job site for two weeks while we wait for the drywaller to be available.”
Or, “The main drywaller I want to go with isn't available, so I've got to go with the second guy who's not going to do as good of a job.”
#7: Rehab to the level that's necessary
Next on our list is rehabbing to the level that's necessary.
You don't want to over or under rehab.
And the main thing I've been trying not to over or under rehab with this project is these kitchen cabinets.
So I know I'm going to get brand new countertops.
And one thing about when you get something brand new is if the thing next to it isn't brand new, that thing is going to look super bad.
These cabinets are going to look really dingy next to brand new countertops.
And so I could under rehab and keep the cabinets and just try to clean them up and refinish them and paint them.
But it's not going to be what it needs to be for me to get that ARV value on the back end for this house to be worth what I want it to be worth.
But on the flip side, I could get brand new custom cabinets for about $35,000.
But this is gonna be a rental property.
Do I really need an entire custom kitchen?
Especially for a kitchen this small?
So what I think we're gonna do is we're just gonna get stopped cabinets from one of the big box stores and have my installer come in and put those new cabinets in.
And then we'll also get new countertops.
Hopefully that strikes the right balance.
But being able to think about “am I under doing it or am I overdoing it?” is a constant question you want to ask when doing rehabs like this.
Remember how I said it's a good idea to know the general price per unit for jobs?
Well there’s a guy that seemed super cool and super competent, but he ended up quoting me about $5 per square foot for a vinyl flooring installation.
Three other contractors I spoke to all said that $1.50 to $2 is typical, and when I asked him why his quote came in at five dollars, he ghosted me.
#8: Be on the renovation site as often as you can
The next thing I want you to keep in mind is to be on site as often as you can.
Now if this isn't your full-time thing, I understand you may not be able to pop in multiple times a day.
But I read in a book somewhere, I don't remember which book it was, but they said even if you work a full-time job and you're going to stop by every day on your lunch break, don't take lunch at the same time every day.
Because then your contractors will know the boss comes by at 12:15, and they’ll say, “Let's make sure we're working at 12:15.”
Maybe take an early lunch some days, maybe take a late lunch some days.
Just mix it up so your contractors never know when you're going to be there.
So they're more likely to be doing the right thing at all times.
Having a presence is going to keep your contractors working.
But it also means that if they have questions when you're there, it just makes it easier for them to ask you and keep you involved in what's going on.
#9: Try to meet your neighbors and exchange contact information
Another tip: when you are rehabbing, try to meet one of the neighbors and exchange contact information.
Because the other day there was a tree branch that fell and was sitting on one of our wires, and one of my neighbors took a picture of it and texted it to me.
And that's how I got the tree guy over here to get it off.
So making a relationship with the neighbors is really good.
#10: Keep track of your rehab materials
This is something I've gotten better at, but when the interior of one of my houses got painted, I didn't get enough paint.
Which is fine.
So my contractor let me know how I need some more.
So I just ordered some more and they picked it up, and those were two different paint colors.
So now we have a line where the shades of white are slightly different and it's because I didn't write down the exact paint color the first time.
And there's like a million different whites, so it was probably like pearly white versus cloudy white or something like that.
And so now the vast majority of this house is painted with a paint color that I don't know what the color is exactly.
So they're gonna come do their patch ups, they have no problem with that.
But they can't do it with the wrong paint color.
So now I have to think of something and I don't want them to repaint the entire house.
So write down your paint!
In fact, what I'm doing now is there will just be one white.
We will use the same shade of white in every property from here on out.
We won't have to think about it anymore.
And that way, if there's any left over it just gets used at the next one.
I'm learning this the hard way.
Don't do this.
Write your stuff down.
Stick to one.
#11: Always ask for your contractors’ feedback
So the next thing I want you guys to do is to always ask for feedback.
Always ask your contractors what they think of the project.
Do they see any potential issues with your plan?
And I do this because I'm not an expert.
If I was a tile expert, I would do the tile.
If I was a wood floor expert, I would do the wood floors myself.
So asking your contractors is going to help you learn what things you need to look out for and what's going on.
It's also going to let them know that you value their opinion.
So that if something goes wrong during the project, they're not going to be afraid to come tell you about it.
It also helps because it might show you how knowledgeable they are about the project.
So all in all, just be an open book, be a student of the game, and try to learn as much as you can from each person who comes to the project.
Even if, at the end of the day it's not going to work out with that contractor, you still want to take that as a learning opportunity.
#12: Cheaper labor and material is NOT always better
The other thing I want you guys to remember is that cheaper is not always better.
I mean that in terms of the contractor that you’re hiring.
So the cheap guy is not always the best guy.
Because the cheap guy is cheap for a reason.
So you're usually going to be missing out on something in terms of quality of work, how long it takes them to get it done, how well they follow instructions, and how well they communicate with you.
Something's got to give.
Cheaper isn't always better in terms of materials as well.
Like we're going to be using a luxury vinyl plank that cost $2.99 per square foot, and that's relatively high.
I could get a similar flooring that's like $1.09 per square foot, which would be a lot cheaper in terms of materials.
But that flooring would fail and scratch and start to buckle a lot sooner than the one that's more expensive.
So in the long run, replacing that cheaper flooring much more often is probably going to be more expensive than just getting the higher quality flooring in the beginning.
So don't.
I know it's hard to resist, but don't just be attracted to the cheaper materials or the cheaper contractor just because they're cheap.
#13: Get multiple contractor quotes
Also, there was another contractor supposed to meet us at the house who stood us up.
He didn't text.
So pro tip, get multiple quotes.
Thanks for reading!
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