Business Changes

Change AheadIf you’ve been following my blog for the last couple of months, you know that I’ve had some major challenges with contractors lately.  This has not only put a lot of unnecessary stress on me but it has cut into my profits on my current projects.  Having good, reliable contractors is key to a sustainable rehab business so going forward I will be implementing some changes.  I’ve also come to realize that unless I put specific procedures into place for my project managers, there is too much left open for subjectivity.  I want to ensure that all my rehabs are consistent in quality and presentation so when someone walks through, they know it’s one of my homes.  Finally, as I plan to scale my business, I need to think about the trade off between profit and time.

Here are some of the procedures that I’ll be implementing on all future projects:

Business Changes

I believe that the benefits of hiring a general contractor on my rehabs will far outweigh the associated costs.

The most obvious benefit is that I will only be hiring and managing 1 company instead of the 5+ companies that I currently hire and manage.  As a result, my pricing will be much more accurate.  For instance, I will have one estimate to complete the project that I know will get me from beginning to end.  As of right now I need to know exactly which trade does what to make sure all tasks are included in their quote.  On my first rehab, I assumed the electrician connected and vented for a bathroom fan.  Come to find out, it was the contractor’s job and he didn’t include this in his price.  Although this is a small detail, there are lots of little jobs like this that can get you caught paying extras.

I’ve noticed that when each sub contractor deals with my PM, they can very easily pass off the blame to another contractor as a reason why they didn’t complete their work on time or why they need to charge me extra for an item.  For example, when the demo crew removes plumbing pipes that I didn’t want removed, I now have to pay the plumber to correct the issue (Yes, I can deduct the expense from the demo crew but that’s an added headache for me).  On the other hand, if this happened under a GC’s watch, they would be the one to deal with the issue, not me.  This may not seem like a big issue for some people but because I am investing on a part time basis, time is my limited resource and I need to conserve every bit that I can.

Writing checks throughout a rehab will require much less time and can be more streamlined.  I can create one payment schedule by following the natural flow of the job:

Payment 1 – deposit
Payment 2 – completion of rough inspections (verify by building permit)
Payment 3 – completion of all work (verify by building permit)
Payment 4 – upon completion of punch list

By having my PM acting as the general contractor, it will be very difficult to scale this business.  I only have 3 rehabs going on right now and as I look to scale up to having 6-8 rehabs going on at any one time, this isn’t a sustainable approach.  I’m not saying that using a GC is the only way to go but it sure might make the most sense for me right now.

These are some of the changes that I’ll implement starting on my next rehab.  The big take away that I got, and hopefully you have as well, is to learn from my mistakes.  No matter how long you have been investing, you will run into difficulties.  But it’s what you do to mitigate those issues from ever occurring again that will make you successful in the long run.

I’d like to hear if you’ve run into issues in your real estate investing business and what you did to change the outcome??

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  • Shaun Reilly

    Good job learning from those experiences and refining your systems.
    It’s interesting to me the progression you have since I usually think of a natural progression being self manage/GC your projects, then hiring a GC to handle that to save time and headaches, then getting a PM to either oversee a group of subs in lieu of a GC or to manage several GCs when things scale to several concurrent projects. So you kind of jumped over that middle one and now are kind of revisiting that with the PM system already in place.
    My guess is once you work out the kinks and have a couple of good go to GCs you will really be able to hit the ground running with this plan.

    • Thanks Shaun. Yes, that’s the progression that I often see as well. My next rehab will shed much more light on how I see things moving but I’ll wait until it happens before I comment on it.

  • Greg Jackson

    Justin, thanks, learned a bunch from reading this. Great to see you streamlining your processes to help you work more efficiently and help grow your business.