The 7 Stages of Rehabbing Houses

The most important thing to do in any rehabbing business is breaking the rehab process down into stages.  This will ultimately allow you to systemize the entire process in order to remove any guess work as well as allowing you to continuously duplicate the process. 

It is important to first educate yourself by learning the prices of labor and materials as well as finding, prescreening, hiring and managing “mature”, “grown-up” contractors in your area.  This is the foundation of a successful rehabbing business.  Knowing the prices of labor and materials, terminology, & required tools will allow you to better communicate and gain the respect of all contractors. 

                       

Step 1: Initial walkthrough

The initial walkthrough is where you will do the majority of the legwork for the rehab.  There are certain things you will need to bring with you to the walkthrough of the property:

- A digital camera – taking pictures will allow you to reference the property when creating your scope of work.  Pictures will also be necessary down the line if you’re going to sell the property retail to an end-buyer using conventional financing.  You will be able to provide your before photos and scope of work to the lender as evidence as to why you’re re-selling the property for a large profit in a short period of time.

- Property inspection form & graph paper – This is where you’re going to spend most of your time during the initial walkthrough.  At this point you’ve already done an initial walkthrough and you’ve presumably done a property inspection form.  When going through the property inspection form you need to detail the improvements that “need” to be done and you’ll also want to look for potential extra improvements that can be done to increase the salability of the property when re-selling it to a retail buyer.  You can use the graph paper to sketch a layout for referring to during the scope of work. 

- A lock box with keys – Putting a lock box with a key in it on the property will help to save time and will allow contractors access as needed.  This will help everyone work more efficiently and will save you from unnecessary headaches during the rehab process. 

- Advertising materials – You should always bring advertising materials to leave at the property during the rehab process.  This of course will help to promote your business.  You may want to put a sign on the front lawn, a box with flyers about the property and project in it, or even a banner outside the property.

- A Flashlight – It’s always a good idea to bring a flashlight with you in case the power hasn’t been turned on or doesn’t work.  You don’t want to waste a trip and not be able to complete the walkthrough.  www.stswholesaledeals.com

Step 2: Scope of work

The scope of work itemizes exactly what needs to be done throughout the entire rehab process.  When someone is done reading the scope of work they should have a clear vision of what the finished property will look like.  You will reference the scope of work during every step of the rehab process.  It will list all of the exact materials, paint, carpet, siding, etc that will be used.  All the materials need to be listed along with their cost.  This will not only save you an incredible amount of time it will also eliminate any discrepancies with contractors and other workers and provides accountability. 

Step 3: Contractors & Job Bidding

When it’s time to start getting contractor bids you will want to make sure to bring in multiple contractors and get multiple bids.  You should provide a nice professional looking scope of work.  If you provide a standardized quote itemization form and leave them at the property for the contractors bidding the job they can fill-out their material and labor charges for every component of the job and send it to you.  Also with these bid sheets you’ll also gain the knowledge of pricing as you read over these multiple bids from contractors.  Plus, you will know exactly what contractors are charging you for every single component of the house rather than just giving you a flat price for the entire job.  Therefore if you have a particular aspect of the job that was priced significantly lower by another contractor (i.e. roof) you can plug another contractor into that specific element of the job and save money.  Hiring the right contractors in by far the most important element of any successful rehab project. 

Step4: Contracts & Documents

Now that you have all of your contractor bids and have evaluated and made your decision it’s time to sign the appropriate contracts and documents.  The liability of getting all the necessary documentation signed is something you always need to adhere to.  Don’t even think of doing a rehab and working with contractors without all the documentation property filled out and signed.  Once you’ve selected the right contractor for the job you will want to sit down and have your initial meeting.  This is where you will discuss the scope of work and make it clear that you will be watching every move they make.  You need to explain what your expectations are and lay out the parameters of which they are to work within.  You are the boss.  They work for you.  You will also want to use your own paperwork and contracts only.  Just explain to them that it’s the way you do business if they want the job.  There are six essential documents; independent contractor agreement, scope of work, payment schedule, contractor insurance indemnification form, W9 tax form, and final unconditional waiver of lien.  You will find that a quality contractor will be excited and appreciative because they are working with a professional, there is clear communication and they have the scope of work and know exactly what the expectations are.  

Step 5: The Rehab Process

This is where you get into the actual rehab itself.  The key component is having been prepared for this stage of the process prior to actually starting any work, which is why the steps leading up to this are so important.  Doing all your due diligence is key to a successful project.  Before starting any type of work it’s time to pull permits and get inspections coordinated.  You will want to have one last meeting with the general contractor (GC), tradesmen, carpenters, etc in order to go over the project and to make sure everything is in order.  All the tradesman, carpenters, etc. need to know that the GC is in charge and that they need to refer to him for any construction questions.  The GC answers to you.  There are five major milestones for the permits and rehab process in general.  The milestones are clean-out, frame-out, rough out, insulation and finishing.  You begin by cleaning or gutting the property, as needed depending on your scope of work.  Then you will proceed by framing out all the rooms and marking every aspect of the layout such as tubs, sinks, toilets, stove, phones, etc. so that the plumbers and electricians know exactly where to “rough in”.  Next the electrician will come in and hardwire with new wire, cable smoke detectors, etc.  The plumber will do the plumbing in kitchen and baths, the heating (HVAC) specialists will rough out the heating/cooling system – duct work, baseboards, etc.  When the rough inspection is complete then all the insulation is put in and then that is also inspected.  Once the insulation inspection has passed you can now sheetrock, tape, sand and get ready for trimming out the property.  Once trim is done it’s time to paint.  Once the paint is done the electrician and plumbers come back to trim out or drop fixtures.  The last thing to always do is flooring and carpet.  Once that’s all done it’s time to get your final Certificate of Occupancy (CO’s).  Your last round of inspections to obtain your CO follows the same order of the rough inspections.  First all of the subcontractors must get their final inspections okayed before the final building inspector comes to give a CO. 

Step 6: Contract Closeout

Once the job is complete it’s time to do a walkthrough with a final punch list.  There will be things that the contractor missed or need to be touched up or re-addressed.  Make notes on the punch list of everything that needs to be finished up before they receive their final payment.  Once they’ve complete that final punch list and you’ve approved the final product they will sign the unconditional waiver of lien and they get their final payment.  Getting the lien waiver signed, a copy of the final CO and completing the punch list is crucial.  Make sure not to give the contractor their final payment until those items are taken care of. 

Step7: Final Touches

Now it’s time to critique the house as if you were a potential buyer.  The first thing to do is get the house cleaned.  You need to make sure that the house is not dirty when buyers come to look at it.  The second thing to do is stage the house.  Since the house is vacant you want to stage it to visually optimize the space and highlight each room.  Staging a house should not cost you more than $500.  It will easily pay for itself by getting the investment back ten fold, so don’t underestimate what staging can do.  After the property is cleaned and staged go back with your camera and take after pictures.  It will act as a documented copy for your files.  Adding these to your portfolio will help to add instant credibility for future jobs.  Finally you’ll need to change the lock box code in order to prevent against theft.  This is an important step.  

The value from breaking the rehab into stages allows you to manage the process through a series of systems and checklists.  It will help to not only insure a smooth and efficient process but also will add value to your projects and save you time and added risk.  Most importantly it will help to guarantee larger profits.