Your Biggest Rehab Pitfall-- Please Share

robcarfagno profile photo

I am new to rehabbing and want to hear about problems that you have encountered...things that new rehabbers should watch out for. Thanks!

Rob

Comments(24)

  • Buzz15th December, 2004

    My best advice is to have enough juice in the deal to let the professionals do the job. I started out doing most of the work myself. Its not worth beating up your body.

    Other than that, the usual advice of making sure you get permits, move it along quickly and ALWAYS allow some cushion in your budget for surprises. Good inspectors are critical as well.

  • InActive_Account15th December, 2004

    My advice would be to not over or under rehab. Do not rehab based on your tastes or what you would want to live in. Look at every house for sale in the surrounding neighborhood and see what x-amount of dollars gets you, because when you go to sell, it that is exactly what your buyers will be doing. Rehab to the neighborhood and your buyer.

  • edmeyer15th December, 2004

    What I have discovered is that contractors and handymen do a better job in estimating the cost of work than they do in estimating the time required to do the work. For rehabs it means longer holding times.

  • karensilver15th December, 2004

    Always have enough money to pay a pro even if you plan to do it yourself. Things change and moviation changes. Don't start a project if you don't have time to finsih it

  • linlin16th December, 2004

    What ever the estimate is add 10% for whatifs.
    If a contractor is doing it get a contract.
    Make sure you check on all permits and such. Seen lots of shutdowns for unpermitted work. In my county in Florida we now have to get a permit for any work over $1000 even if it is interior and is repair and not remodel.

  • jwalko16th December, 2004

    I would add "Watch out for the unknowns". I guess this goes a long with adding 10% extra to your anticipated expenses.

    I recently purchased a property to rehab and, after purchasing, found out that the whole front of the dormer section of the roof had to be replaced because it had been leaking for who knows how many years. Added about $2k to the project costs in materials in labor. Upon initial inspection of the house, this wan't noticed, because all of the rot was behind the wall. They had the outsided "sided" to cover the rot (I don't think it was intentional deception...they probably thought they were fixing the problem). Once we got onto the roof and saw the problem, we found out the only fix was a complete rebuild (due to improper construction in the first place, 40 years ago).

    John Walko

  • jam20016th December, 2004

    One thing to watch out for is... If you hire a GC who is paid by draws, make SURE the work is done properly before you pay. Don't fall for, "Well, I can't move forward on getting more work done unless I have more money.". Also, if your lender is sending an inspector out to inspect the work before payment, make sure that HE'S not falling for the line of patter from the GC, and is making sure the work is getting done.

    And, yeah, watch out for Aluminum siding, it's EVIL!

  • spinwilly20th December, 2004

    Termite and Water damage. The signs may be obvious to you or your inspector but the extent of the damage really can't be deteremined until you start rehabbing... removing trim, siding. sheetrock etc. because by their very nature, they are hidden from view. It's easy to underestimate what it will take to fix the problem(s).

    These types of repairs can trun into quicksand (seemingly simple jobs that grow exponentially).

  • jchandle20th December, 2004

    That's an excellent comment from Jam. The contractor line..,

    "Well, I can't move forward on getting more work done unless I have more money."

    ... is a powerful line, and it works on many a hapless homeowner. It can be hard to counteract unless you know how.

    Funny thing is, even some contractors have grown to believe they can't work without a homeowner's cash in their pocket. And NOTHING puts a homeowner more at risk in this deal than that!

  • InActive_Account21st December, 2004

    Sorry Jc and Jam, but that is crap. A contractor has every right to be paid according to the terms of contract you signed with him and the payment schedule.

    You need to understand that it is a 2 way street. For every contractor that skips out on a job not completed there is an investor who is trying to nickel and dime him out of business or who goes belly up in the middle of the rehab and the contractor is out thousands of dollars in payroll and materials he has fronted the investor.

    Connect your payment schedule to easily identifiable and verifiable phases.

    Rough electric, framing, install of cabinets, bathroom completed....

    Don't connect it to time. It's pretty easy to see that the roof is done and a payment is due, both parties win. A contractor shouldn't have to finance your rehab for you and you should expect him to.

  • jam20021st December, 2004

    No, it's not crap, either. There's a difference between seeing the work done, and a contractor ALMOST getting all the work done, and wanting to get paid for what he's done, with the work ALMOST finished. I have NO problem with paying for work finished, and finished properly. NO problem whatsoever. And I don't expect them to finance my projects, as I have my financing lined up before I start, but most of'em want a chunk to get started on, before they do ANY work, which if you've never worked with a particular contractor before, you're buying a pig-in-a-poke. Even if they have good references, heck, they coulda gotten on drugs since the last job, and rip you off. (Speaking from experience on that last line)

    However, think on this. A contractor subs out work. The work is done poorly, or not as well as it should have been. The contractor comes to you, says, hey, I can't get that fixed unless you pay me for at least part of what it's worth. As an investor, you WANT him to keep going because it's EXPENSIVE to change contractors mid-project, so what choice do you have? You're paying an inspector your lender requires a $100.00 a whack to come look at the work before it's paid for, so you're out that, if you say pay for it, or if you say no, I'm not paying, you're out looking for another contractor, and you KNOW what happens when you try to get a contractor to fix another's screw ups, they start seeing BIG dollar signs.

    And, you're right a win/win is quality work, paid for on time. But I'm beginning to think that that's a pipe dream.

    I realize that you always take a chance when you hire someone, but my goodness, EVERY time you hire someone, you go in expecting to get screwed? SOMETHING'S wrong with that system, and it'd be nice to have some type of protection in place!!!

  • kjc151721st December, 2004

    i have hired a few contractors/handmen, and they have always been a pain the the @#4. they always want money upfront, or early into the project, and there really is no need for them to ask as i usually supply them with whatever supply they need, i just want their labor. well i have learned a few things. i never pay in advance or give an advance. and i refuse to pay by the tasks, as far as im concerned i am buying in bulk its cheaper. if you pay by the task youll be paying all the time youll get nickel and dimed to death. if they would only put as much effort into doing/finishing a project as they do trying to get money out of ya, they would finish ahead of schedule, do a better job, and probably get a tip. time is money, and when they stop and ask me for it, they wasting mine.

  • InActive_Account21st December, 2004

    Jam, the thing I find amazing is that the majority of rehab investors always seem to be working with a contractor for the first time, no matter if its there 1st house or there 20th. Why is that? Do you believe in the you get what you pay for motto? I'm sure you do in real life outside of investing, yet almost every rehabber I know doesn't follow that rule when it comes to rehabs, they continually seek out the lowest bidder, the guys working out of truck, or even better the uninsured handy man, or even better the friend who knows more than they do. They all run into the same thing - payment issues.

    The problem is that rehabbing for a lot of people in the country is financially a square peg and a round hole. A lot of deals can't be done if you figured your rehab expenses using reputable contractors with proven track records, who know what they are doing and therefore charge accordingly. A lot of rehabbers are trying to figure out how to get the house rehabbed without a proper spread in the discount of the house so they end up where they belong. Bent over and getting screwed by some loser who only knows how to swing a hammer - who you described was likely to be on drugs the week before.

    The guys you end up with and the circumstances you have to play with have a lot to do with who you have to hire because of the deals you are doing.

    I see it over and over again on these threads about how contractors charge too much money. They want $3000 for something I can do for $300. Well, you get what you pay for.

  • InActive_Account21st December, 2004

    Quote:
    On 2004-12-21 15:35, kjc1517 wrote:
    i have hired a few contractors/handmen, and they have always been a pain the the @#4. they always want money upfront, or early into the project, and there really is no need for them to ask as i usually supply them with whatever supply they need, i just want their labor. well i have learned a few things. i never pay in advance or give an advance. and i refuse to pay by the tasks, as far as im concerned i am buying in bulk its cheaper. if you pay by the task youll be paying all the time youll get nickel and dimed to death. if they would only put as much effort into doing/finishing a project as they do trying to get money out of ya, they would finish ahead of schedule, do a better job, and probably get a tip. time is money, and when they stop and ask me for it, they wasting mine.


    all blah, blah, blah the same stuff...

    I've used the same 2-3 different carpet contractors for 5 years, the same 2-3 painters for 5 years, the same 2-3 electricians and the same 3-4 plumbers for 5 years. You guys are always using a new guy everytime you work on a house? Why is that?

    You just want their labor - hire a freaken employee then, or go down to man power and hire a laborer. You refuse to pay by the task - big mistake.

    That's the only way you should be paying. Your payment schedule should be based per task. If its a $20,000 project. You pay $2000 up front when the materials and the tools hit the property. You pay another $2000 when the windows are in or $1500 when the cabinets are installed and the counters are in... whatever, you fill in the circumstances. You hold the last 10% for the punch list.

  • jam20021st December, 2004

    Well, it's been GC that I usually have a problem with. I can usually work with the subs, once I get the GC out of the picture, and find my own sub-contractors.

    The reason I've ended up working with different ones, is because I can't find a competent one, no matter the price. And, there's usually enough margin in my houses to pay a decent amount to the contractor, and no, I rarely ever hire the cheapest, I usually go by reference. If I wanted the cheapest, I'd hire off the street, there's PLENTY of people walking the street that claim to be professional painters, carpenters or what not.

    Anyways, I didn't reply to this to start a pissing contest, not at all. I just said what my experiences had been, and it MAY be something I'm doing wrong, but I hear the same complaints from so many people, here at our GaREI meetings, and all over, that there's gotta be something to some of them.

  • kjc151721st December, 2004

    i have hired my share of reputable licensed contractors and handymen, i find i get just about the same result from handymen as i do licensed contractors, except without the expense. i hired a reputable contractor to do some drywall work on my finished basement in my home, well to make a long story short, i ended up in court with this so called reputable licensed contractor, to get him to fulfill the terms of his own contract, and the quality of work was crap, needless to say i called a handyman to finish the job correctly for 1/3 the cost. you dont always get what you pay for, you pay for what you get!

  • kjc151721st December, 2004

    i forgot about my carpet guy, hey is excellent, he's a handyman with years of carpeting exp, very polite and professional, and best of all affordable. he wont accept a penny until the job is done. he has worked with me in the past, and i hope in the future as well.

  • spinwilly24th December, 2004

    Another rehabbing pitfall I forgot about which is the grand daddy of them all.

    Trying to save time and money by cutting corners and doing a half ass job.

    If you are flipping properties you might get away with it (shame on you). If you are keeping it as a rental, it will kill you.

  • InActive_Account26th December, 2004

    Adding 10% extra into your rehab costs can save you a lot of head aches.

    I bought a house in Febuary that had a foot of snow on the roof (three stories high) and took the owners word that it was in good shape.

    When the snow melted I realized his idea of good shape was not the same as mine.

    It was not leaking but obviously needed replacement.

    This turned a great deal into a marginal deal.

    Lesson learned
    JohnNH

  • cdkerr126th December, 2004

    I have been a contractor for years and always get a downpayment of some kind before I do the work because I have a busy schedule and when i set assided time to do the work I do no;t want someone backing out and leaving me with no work for that period of time because they maybe found a cheaper price or change their mind. I also am a rehabber and have little trouble with subs because I use the same people all the time and they appreciate my work i give them and know they will get more if they do me right.

  • commercialking26th December, 2004

    Well to return to the original question, What are rehabbing pitfalls, I see the same three over an over again,

    1) over-renovating for the location. Top of the line Windows, appliances and cabinets in markets that simply will not pay for such things.

    2) Schlock work, walls that are not plumb, doors that will not close. Floorplans that don't make sense.

    3) Loss of interest. The guy who goes in gangbusters tearing things out and looses interest before he gets done the project drags on and on and eventually somebody is looking at it to buy and finish.

    Often I see both these in the same house. Renovation is not rocket science but it is not something to learn as you go along either, unless you've got a pretty good construction background to start with.

  • eldorado130th December, 2004

    I don't have any experience in rehabbing/flipping (except owner occupied-me) but I'm seeing ALL the same mistakes here that people make in any business

    (1) Contacts. If you find a sub that works well for you, why are your trying to cut costs with another? A good solid , trusting buisness relationship is worth more than the pennies you'll save with someone else. If I know that the job is being done to my specifications and on time-I'd rather pay a little more for the peace of mind. Why waste weeks in order to save $2-400 dollars???

    (2) Delegate & Reward those who work well for you. Example: I had a outdoor advertising business in Chicago- in the begining, I did it all...Sales, Installation (time consuming and physical labor) ,Billing, Marketing, Etc.. I went thru 6 installers until I found one who I could trust to do things my way and on time. The others rolled my new truck, sold my inventories for crack, sidelined, used gas cards for private usage, or went missing . Once I got a decent one, He then got Health insurance, Hefty pay increases, New vehicle, Company credit cards, and Bonuses. Guess what happened to my sales? They quadrupiled. Why? Because I delegated the most time consuming and hardest part to someone I could trust and opened up time to do more sales. The money spent on that installer was minimal in relation to the sales I brought in. Same applies here. If your GC or sub is profeicient and trustworthy-He will make money for you. Put him on your christmas card list, throw them a bone once in a while, bring the crew a pizza or 6 pak on friday afternoon. Your good deeds will return to you in the end in the quality of workmanship. (there are exceptions to the rule-but you weed them out) Then, concentrate you time on obtaining another project. The relationship you develop shall carry onto future projects. You might make less money on the project, but you'll flip it faster..Any home or business is only as good as it's foundation.

    Common Sense. Dont put elaborate items into a home in an area that won't warrant a recoup. Don't overbuild for the area. Unless the area is going or on the verge of a positive economic change. Will that 98% efficiency furnance sell my home faster? All most people care about is new. If it's a new furnance, their happy..They won't have to worry about calling a repairman. Could only be a 85% efficiency you had installed- or a scratch and dent special (saved you over $1000.00) didn't it?? Is this area more condusive to Home Depot-Self assembeled kitchen cabinets or custom cherrywood?? Formica or Granite? Remember, This is not your home- this is a resale. Save your creativity for your own personal house.

  • rferdinand30th December, 2004

    Rob,

    What kinds of rehabbing are thinking of doing? Cosmetic or adding square footage and changing the footprint of the house?

  • robcarfagno7th January, 2005

    I am not adding square footage or changing the layout of the properties...just focusing on rehabbing the "cosmetics" of the house.

    Thanks to all for great feedback!!

    Rob

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