Discovering Contractors, Renovation Purple Flags, and Estimating Rehab Prices

Ashley:
That is Actual Property Rookie, episode 166.

James:
Yeah. There’s all these indicators that you are able to do as you’re working together with your crew members. If a contractor is attempting to cost you for that or they gained’t offer you pricing breakdown, in all probability not your guys. That’s an indication, keep clear from that individual. That you must work off details.

Ashley:
My title is Ashley Kehr, and I’m right here with my co-host, Tony Robinson

Tony:
Welcome to the Actual Property Rookie Podcast, the place each week, twice every week, we convey you the tales, the motivation, the inspiration to get you began as an actual property investor, or maintain you going if you happen to really feel like stopping. Ash, what’s going on in the present day?

Ashley:
Immediately, we’re doing half two of rehab and building price collection with James Dainard. In the event you guys haven’t listened to that, go and hearken to that episode launched on Wednesday. We’re right here now for half two. Tony, do you wish to recap what half one was about?

Tony:
Yeah. Half one was considered one of my favourite episodes we’ve performed to date. We’ve had some wonderful friends, however James actually gave a grasp class on estimating your rehab prices, on constructing your crew, discover contractors, discover normal contractors, vet them, put your scope of labor collectively, give pricing estimates. Simply all the pieces you should learn about step one of getting your rehab performed.
There’s really three phases that we’re going to speak about. Section one was all the pieces you do earlier than you get to the property, in order that’s just like the prep work that we simply talked about. In in the present day’s episode, we’re going to speak about steps two and three, which is what you do if you’re doing all of your first preliminary walkthrough, after which what occurs after you really shut on the deal.

Ashley:
James, welcome again to the present.

James:
Thanks once more for having me. I’m stunned I bought invited again.

Ashley:
We tried to get someone else to fill in to cowl the second a part of the collection, however nobody would do it.

James:
That’s often my function. I’m the backup plan.

Ashley:
Yeah. Okay, nicely, let’s soar proper into it. What are the issues that … You’re going to a property. You had mentioned within the earlier episode, you wish to be 99% positive that it is a property you wish to put a proposal in. What do you convey? Who do you convey with you if you’re going to take a look at a property?

James:
Yeah. Particularly proper now with the market as sizzling as it’s, you must be ready and be capable of write a really sturdy supply to safe that whole lot. Anytime that we’re going to those preliminary walkthroughs, we wish to be sure we’re ready. We are able to write a no inspection supply after which actually get aggressive to lock it down.
The issues that we convey to each walkthrough that I am going to is, the very first thing is a digital camera. Doc what you’re seeing as a result of that’s going to actually … You possibly can undergo a home, and as you look by pictures, you may revisit your ground plans you may want to repair. You possibly can notate, as you’re doing all of your funds, what supplies you may maintain and what you should eliminate for plans. We at all times convey a digital camera. We convey a walkthrough sheet that we created internally for our firm and for our undertaking managers, and that simply actually lists out, itemize each little piece that must be performed in that undertaking. It begins with roof, home windows, entrance door, inside, so it’s all documented out.
The explanation I nonetheless, even to this present day, use that sheet is as a result of it’s very easy to overlook one thing as you’re strolling by a home. Even after we did our walkthrough, Ashley, I went by this entire home with you. I went proper by one thing after which fortunately, you go, “Hey, “What’s contained in the closet?” Oh my god. I didn’t examine. I open the closet and positive sufficient, there was ducting and it was going to price us two grand extra in shifting issues.
By having that sheet, if I’d have gone by my sheet correctly, I can say, “HVAC and structure. Do I would like to alter any of my HVAC route?” and lay it down. We’ve got a walkthrough sheet that takes you from A to Z. We get to rely out what number of home windows, how a lot sq. footage we have to substitute, and it provides us a template to present {that a} good format. Along with, by writing in all these things, like if I’m writing down 14 home windows, exterior door, a entrance door, and a slider, I do know what these prices are.
As I’m getting my bids again from the contractor, I could possibly be very particular with him, saying, “Hey, you quoted these home windows at this,” and I can break down the worth per window as a result of I do know precisely what the rely is. It’s tougher to do this if I am going, “Wait. Did I’ve 10 home windows or 14 home windows? I can’t keep in mind.” Plenty of instances, the contractor’s not going to notate that, so it provides me a very good blueprint, as I’m not solely simply creating my funds, however double-checking the contractor’s bids down the street.
I additionally convey a flashlight in all places as a result of you should stick your head in areas which can be darkish. That you must examine your crawlspaces. That you must examine your attics. I wish to convey a tape measure as nicely as a result of if you happen to do should create worth and reconfigure plans, you don’t wish to simply say, “Effectively, I’m going to stay a toilet right here,” and not likely take a step again and take a look at the area to see if it really even suits, so all these belongings you wish to convey with you.
In the event you’re a more moderen investor, and that is your first buy, and also you haven’t performed this earlier than, what I used to do once I was model new within the enterprise is I’d convey a house inspector with me simply to notate. You don’t should pay for a full inspection report. Principally, it’s like a walkthrough inspection the place it’s only a bullet listing fairly than a full report as a result of they’re going that can assist you catch different issues that you could be miss.
What I feel you must at all times convey with you is your dealer, who’s going to be promoting the home for you down the street, to allow them to offer you suggestions on what makes it extra marketable and likewise, a normal contractor to come back by to get your estimate on the home. When you’ve been doing this for some time … Once more, we’ve performed like over 3,000 properties, we will stroll by, and notate, and know our prices fairly nicely, so we don’t convey a normal each time.
My first in all probability 30 properties I purchased, I at all times introduced my normal with me to get a quote as a result of he was educating me as I’m doing my walkthrough going, “Hey, we will’t take this wall out.” Or, “We are able to take this wall out, and right here’s why,” so be ready in your walkthroughs as a result of the way in which the market’s ripping, you must give them a strong, no BS supply at that time.

Tony:
James, I wish to dig in just a little bit. You mentioned you could have this walkthrough sheet. Is the walkthrough sheet separate out of your scope of labor or are these two paperwork one and the identical? If they’re totally different, what precisely is that walkthrough sheet, if you happen to can provide us extra perception?

James:
That’s an ideal query. Our funds sheet, how we created it, it’s on Excel format to the place we now have to enter. We’ve got it damaged down, like we talked about within the final episode, by labor and materials prices, and so we will slim our funds manner down. The walkthrough sheet, as a result of if we’re doing our walkthrough with, let’s say it’s an off-market deal, non-public sale and I’m strolling round with my laptop computer attempting to fill this entire factor in, it could take some time and it will get just a little awkward. Plus, your deal finder won’t prefer it since you’re in the home too lengthy.
What the aim of the walkthrough sheet, is definitely simply to take your notes so then, after we get it again to the workplace, I can enter it into my funds sheet and refine all the pieces. Additionally, what I love to do is it provides me a normal … It’s mainly my bullet level listing with several types of gadgets we have to do. As I’m attempting to make the deal work or invent that return by placing the appropriate plan in play, I’ve the counts, I’ve the pictures. I’ve all my particulars of what I have to do, possibly how outdated the furnace is, what number of doorways I have to put in. Then I can go to my comps once I’m at my workplace and use that sheet to reference what the supplies are within the comps, after which begin enjoying round with that plan.
The aim of the walkthrough sheet is to be environment friendly. You may be fast. It helps you not miss something and likewise, it provides you the bodily counts of all the pieces. We’re writing down door counts, window counts, massive kitchen, small kitchen. We’re making all these notes on that sheet.

Ashley:
Yeah. I really simply ran and disappeared for a minute to truly get the sheet that I’ve from once I did the walkthrough of James’ and I flip. On it, it goes, I’ll offer you guys an instance. For home windows, what number of? Are they vinyl, metallic, wooden? What’s the estimated age of the home windows? Then, what situation are they? You simply circle one, two, three, 4, or 5. That goes by the entire thing. It goes for the plumbing. Is it galvanized, copper, PEX, approximate age? Then, situation of that too.
James, whereas we’re speaking about this, I’ve like one million notes on to right here, on to this sheet, however there have been some issues that you simply knew from studying and doing totally different walkthroughs that helped you really go and do the walkthrough precisely and assist together with your budgeting. For instance, a kind of issues was telling if {the electrical} retailers had been grounded or not. Identical to this little factor that you simply don’t should be an electrician to know, however there’s issues you may be taught on YouTube or from contractors that may make it easier to even fine-tune your funds extra.

James:
Yeah. There’s all kinds of little low-cost, and tips you are able to do. Really I did a video for BiggerPockets known as Purple Flags for Flips. It’s on the YouTube channel, and I speak about … You possibly can visually see these just a little bit extra within the video, however yeah, there’s all these little tips and suggestions that we’ve realized through the years. Then a part of how we’ve realized them is by me shedding cash. I realized a variety of these things early. Our objective is to be sure that individuals don’t undergo those self same arduous classes as us. I’m simply form of thickheaded although. “Yeah, I’m going to go purchase that,” after which I be taught later. By having it on that sheet, going, checking electrical, that jogs my memory to go, “Hey, what sort of retailers do I’ve in there?”
There’s various things you are able to do. As we’re strolling by a home, I’d pop a plate off an outlet if it’s a home in-built a sure period. That’s additionally why I convey the tax report to the walkthrough. I even have my tax report as a result of it’s telling me sq. footage, it’s telling me yr constructed. Based mostly on the yr constructed, that’s going to inform me what the mechanicals are in the home, that are going to inform me a giant a part of my funds. If it’s within the Pacific Northwest, the properties of the Sixties are within the center, to allow them to have outdated wiring or good wiring, so journeys that we’re doing is we’re trying on the retailers. If there’s solely two prongs in there, which means it’s usually not grounded, which goes to additionally usually imply we want a full rewire.
We’re searching for, does it have two prongs or three prongs? Are the retailers the other way up? In the event that they’re the other way up, that’s a manner for them to self-ground or get the reverse polarity out of there. That’s often an indication going, “Hey, we’re in all probability going to should rewire this home.” We’re going to take a look at the panel to see if there’s a shutoff. There’s all these little issues that you could see that may let you know whether or not your mechanicals are outdated, or if you happen to go to your plumbing. If in case you have three valves, a variety of instances in your plumbing, that’s the setup for an outdated galvanized system. Whereas, if I’ve one which’s usually going to be copper or PEX from there on, as a result of that’s a brand new kind of plumbing form of set up. There’s all these little hints and indicators that you could notate.
That’s additionally why you wish to convey your digital camera. As a result of as you’re taking pictures digital camera photos, you may go, “Wait. Did I would like a full replumb? Let me return and take a look at that valve. Let me return and take a look at the place that bathroom location is, or the place {that electrical} swap is.” If I’m strolling right into a home, and usually the retailers are each eight inches off the bottom, or all my switches are regular, then often the wiring’s going to be of latest code.
If I am going right into a kitchen and there’s no retailers within the kitchen backsplash, which means it was in-built outdated code, at that time. It’s not grounded, there’s no GFCI. As you do your listing, it reminds you to take a look at these issues. Then as you’re them, you wish to search for these little indicators of … Not indicators of neglect, however indicators of datedness in mechanicals. See if there’s an oil tank on the property. Meaning your HVAC and ducting system’s in all probability going to should be up to date if you happen to’re not changing or altering out to grease. There’s all these items that you could search for.

Tony:
James, your wealth of information in the case of what to search for … I can inform that you simply’ve performed this. I imply, you do something as a result of talked about within the first episode that you simply’ve been concerned in 3,000 totally different transactions. Whenever you do something 3,000 instances, you’re going to comprehend it just like the again of your hand. I wish to remind everybody that’s listening that simply since you’re not as well-versed as James in all the pieces that he simply outlined, that doesn’t imply you continue to can’t go on the market and make some issues occur.
Like he mentioned, a variety of this information he gained was by trial and error. It’s not essentially that you’ve got to have the ability to take a look at piping and know whether or not it’s galvanized, another materials. What James is attempting to speak to the listeners, to all of you, is that there are simply sure issues to look out for, however don’t really feel overwhelmed if you happen to don’t have the identical degree of information and data James has.
I simply wish to recap, identical to actually rapidly, James, a few of the belongings you mentioned to convey with you. You mentioned a digital camera, your walkthrough sheet, flashlight, tape measure. Then from a individuals facet, if you happen to can, possibly convey a house inspector, a dealer, after which a GC. One final query on the GC piece, James. You mentioned you had a GC come alongside on your first 30 flips or so. Had been you paying that GC for his time? Or what sort of agreements did you guys have for her or him to observe together with you on these first few flips?

James:
No. I by no means paid the overall as a result of that’s a part of enterprise. If somebody requested me, I’d be like, “Effectively, are you a house inspector?” As a result of as a dealer, if a consumer desires to go take a look at a property and I take them and so they don’t prefer it, we go away, I’m not going to invoice them for my time. That’s only a potential for me to earn a sale at that. Similar with the overall. You’re going to should estimate since you’re attempting to get the work.
If some man requested me for $200 to go stroll it, A, I’d take a look at what’s happening in my very own enterprise practices, or am I driving individuals nuts at that time? Then possibly I would like to repair that. Or B, that man’s going to nickel and dime me over all the pieces. If he desires $200 to do a walkthrough, what’s he going to need when he has to maneuver a door an inch as a result of he didn’t actually calculate it proper? He’s simply not the appropriate individual that will match inside my demographic.
Everyone on my crew, I need us to all be along with the identical mindset, that we’re all right here to assist one another and the angle was to get the undertaking performed, however I undoubtedly wouldn’t pay. Plenty of causes I do know a variety of these things, once more, is I did a variety of issues incorrect in my early 20s. I’d exit and discover the deal first, purchase it, after which attempt to determine it out, and by being very, very inefficient … Really, one of the best factor I ever realized in building was shedding some huge cash on a home. As a result of I used to be there quite a bit and I bought to see.
On the very finish, I used to be like, “Okay. Effectively, that was a really costly faculty for flipping properties.” I did all the pieces incorrect on that home that I may have probably performed incorrect, and I needed to create my system off of that. Like, “Okay. Don’t do it this manner. Don’t do it this manner. Don’t do it this manner,” and that’s the way you be taught. In the event you don’t know these items, simply rent the appropriate crew members. Rent the appropriate contractor, work with the appropriate dealer that basically understands your small business. They may help you facilitate your plan, after which that’s the place you may really feel much more snug at your walkthroughs.

Ashley:
James, going again to the piece about paying a contractor to come back out for a walkthrough, do you assume since you are skilled and you’ve got that credibility that you’re going there 99% positive you’re going to make a proposal on this property, that it could be totally different for a rookie investor who’s by no means bought a property and is possibly going out and their first few homes and so they don’t have that have? Do you assume it’s a distinct situation then that they need to offer or could possibly be providing to pay a contractor?

James:
If considered one of my shoppers asks if they need to do this, I’d inform them a tough no on that. I simply is perhaps going on the market to make 200 bucks for an hour or $300. I feel you’re speaking to the incorrect individuals in the event that they’re asking for that. You don’t want pull to have somebody come out. Actually, if I put myself within the contractor’s sneakers and somebody known as me and says, “Hey, I don’t know what I’m doing. Will you come take a look at this home for me?” I’m going to go, “Okay. I bought a very good margin building job I can do,” at that time.
They need to wish to come on the market. Like, “Oh, you want a variety of assist? That’s okay. I may help you.” I’d assume that’s a very good for the contractor. In the event that they’re working for somebody that doesn’t know what they’re doing, they’ve much more alternative to create margins there. Most guys ought to wish to come do the scope of labor.
Once more, as an investor, you might be additionally offering earnings for individuals. It’s not simply in regards to the contractor. In the event you’re working with a dealer … That is why you must at all times pay your brokers. Don’t attempt to get one of the best deal in your fee. Pay them what they’re presupposed to receives a commission, however set expectations for them that can assist you. As a part of our brokerage, we’ll convey them out generals in the event that they want it as a result of we wish to be sure that they’re doing nicely, and that’s supplied in our service.
If in case you have the appropriate crew behind you, you’re not going to wish to pay that man. Anyone that’s creating income off of your small business, make them work, make them make it easier to, and so they’ll convey out further individuals. If considered one of my shoppers known as me and says, “I do know that is no inspection, however I wish to do an inspection for purchaser functions solely,” I’m going to refer him three to 4 residence inspectors. Or he says, “I actually need this deal, however I don’t have a normal,” we’re going to refer on individuals to exit, and so they’ll get an estimate, and so they’re not going to cost.
You don’t have to pay the contractor, however the individuals that you’re paying or which can be earning profits off you, put them to work. They’ll give you the chance that can assist you get the individuals on the market as nicely. That’s an issue that the dealer, a variety of instances, has to unravel. The consumer desires to purchase this, however they don’t know do it, to allow them to assist them do it. You possibly can earn your fee at that time. Use your crew, after which you must be capable of get them out. Don’t let individuals cost you for that stuff.
I’d say, as a substitute of paying a contractor to come back out and go to your job, hand over your time and go supply to intern for a developer, or a builder, or a flipper to the place you may assist them by simply going to the location and seeing what’s happening. You’ll find yourself studying far more that manner, not spending your cash, and truly getting hands-on expertise than giving some man cash to go take a look at a home.

Ashley:
Thanks for sharing your viewpoint on that. As a result of we do discuss quite a bit on right here about how, in case you are a brand new investor, you may’t get a contractor to come back out since you’re going to take a look at so many various properties, to supply them some cash and incentive, however I feel you give a really legitimate level that possibly they’re not the appropriate contractor in the event that they’re not going to come back out and take a look at tasks for you at no cost.

James:
Yeah. There’s all these indicators that you are able to do as you’re working together with your crew members. If a contractor is attempting to cost you for that or they gained’t offer you pricing breakdown, in all probability not your guys. That’s an indication, keep clear from that individual. That you must work off details. If a dealer can’t let you know the place the value-add is, in all probability not the appropriate dealer. It doesn’t imply they’re a foul dealer, however they’re not an investor dealer. As you’re interviewing your crew, search for these indicators to ensure they match in your bench. If it doesn’t, transfer on to the following individual. Hold calling, maintain checking for these individuals.

Tony:
James, you’ve given us some wonderful data by these first two phases. Once more, the primary section is what to do if you’re initially trying on the property earlier than you get onsite. We simply talked about what to do if you’re really strolling by the property. The final and remaining section right here is, what occurs after you do your evaluation, you stroll the property, all the pieces seems to be good? Now you bought it below contract. Now it’s yours. Now you personal this property. I’m curious what your ideas are, however Ashley, I wish to hear your response to that piece first.

Ashley:
Effectively, first I simply needed to say, James we’re out of time, so we’re really going to convey you again for a 3rd episode. No, I’m simply kidding. I’m joking

Tony:
Two episodes again for each visitor.

Ashley:
Yeah. Let’s go into getting the deal. Once I got here out,

James:
I really feel like I’m slowly changing into your intern.

Ashley:
What you’re slowly doing … Once I got here out and we seemed on the first property, we bought the property below contract. What occurs from there? That’s the piece that you simply and I are engaged on proper now for our flip is okay, scheduling the contractors, placing collectively the contracts, the ultimate scope of labor. Are you able to stroll us by that course of?

James:
After we safe the deal and we prepare for closing, the following steps that we at all times take is we’re doing one final remaining revision of our funds earlier than estimating, as a result of the very first thing is we don’t wish to have a contractor go on the market with an unprepared funds. That’s how they beat us up on our numbers, after which we’re going to have a bunch of change orders, and we’re beginning on the incorrect foot.
The second factor that’s necessary about ensuring your funds’s revised accurately is, a minimum of once I do it and I do know a variety of traders do, is that they’re getting the development mortgage with their arduous cash or gentle cash lenders. In case your funds’s incorrect, it could trigger liquidity issues. In the event you’re 20% off in your funds and also you had that rolled into your mortgage, which means you’re going to should provide you with that further capital out-of-pocket, which may mess up your returns down the street, so that you wish to be sure funds is finalized and ready that manner.
Then from there, we at all times find yourself getting a minimum of two quotes from generals. We safe the deal. We’ve got our finalized funds. We’ve got our finalized specs then chosen as a result of within the ultimate budgeting, we’re going by the comps, determining what sort of allowances we have to put in to get the utmost worth. Then we begin bringing out contractors to estimate and ensure our budgeting.
If we get the numbers we like, and earlier than we rent them, we find yourself checking their license and bond once more, since you wish to examine that each time you rent a normal. It’s not simply the primary time. These issues can expire, so earlier than we rent them once more, we at all times be sure their standing is energetic and able to go. We be sure they’ve a bond as a result of in the event that they don’t and we don’t examine that, that’s going to be our downside with L&I within the metropolis later. Then from there, we then have the contractor signal a building contract, or the subcontractor as nicely. That may be very essentially necessary for any investor to do this. I realized that the arduous manner, once more. Most of these items that I preach is as a result of I misplaced cash doing it the opposite manner.
A contractor estimate is an estimate. You possibly can signal that and sure, it’s a contract, however what it doesn’t do is define normal insurance policies, procedures, and the way issues should be accomplished, and inside timeframes, which is that’s, the development contract must be connected to your building quote. The reason is is as a result of if you happen to simply signal that building contract or quote, you’re locked into that man, so he can lien you for properties. You’ve purchased out that job with them, so the bid is to stipulate prices for what’s being performed. The contract is ready as much as the way you facilitate that.
Inside your building contract when we now have him them signal that, and we don’t flex on that, they should signal it. It talks about begin dates, completion dates. It talks about change orders, how the change orders are dealt with. For instance, you can’t do verbal change orders with us as a result of that at all times goes unhealthy. A contractor will say, “Hey, we opened this wall. It’s going to be about 1,000 bucks to repair the framing inside.” You get the invoice, it’s 1,800 and so they’re going, “Effectively, I mentioned it was about 1,000,” and then you definitely get hit for the 1,800.
In our building contract, it says, “It’s a must to e mail it with a damaged down bid. It must be signed by us,” and provides it again to them. The contract actually protects you and your funding in opposition to a 3rd celebration that may mess it up at that time. Additionally, it tells them how they’re going to receives a commission, so it’s not all simply to guard you. It additionally protects them. Like, “Hey, if you happen to get this performed on this timeframe, we’re going to shut you out inside 24 hours, and that you simply’ll be paid in full.” It clearly defines all the pieces, and it permits on your undertaking, when it’s going ahead, to not get spun uncontrolled.
We estimate it two to 3 instances. We then assessment our bid. We establish which gadgets are heavy, or not heavy, or which can be possibly exterior of our funds. We then discuss to the contractor, see what gadgets we will pull out for our bundle methodology. Then we conform to the worth, we signal the development contract from there, after which we give them their deposit.
Usually, we’re giving the overall contractor totally different fee schedules to the place … It’s referenced on the development contract too. We’re going to present them 10% at first, 25% after demo, after which 25% from right here on, and it lists out their draw schedule from there. That’s actually our core course of. You purchase it, otherwise you contract it, you estimate it. You undergo the estimates. You determine what you’re over on and what you’re not on. We then plug in our personal bundle guys. We’ve got them signal a building contract, after which we put the plan in play at that time.

Tony:
You’ve bought this factor right down to, it’s like a science, James. I wish to circle again to 1 factor that you simply talked about as a result of we didn’t contact on this within the first episode both. Why is it that you simply desire licensed contractors over possibly identical to a very expert handyman? I do know some flippers the place they nearly solely use handymen and issues like that to run all of their tasks and keep away from normal contractors. What’s your tackle why one is perhaps higher than the opposite?

James:
Effectively, A, the very first thing is I misplaced all my cash once I was 24 years outdated as a result of I did a flip on time and supplies that turned … It went triple over and people had been expert labor guys. I realized quite a bit, however I misplaced all my cash. It was the costliest faculty I ever went to. There’s nothing incorrect with hiring a talented laborer, however the expert laborer or carpenter ought to nonetheless be licensed. They should be licensed and bonded.
The explanation that I’d don’t rent non-licensed and bonded individuals is as a result of that’s the foundations and rules in our state. I’ve had individuals … When L&I drops by a job web site, and in the event that they examine their license and so they’re not licensed, not solely is the contractor going to get a high quality, however you’re going to get a high quality in addition to the constructing proprietor, so you should examine together with your native state and rules at that time to determine what the method is.
The opposite cause is I wish to know my price. If I’m doing time and supplies for a talented laborer, if he’s having a foul day or a gradual day, or let’s say he saved operating out of supplies and he’s bought to drive to Residence Depot 10 instances, that could possibly be an issue. I’m going to should pay for that on my hourly fee and it could trigger me not likely to know my numbers. As traders, it’s our accountability to hedge in opposition to the funding, and the one manner for me to do this is off fastened pricing, saying, “Hey, you’re agreeing to do it for this quantity.” Then I can put it in my funds and I can transfer issues round, so we like to repair prices.
There’s nothing else incorrect with having a handyman come out or a carpenter to come back do some further gadgets too. You possibly can really save some huge cash that manner, fairly than doing it the piecemeal. I personally solely use fastened bids. I don’t like time and supplies, nevertheless it additionally does come right down to what sort of undertaking you’re additionally doing. If it’s a rental property and also you’re simply doing a beauty the place you’re altering out door handles, lighting fixtures, plumbing fixtures, possibly performing some trim restore, that’s a handyman kind of job. Whereas, a variety of ones, we’re taking these items all the way in which right down to studs and I can’t have one to 2 guys placing that entire home collectively. It can take perpetually and my debt prices will get uncontrolled.

Tony:
Yeah. Effectively thanks for including that clarification, James. I like the caveat you set on the finish that it relies on the scope of the job that you simply’re doing as a result of that undoubtedly does play a serious function.
One different follow-up query for me is, so you could have this contract, do you ever discover, or have you ever ever had an expertise the place possibly a contractor refused to signal or possibly ghosted you after you gave him his contract? I ask this query as a result of it occurred to me a number of months in the past, the place I discovered this contractor that I appreciated. I gave him the contract and in there, there was one line that mentioned if he missed the deadline greater than two weeks, I’d cost him, I don’t know, $50 a day or one thing like that. He was like, “Hey, I’m not likely positive about this,” and no matter we had been speaking. He simply stopped responding to me all collectively. Have you ever ever had that? If that’s the case, how do you deal with these form of conditions?

James:
Effectively, I’d say you dodged a bullet as a result of if the man was … Meaning he was already telling you he was going to be late.

Tony:
Yeah. Honest sufficient.

James:
What I at all times do is I do have a penalty clause in there, after which we now have, hey, that you’re going to … We cost much more. It’s 150 to $200 a day as a result of our mortgage … I imply, it relies on the scale of the undertaking and the mortgage stability. What we additionally do is put a bonus in there for them. In the event that they’re accomplished early, they’re getting that very same credit score again. If I’m saying, “You’ve 4 months to do that undertaking, and $200 a day if you happen to’re late,” but when they get it performed early, each day they’re performed early, they get the $200 bonus too.
I usually wish to arrange my each day fee cost is what my per diem mortgage foundation is as a result of then I’m simply giving … It’s no additional price to me. I’m saving on the arduous cash as a result of it’s debt price. It’s going to my contractor, which is nice. He’s getting a bonus. On the identical time, what’s truthful is truthful, and if I’m going to bonus him early, he must chip in from his penalties too.
Additionally in there, we now have a clause that does state what they’re not at fault for, and that’s essential. I clarify that paragraph to them. If it’s a allow difficulty, they get no days credited in opposition to them. We’ve got a bullet level of issues that say, “These is not going to be counted within the days or delays.” We had so as to add in a pandemic half too. In the event that they’re out of supplies and so they present us with the receipt nevertheless it’s backordered two months, that’s not their fault. We’re not going to penalize them for it.
You simply should be sure that your contract is written very clearly. Usually, from my expertise, contractors don’t actually learn it, so I wish to learn it again to them, saying, “Hey, that is what that is arrange for.” Majority of the time, by you providing that bonus, they’re so excited that they’re not going to care in regards to the delays both. Additionally too, you guys, if you happen to discover a good normal contractor and so they’re doing a very good job and so they’re just a little bit late however they did all the pieces proper and so they had been working their tails off the entire time, don’t cost them that late price. Deal with these individuals.
I don’t nickel and dime them on these late charges, however the place it does come into play is that if they’re not exhibiting up in any respect and you probably have a battle, that turns into a invoice for them. You’re saying, “Hey, you’re 30 days late at $200 a day. That’s $6,000. What are we going to do about this?” It’s really a solution to separate from the contractor too. In the event that they’re pushing again on that … It’s a really affordable request. Don’t bend. Simply be logical and work out what’s a standard floor to get to an settlement to have that in there.

Ashley:
This jogs my memory of a rental lease, going by the lease settlement and what you could have in there and sticking to it, since you each signed the settlement, and utilizing that in order that there isn’t any controversy down the street. Like your clause, I like that you’ve got issues that they’re not accountable for, these what ifs. If there’s a allow difficulty, you’re not going to cost them, in order that there’s not a problem going ahead, issues like that.
As soon as the undertaking is full, do you do a remaining walkthrough with the contractors? Do you undergo and blue tape? What does that seem like?

James:
Yeah. After we’ve scheduled all the pieces out and we undergo, we get the undertaking performed, the steps that we at all times take is … We’re actually huge on this as a result of, particularly on a flip, the very last thing you wish to do is spend time engaged on this undertaking for 3, 4, or 5 months, after which rush the top to the place there’s a bunch of little, small element. You’ve already spent 99.9% of the cash, and since you didn’t spend that final 1 to 2%, the home isn’t that marketable or it simply has a bizarre feeling to it.
We spend a variety of time on that final two weeks, punching out the home and checking for high quality gadgets. What we at all times do is, inside two weeks of being performed, we begin blue taping it. We do our first prelim blue tape, the place it’s simply getting on the larger issues that we’re seeing by. Then as soon as it will get to nearly the completion date, we now have a building clear performed as a result of if you happen to’re additionally blue taping when the home is soiled, it’s nonetheless not fairly nearly as good. You’re lacking issues. It feels bizarre. We’ve got a building crew performed after which we do one other blue tape.
On the identical time, we use an app that’s tremendous helpful on the Apple Retailer. It’s known as Punchlists with an S the top. It makes it very, very simple that we undergo, and never solely blue taping it, as a result of contractors typically will simply straight take your blue tape off and throw it on the bottom. They’re like, “Effectively, possibly they gained’t discover it later.” We take a photograph. It goes into this report on this app, after which you may write what must be performed subsequent to it. Then it prints a PDF on the finish that we go away on the counter for our contractors saying, “Hey, right here’s all of the gadgets. Right here’s an image of it. That is what must be performed. Preliminary it if you’re performed,” after which we now have a clear report. We do our walkthrough, undergo that report and ensure all the pieces’s been performed.
Concurrently that’s happening, we at all times do pre-inspections earlier than we go to promote or lease. The explanation we additionally do it earlier than leasing is as soon as a tenant strikes in, if one thing breaks straight away that was possibly one thing simply fixable, it makes it actually arduous to schedule and get again there, and so it’s simply not very environment friendly. The pre-inspection, we do our personal punch listing, however then the pre-inspection then punches out much more gadgets to the place we can provide to the contractor. We wish to have each these lists as a result of we don’t difficulty remaining fee till all are performed and all permits are signed off.

Ashley:
Who’s doing that pre-inspection? Are you really hiring a licensed inspector, or is that someone in-house, or is that you simply that’s going by and doing that?

James:
No. You at all times wish to rent a 3rd celebration for that as a result of, particularly if you happen to’re promoting a flip or any property, you bought to do a Kind 17, you bought to reveal. What I love to do is have, have a 3rd celebration are available in, as a result of particularly if you happen to’re promoting too, a variety of patrons are going to assume, “Effectively, you flipped it, so all the pieces’s proper on the home.” That’s not true. Generally, you’re not doing issues sure methods on a flip as a result of that’s what you don’t want … You don’t technically have to do this to promote the home. You’re simply going with a distinct plan.
Having a 3rd celebration’s going to scale back your legal responsibility. It’s additionally going to place a brand new, contemporary pair of eyes on it. Then additionally, you may present that to your subsequent purchaser or tenant, say, “Hey, we did have a 3rd celebration examine this property.” It exhibits that you simply, as an investor, has taken time and care and that you simply really care about your undertaking, fairly than simply winging it. Not solely does it offer you a very good punch listing, it additionally makes your finish purchaser or tenant really feel higher about you as an individual too,

Ashley:
And holds your contractors accountable, so if there’s one thing that was within the scope of labor that possibly an outlet isn’t working or one thing even small like that, you may return to them and have them repair that earlier than you really listing it.

James:
Yeah. That’s an ideal level as a result of a contractor’s relationship’s like every relationship. In the event you’re relationship someone otherwise you’re married to someone, you may inform that individual, all day lengthy, the identical factor and simply due to how lengthy you’ve been collectively, you’re like, “No. No, you’re incorrect. You’re incorrect.”
Then this random individual goes, “Oh, right here’s this truth. Look. See, that is proper.” It locations a mediator between you and your contractor. After a while, you may inform them till you’re blue within the face, and so they’ll argue with you and do all these items, however then when you could have the third celebration are available in, they’re like, “Okay, high quality. I’ll repair it,” so it helps issues transfer ahead too. They’re form of like a counselor for the connection together with your contractor as nicely.

Ashley:
Or if you happen to’re like somebody like Tony that doesn’t know something about building, you don’t even know examine if issues are performed proper or incorrect, then you could have the inspector are available in.

Tony:
Significantly. Yeah.

Ashley:
Effectively, James, is there anything you needed so as to add on to finalizing the walkthrough with the contractor and simply closing up the property with the rehab?

James:
No. I feel it’s simply one of the best factor you are able to do … As a result of all these processes are nice in idea. It’s intimidating if you’re a more moderen investor and individuals are telling you all these items. You’re like, “Okay. I’m going to do all these processes.” They’re actually good steps to implement in, however nonetheless not figuring out, the unknown’s the scary half. Actually, what I want I’d have performed, it will have saved me some huge cash, is absolutely go discover that investor in your market that you could shadow, that you could work with. Provide them providers.
I’ve individuals attain out to me on a regular basis, say, “Hey …” I had someone that labored for me for a yr and so they had been actually good at making CAD and as-builts. They’re like, “Hey, we wish to study building. We wish to purchase our first rental property. We wish to study house buildings.” We made a deal to the place she bought to go examine on all of our websites. She would go round, take pictures of all of our tasks as soon as every week for us. She would get to be taught and see issues as she was doing that. Additionally, she would do as-builts for us so she may see about ground plans and issues shifting round.
She did this at no cost for us, so long as we gave her entry to data, and now she owns like … She doesn’t do that at no cost anymore for us. She now has it figured it out. We really employed her now to do them. She supplied service and she or he bought to be taught a lot. It’s one factor, like you may learn a ebook and go, “Okay. That’s an ideal idea,” nevertheless it’s about doing, and placing that movement in play.
In the event you’re actually new and you actually wish to be taught, I’d say shadow an investor. Shadow a normal contractor and actually be taught what they’re doing as a result of the extra you perceive, the much less you’re going to get taken benefit of. The extra you’re going to know your margins. You’re going to additionally perceive get issues performed, or the price of implementing the appropriate plan. Like we talked about in that final present, is inventing that margin. When the market’s arduous and it’s not simple to discover a deal, you’ve bought to place the appropriate plan in there to make a return. By figuring out these prices, the extra you understand, the extra you may dictate, the extra you may management, and the higher plan you may put in play.

Ashley:
James, I feel once I was on the market within the fall, you had someone that had been performing some digital be just right for you at no cost. They had been really shifting to Seattle to come back be just right for you.

James:
Yeah. That was for wholesaling. He reached out to me. This man, I used to be hyper-impressed by him as a result of he not solely reached out to me 5 instances on social media, and I didn’t reply, he then known as my workplace 4 instances. Then he’s like, “I simply wish to discover ways to wholesale. I simply began doing it. I’ll make cellphone requires you if you happen to train us.” Then he ended up shifting out to Washington and yesterday, we inked his first deal.

Ashley:
That’s superior.

James:
His first deal bought performed.

Tony:
That’s wonderful.

Ashley:
Yeah. I used to be really apprehensive about bringing it up. You had been going to be like, “Oh, really, that didn’t work out,” so I’m glad it’s understanding. That’s good.

James:
His first deal. We simply signed and rented a home in Lynnwood, and it’s a very good one too. It’s a very good purchase. Yeah, supply your self of service. Don’t underrate … Everybody desires to get espresso. Like, “Oh, can I purchase you a cup of espresso?” Or, “Can I take you to lunch?” Persons are busy. There’s entrepreneurs … The individuals you wish to observe might be busy as a result of they’re doing work. Provide them one thing that helps alleviate stress factors for them, and they’re going to give it proper again. They bought to choose and select who they will spend time with, and if you happen to’re on a crew, you may be taught a variety of data at no cost if you happen to’re working with the appropriate traders.
Additionally, watch BiggerPockets. There’s a variety of actually good data on there. The extra you watch, the extra you hear, the extra repetition, the extra you hear individuals implementing, after which not solely simply listening to about how they’re doing it proper, however learn the way they’re doing it incorrect. I’ve hundreds of nightmare rework tales. These are the tales you wish to hearken to since you wish to not step in that factor or do this factor, and it’ll prevent a variety of time down the street.

Tony:
James, possibly we’ll convey you again for a 3rd time and simply have you ever speak about all of the issues which have gone incorrect for you. Which may make for a very good episode.

James:
Oh, it is going to blow your minds on the stuff I’ve seen. Everyone thinks, they’re like, “Oh, nicely, you’re simply this investor that does all these tasks so you are able to do no matter you need. You get the pricing.” It’s the exact opposite. That simply means I’m uncovered to far more kinds of tasks, which suggests far more issues and far more individuals. I’ve seen the weirdest, craziest stuff. I’ve employed contractors that had faux identities and faux companies, like official faux individuals and so they disappear together with your cash. Watch out. It’s a loopy enterprise.

Tony:
Effectively, James, thanks a lot for bringing a lot worth in the present day, brother. This was, truthfully, considered one of my most favourite episodes. Partially since you clearly supplied a ton of worth, however secondarily, as a result of I’m attempting to discover ways to flip extra effectively myself, so I very selfishly requested a variety of questions that I’ve been pondering of. James, if individuals wish to get in contact with you, they wish to be taught extra about you and what’s happening, the place can they get in contact with you?

James:
Come discover us. My Instagram might be one of the simplest ways for you guys to search out free building, see what we’re doing, see the loopy issues we do. That’s jdainflips. Then additionally, on our YouTube channel, ProjectRE, we launch a ton of actually deep dive, particular issues on building that can assist you guys out and maintain your plans going ahead.

Ashley:
Effectively, James, thanks a lot for approaching. You guys, observe James and I on Instagram, and take a look at his YouTube channel to observe my first flip, as I’m flipping my first property in Seattle. Thanks guys a lot for listening. I’m Ashley @wealthfromrentals. He’s Tony @tonyjrobinson on Instagram. We’ll be again on Saturday with one other visitor. We’re all performed with James Dainard. Take a look at what’s new on biggerpockets.com.