5 Lessons From My First Finished Flip!
Remember when they told you that your network is your net worth?
I don't know who "they" is, but they're absolutely right!
One of my biggest pain points on my first flip (read all about the Nightmare on Newell here) was the crew...besides being very unprofessional overall, they just couldn't run or manage a large project and didn't do quality work. The #belfastflip saw a marked improvement in that regard!
The process certainly wasn't perfect, and I learned more lessons on this one again, but overall I'd call it a success! I'll walk you through the process, but overall the lessons centered around 5 learning points about the following topics:
Using change orders
Importance of pre-inspections
Planning & starting the rehab
I mentioned in the acquisition article that I had to switch gears on my contractor crew for the rehab due to the problems at the #newellflip, so we got a little later start than anticipated. I closed on September 24, the roofer made it out on September 30 (and did a great job replacing the roof in a day...thanks Bob!), and my GC (Kenny at Simple Builders LLC) and crew got to work around October 10!
Drawing on my lessons from the first flip, we went back and forth and hashed out the rehab details, scope of work, and contract prior to starting any work. The scope of work included everything that was to be done, the draw schedule with the activities broken down per week, and the cost associated with each. The most difficult part of all of it, and a pain point throughout the process, was the material list!
Learning Point #1 - Coordinating materials
I don't know about you, but I'm certainly not any sort of construction guru. I know what types of finishes I want in a house, but I don't know what building materials are required to build and install everything. That's why we hire experts!
From there I passed the list to Kenny so he could add the other items that I didn't know or that needed measurements - doors, paint quantities, insulation, drywall, gravel, etc. As you can see below, at the end of it we had a detailed list of what was needed for the project so we believed we had a solid grasp of what the material cost would be.
There were a handful of things that we both severely underestimated that caused us to be pretty inaccurate, primarily floor trim, amount of paint, and appliance cost. But for us, having this list provided a great layer of accountability for both of us:
He knew exactly what I wanted and what I was providing
I was (relatively) confident in our budget for materials
Learning Point #2 - Purchasing materials
This process worked great in theory, but was a little more difficult to implement in practice. We initially planned it out to have each draw include a payment for materials as well as labor, which started out great but then got more difficult when I had to order some of the items like cabinets and when I got a great deal on some materials for Prime Day. For these draws we had to itemize the materials that I purchased in order to deduct them from the payment schedule. This was made more difficult when we had change orders containing some materials that were already included in the draw.
The bottom line - make a decision whether you're going to make payments based off of projected costs or actual costs as they come, and be clear about it from the start
For next time we're going to do two things differently:
Specify up front what I'm ordering (primarily cabinets, flooring, & appliances) and he's going to purchase the rest so we don't get in each other's way
We'll use the materials list to document what needs to be purchased but not include it in the draw schedule. I can pay an initial deposit for materials that he can pull from, and then with each draw reimburse him for what was purchased, but by going this route we prevent double payments and minimize the coordination required
Learning Point #3 - Change orders
Kenny and the crew did a phenomenal job documenting and coordinating a lot of things, one of which was change orders as we progressed. **It's important to note that in order to be effective with the use of change orders, you also need to have a detailed and clearly defined scope of work & materials list from the start**
I apparently don't learn from some of my mistakes and didn't turn the utilities on when I closed on the property. As a result, we had 3-4 days with no power where they had to make some changes to the plan. Kenny rented a generator to keep the guys going, and then we had an unexpected problem the next day where the drywall from the ceiling fell in.
Neither of these items were on our initial scope of work, so on the next draw we had a change order that clearly depicted the deviation in plan. It broke down the cost of each item as well as the associated labor, allowing both of us to be clear on where we were at on the project compared to the budget.
Learning Point #4 - Soliciting feedback
If you've been in an airport before you're familiar with the idea of "see something, say something!" This applies on rehab projects as well. We had a very proactive crew who got things done quickly, but when we got to the end realized we would have been better off getting feedback along the way.
One specific example is with flooring. When I walked through the property before they ripped out the carpet, everything felt pretty even. We were laying Luxury Vinyl Planks with thin underlayment from Home Depot, but what Kenny and I found after the floor was laid was that there were what felt like soft spots here and there.
There was nothing really wrong with the subfloor or structure, but some uneven spots and bumps were made more prominent once the flooring was laid. After everything was done the subcontractor who did the flooring said we should've used a thicker underlayment, but at that point it was too late.
Had we made the idea of "see something, say something" more clear from the start, maybe we would've found out early enough to prevent the problem rather than shrug it off later.
Learning Point #5 - Pre-inspections are still key
I'm usually all in for getting home inspections, but didn't on this because of the work that we were doing. I figured any problems we'd find in the inspection would be identified over the course of the rehab.
I was wrong.
When we got under contract to sell, the home inspector found a number of little things like small crawlspace leaks, crawlspace humidity, and small electrical issues. These weren't major and we didn't notice them while working on the property, but because the buyer's inspector found them we had to address them.
This end up costing $5,000 in repairs and concessions and caused some delays that could have been prevented with an up front inspection.
Wrapping it up
All in all, I would consider this a very successful rehab. We had some weird issues with the lender when selling that delayed us a month, but the entire process from close to close took 107 days. I closed on the house on September 24, 2020, and we're set to close on January 8, 2021.
I'll share the final numbers after closing, but for a 4 month project we're looking at ~$20-25k profit! We also learned more valuable lessons that will only help us out on the next deals.
Now it's on to the next!
Hopefully you can apply some of the lessons I learned on this deal to some of your own. When you do, please share the with me! Leave a comment below or email me at firstname.lastname@example.org. I'd love to hear what you're doing, and I'd love to share it as well!