Real Estate Rehab Planning Tips
It is exciting when you have landed a new property. Your thoughts are focused on the deal, the renovation, and the money that will come your way when you get it rented or sold. However, be cautious during this time not to overlook the details of the rehab. If you gloss over the specifics you could end up spending more than you anticipated, go past the scheduled completion date, or leave the property looking unfinished.
Here are a few things I do work out the details in my rehab plans.
Create a detailed budget: A budget with a line item of “Kitchen: $8000” could set you up for budget overruns before the project is complete. Break down your budget to each component and budget each separately. That will help you stay on budget for each purchase. So in our kitchen example, start from the floor and work your way up and create budget line items for each: floor tile; grout; mortar; installation; trim; cabinets; countertops; sink; faucet; backsplash and so on. This method will help prevent you from spending $60 psf on countertops if your budget is built on $40 psf. This level of detail will also be expected by your lender if you are using a construction loan for financing.
Create a detailed plan: Similar to the budget example above, building a detailed project plan will help you identify each of the detailed steps required to complete the project, help you identify critical path activities, and pinpoint tasks that are dependent on other tasks. Let’s build on the kitchen example and identify detailed tasks. The project plan can’t say “Kitchen: remodel”! Instead it should say select cabinets; order cabinets; demo; prep walls; paint trim; paint walls; complete electrical work; etc. The more detailed your project plan is, the more clearly you can identify priorities, dependencies, and lead times. A detailed project plan will also help you communicate with your subcontractors about your expectations and ensure the scope of work is clearly understood.
Identify your risk areas: Now that you have your detailed budget and schedule drafted, highlight the areas where you believe you have the greatest risk. Some examples would be if you haven’t purchased cabinets before and don’t have your supplier selected; you haven’t needed electrical work before and are unsure if your estimate matches your scope of work; or you need to have your cabinets onsite and prepped timely so your contractor can keep moving along. A kitchen is a great example of where a detailed schedule illustrates the tight coordination needed between selecting and having your supplies onsite. Line up your subs so they are scheduled to work on your project in a timeframe that keeps your project moving, but also make sure your own tasks are done and you are ready for the subs. Never make a sub wait on your tasks, it is hard enough to find good ones who are available. The last thing you want is to have to reschedule because you weren't ready.
Key Take Aways:
Define ambiguity: We all know where they say the devil lives…in the details. Get very specific about the tasks and materials; especially when you are learning. As you become more experienced, you will have a better feel for things, but for now line out everything.
Identify risks: The best plans are those that mitigate risks as a priority. Work to resolve these quickly so your risk (budget, schedule, or likewise) reduces and your chance of success increases.
Find lead time: Identify the tasks you can, or need to, start early. Make sure no one working on your project is waiting on you.