How to Manage Property Rehab Costs for Maximum Efficiency and Value

Posted on: June 22, 2011

Categories: Fix, How To, Real Cases

Author: buyfixandprofit

300px Project development stages How to Manage Property Rehab Costs for Maximum Efficiency and Value

Manage Property Rehab Costs Image via Wikipedia

Quick Tips on How to Minimize and Control the Cost of a Rehab Project

Purchase the general construction materials and supplies for your contractors and have it delivered to the job site.  Instead of having your contractors spend their time looking for material, do it yourself if you can.  It’s amazing how long a simple trip to Home Depot can turn into.

Property Rehab Written Scope of Work

Always put the scope of work in writing with enough detail to avoid conflicts and “misunderstandings” during the rehab of the property.  It’ amazing how crystal clear your vision of the finished product is during the walk  through with the contractor and then how any questions come up in the middle of the rehab.  Questions such as, “Oh, you wanted that wall knocked down?” or “You wanted more than two kitchen cabinets?”.  All of a sudden these things are not included in the contractor’s scope as you had originally thought.  Tight control of the rehab project’s costs is needed to maximize your ROI.

Discounts on Bulk Construction Material Purchases

Work with your Home Depots and Menards pro-departments to figure out how much volume of material needs to be purchased to receive discounts of 5 – 15% in some cases.  Try to figure out how to get them to deliver your material for free to your job site.

Oversight of the Rehab Project

The rehab of your home will not happen efficiently without some kind of oversight of the project and its rehab contractors.  I have a very good partner who runs our construction jobs and without his constant oversight, the lunches tend to get longer, breaks occur more often, cigarette runs happen frequently, and cell phone conversations happen more often. Bottom line: you cannot hand any contractor a pile of money and come back a week later and hope something got done.

Pay Contractors On Time

Pay your rehab contractors on time and as agreed upon.  Most subcontractors prefer cash and that’s fine with me; it keeps the cost down.  The guys working on the job don’t care if your hard money draw didn’t come through or is late because of paperwork not being in order.  You may be able to convince them to work a couple more days like that, but soon after that your job (and materials) will come to a halt.  If you don’t have your own reserve funds to rely on, your planning and project management skills have to be perfect.

Security for Vacant Properties

If the rehab is in a rough part of town, spend the extra money upfront to properly secure the property from vandalism and break-ins.  See our article on Security for Vacant Properties for several options on how to protect your rehab project from bleeding money before renovations are even complete.

Utility Repairs

Call the utility companies, gas, electric, and water, the day after you close on your property in order to minimize the down time at the end of your project.  The rehab of a foreclosed home should take no longer than 21 days.  If the utility companies are running behind you may be stuck waiting for them to come out and not able to finish your homes renovation.  This includes waiting for a power line to be run to the house, a new gas meter may need to be installed, the water line to the house from the st

Finally, start executing the your exit or profit strategy before the property rehab is complete.  If the plan is to cash-out refi after repairs are completed, then start arranging the bank inspection and all necessary paperwork soon after closing on the purchase.  Start marketing property to prospective tenants during the property’s rehab phase.   I don’t believe in the school of thought that says you need to wait until the property looks perfect before showing it; be a salesman.

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 How to Manage Property Rehab Costs for Maximum Efficiency and Value
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