How To Rehab Houses For Minimal Cost And...

repair fail Hey Moguls, Lex Levinrad back again with another installment in my series about doing rehabs at a minimal cost.

In Part 1, we talked about the type of investor who profits the most in rehab deals, and we went over the ARV Formula and the Maximum Offer Price, and we touched on negotiating when risk is involved.

For Part 2, we’re going to talk about estimating repairs, why you should be the GC, using laborers and more.

Here we go…

About that repair estimate…

So, an investor, such as myself, who buys a property to fix it up, is a rehabber. A rehabber is someone who is familiar with fixing up houses and rehabs or repairs houses for a living.

In addition to knowing the sales comps and what the After Repair Value (ARV) of the house is, you’d also need to know how much it’s going to cost to fix up the house. Now this is more important if you’re a rehabber, but even if you’re a wholesaler, you are going to have rehabbers as investors who are looking to buy your houses from you. Those investors are going to want to know what the Repair Estimate (RE) is and you’re going to have to give them a number.

So you’re gonna need to have some way of estimating the repairs.

Now, if you’re a rehabber yourself, it will be more crucial to really get down into those details of making sure that your numbers are accurate - because if you’re going to be buying the house and rehabbing it, you don’t want to spend more than what you thought you would fixing up the house. So you want to make sure you have a very detailed rehab repair estimate.

The best way that you do this is by using a repair estimate sheet. That way, you can move down the list on your sheet and not miss anything.

We have one we provide to all our bird dogs and students. Basically, it has everything on it that could be possibly wrong with the house, and it’s either checked off as okay or the cost to repair an item is written down. All the numbers are added up and the total is your repair estimate or what you think it would cost to repair the house and make it rentable or sellable.

You become the GC…

When it comes to repairs and putting together a repair estimate, the first thing you need to understand is that you shouldn’t use a general contractor (GC). You’re going to have to learn to act like your own general contractor if you’re going to be rehabbing properties yourself (this will save you loads of money).

So, you’re gonna have to learn what prices would be for a person who would be subbing the job out or finding subcontractors themselves. Look, I get it - this sounds like it’s very complicated if you’ve never been a contractor. When I got into this business, I didn’t know the first thing about construction. But it’s really not that complicated… it’s not rocket science and it’s actually much easier than it seems.

See, general contractors quote customers on a job. They typically give their quotes out with a pretty hefty profit margin so there is ample profit in their quote. They calculate:

What the materials will cost.
What the labor will cost.
What they will have to pay the laborers - the people actually doing the work.

Those laborers are called “subcontractors.” They do the work, and the general contractor oversees them and their work.

The general contractor might have one subcontractor who is good at laying tile… he might have another subcontractor who does drywall… and another subcontractor who paints or installs kitchens or does hardwood flooring.

So if you are planning on being a rehabber yourself, what you should do is be the general contractor. You need to get access to those subcontractors and find people who know how to do the work. And, you need to put them on the job and provide them with the materials and oversee their work.

You also need to agree on a daily rate or an hourly rate for labor. Or, you could agree on a price for the whole job, if they are more sophisticated. And you need to oversee them and make sure that they’re doing the job right - because you definitely don’t want them rushing or being sloppy. The only way you are going to be able to be cost-effective in rehabbing is if you’re doing those things with your GC hat on.

If you’re just going straight out to general contractors at full retail prices, then you are either never going to make a profit or your profit will be way too low… and the one who will be making all that profit is the general contractor!

A big mistake to avoid…

Do you know what the 2 biggest mistakes that beginner investors make in rehabbing a property?

The first one is paying too much for the rehab by using general contractors, which we just spoke about.

But let me caution you - if you are your own GC, you shouldn’t just walk into Home Depot and say, “Hi, Home Depot, I’d like you to re-tile this house for me.” If you do that, then you are going to be paying through the nose because you’ll be paying full retail prices.

What you need to do is find a place that sells inexpensive tiles. And Home Depot might not necessarily be the cheapest place to buy tile. You might find a sale at Lowe’s or you might find a local tile company that sells inexpensive tiles for as little as $.59 per square foot or even less sometimes if they are having a sale.

waterflow You’ve gotta find the cheapest materials. Now keep in mind that I am not talking about remodeling a house in Beverly Hills or in Boca Raton…

I am talking about your basic, entry-level starter house that you are fixing up to sell to a first-time homebuyer or to rent out to a tenant. So you don’t want to spend too much on labor or materials.

After you’ve chosen your materials, you need to find a laborer who’s familiar with that product – in this example, laying tile. After you find a tile installer, you’ve gotta figure out how long it will take them to do the job of installing the tile. You need to provide them with the tiles and other necessary materials and pay them an hourly or daily labor rate.

If you hire subcontractors and do the job this way, it is going to cost you a third of what it would cost you if you went directly to a general contractor.

One more way to do this…

If you have an existing relationship with a subcontractor, then you might feel comfortable letting them go to Home Depot and purchasing the materials themselves at the “Pro Desk.” Then they can call you so you can pay with your own credit card or Home Depot card over the phone. But to do this, you have to know the subcontractor very well and trust them. Otherwise, they might just disappear with your tile.

Now obviously, if your family member is a general contractor or if you know a lot of people in construction, you might be able to put together a “crew” much easier.

But, the key is that you shouldn’t just go on Google and call the first GC or laborers you see. If you need to, get referrals from other investors. And please remember, you’ll have to actually go out to the property and supervise the workers. If you don’t, then you will be paying for it, severely.