Profit...At What Cost?
Updated: Aug 1, 2022
$47,000 in 97 days. What could I possibly be upset about when making that much in that short of time?
If my Newell Nightmare taught me valuable lessons on how to do a flip, frustrations with the Ferstl Flip taught me what I want DGP Properties to be all about.
A number of terrible interactions with a "project manager" helped me start to learn the identity I want my team to have, and the poor workmanship of some subcontractors reminded me of the brand I want to represent and display to the world.
So while from a strictly numbers and profitability standpoint this was an excellent flip, this is a story best told from the view of a business owner figuring out what he wants his business to stand for. Money isn't everything in this business! Identity and brand are far more important.
Identity - Your Team is a Reflection of What You Allow
At the onset of this project I was happily very true to myself. This was the first deal from my marketing and I intended to wholesale it, but when that didn't work I bought it. I made a commitment to the seller that his property would be sold, and I intended to honor that commitment.
Fast forward to a few weeks into the project and I found the 3 E's that I have no time for in my business:
Excuses - take responsibility for yourself and your team, never make excuses
Entitlement - to be frank, you're not entitled to shit. This applies not just to contractors and project managers, but also to investors and business owners
Emotional Responses - discussions and disagreements must be rational and fact based, never emotional
Unfortunately these were running rampant because I didn't properly do the two main things that would've prevented this: proper screening on the front end, and setting and enforcing standards throughout the project.
How do you best screen contractors?
To be honest this is still something I still struggle with, but I've learned a few things so far:
Find out the size of the projects they're used to handling. This crew had done quite a few smaller maintenance projects, but never done an entire flip and it was way too much for them to tackle
Find out about the quality of their workmanship. This can typically be done through asking references or ideally seeing a previous job, and on this deal would've prevented enormous problems. More on that later
Find out if they've had money problems with clients. Initially my crew tried to nickel and dime me for change orders on every little thing that was a part of the scope of work. Ask references about their experience with this
Find out if they're the ones doing the work or if they're subbing it out. On this deal I was talking with someone who was effectively a project manager, she was "overseeing" the lead contractor, and he was hiring out a bunch of subs. The people doing the work were 3 levels removed from me and I hadn't screened them whatsoever
Standards are only effective if enforced
As a brand new Infantry Platoon Leader in 2013 one of my guys got in trouble. I went to my commander to inform him and he looked at me and asked "what are you going to do about it?" After a brief lesson in management he told me to get out and come back with a solution.
The next time something happened, I had learned my lesson and was ready. I walked into his office, told him what happened, and recommended a solution. "What if that doesn't work?" he asked. Again, he told me to get out of his office and come back with things a little more thought out.
After the third time I knew I had it. I came in very sure of myself with the problem plus multiple possible options for how it could be handled. Not surprisingly, he crushed me again and asked what the second and third order effects of each of those proposed solutions would be. Once again, I left his office confident that I'd get this figured out and I'd be prepared.
He set his standard, he enforced it, and it changed the way that I've approached situations the rest of my life. Coming to the table with nothing but a problem is unacceptable, and that's not only how I now operate but it's what I expect from people.
The problem comes when that expectation isn't communicated or enforced.
My project manager called me one day on this project..."Hey Patrick, we're painting the front door like you wanted but it's not working. What do you want us to do?"
I'm not a painter, and I certainly didn't hire painter so that I could teach him to properly paint a fiberglass door. But to that point I hadn't effectively set and communicated my standard and I needed to - come to me with solutions and the impact of each solution so I can make a decision or look for another course of action.
The same idea applies for quality. You have to set the expectation that subpar work is unacceptable and must be redone, and then you truly have to enforce it. I've also struggled with this because I feel empathetic to the idea of redoing a bunch of work, but that's the wrong approach. If it's not up to your standard, enforce it! Once you let the standard slide once it's a slippery slope.
Brand - You Can't Put a Price Tag on Your Reputation
When the project was wrapping up and I did my "final" walkthrough, I was absolutely blown away by how awful everything looked. Here are just a couple of the things that were horribly wrong:
One high-traffic section of bathroom subfloor was replaced with plywood of a noticeably different thickness
Every single cabinet pull was installed crooked throughout the kitchen
Each side of the hallway had a different type of shoe molding
A door knob latch was installed wrong to make it impossible to close the door, and 3 other doors didn't close at all
The walls weren't sanded and prepped before painting
There were enormous gaps in the trim on the floor that were never fixed or filled
The entire area wall behind the fridge hadn't been painted or even patched
These were just the things that were truly contractor failures, not to mention additional quality problems that were of my own doing. I was so disgusted by how it looked that I started brainstorming how to get the house out of my name before selling so it wasn't associated with my brand.
Despite the quality of the finish work, the market was so hot that I knew that no matter what I knew this was going to be a profitable flip. We could've gone to market with the expectation of giving major concessions to a buyer. But that's not how I wanted to represent the DGP name.
I also had no desire to work with this crew to get things fixed based on the ridiculous emotional responses I'd received in the past. So I told the project manager that we could get together to go over the problems so they could fix them but if there was even a hint of emotion or anything of the sort I was walking out and I'd find someone else to do the rest of the job.
They got it looking a little better and we went our separate ways.
Unfortunately, there were still some problems that were of my own doing as a result of trying to keep costs down. These are the key lessons I learned to improve the quality of the final product:
Level the floors. Whether this means jacking them up, replacing the subfloor, or just pouring leveling compound, do it. I didn't think of it and probably would've balked at the price tag like an idiot, but just do it. Also, make sure the damn floors are cleaned before the flooring goes down! Clumps of dirt and drywall mud under the flooring feel much bigger after it's laid. Nothing ruins the feel of a house like an uneven floor.
Use quality flooring. This one took me too long to learn...use good flooring with a good pad attached and use good underlayment if the flooring calls for it. The cheap stuff feels cheap to walk on and is worse to install, leading to more wasted pieces. Buy the good stuff and don't be an idiot like me.
"Tub & Tile Refinishing Kits" don't work worth a damn on tile. Just replace it. We tried using the kit and it looked horrible. With quality worksmanship it would've just looked bad, but combined with awful work it looked horrible. Do yourself a favor and replace it.
Replace all the bad drywall. Even when touched up, old drywall that isn't in the best condition will show through and mess up your finished look once painted. Spend the extra bit of time and money to replace it.
Use the right paint sheens. I 100% screwed this one up and mistakenly ordered eggshell for the trim...it's not that I accidentally ordered it even, it was very intentional. But for some reason I thought eggshell was more glossy. Don't be dumb, make the trim shine with a semi-gloss paint.
Your brand and your reputation are the most important thing to your business. I'd rather be known for producing fantastic flips and be less profitable than be known for cheap shitty work and make more money.
This is now how I approach future projects. Do I look for good deals and places to save money? Of course. But now I look at everything with much more of the end buyer in mind, and my goal is for people to walk in the house and be blown away by what they see.
By the time it was all said and done, I'd call the flip a success. It was highly profitable (see the summary page), it was purchased by a family who was absolutely thrilled about it, I learned invaluable lessons to carry with me to the next flips, and I locked up the deal next door!
Business is an iterative cycle - take action, make mistakes, learn, implement lessons, repeat. If you take action the mistakes are inevitable...but if you don't learn and implement, they're for naught. The biggest lesson here was the importance of my brand! It's a lesson I'll never forget.
