Real estate investment eventually boils down to fixing things and renovating houses, and it doesn’t change if your investor is domestic or international. The difference with an international real estate investor though is that you need to be very precise with your estimate: it is very difficult to ask for more money once you are halfway on the project. People want to feel safe and want to know that you know what you are doing. If you are unable to control and predict your costs then your image will be tarnished. Ask for more in advance!
Managing contractors is an art.
On the other hand, controlling rehab costs and contractors can be challenging and it is an art in itself. In today’s market you cannot really rely on external crews with a general contractor managing everything and providing a “full services”. There are not enough margins to do that and there are too few contractors that really understand the needs of an investors. If you are managing foreign investment money you need to be able to direct the works yourself or closely control them.
I have done several rehab projects starting as a total stranger in this country and I will give you some advices:
1.Start with a small project first, don’t try a major rehab in your first house. You won’t have enough experience to control all the components of the project and the longer the project will last the easier it will be to accumulate delays, extra costs and lose your crew altogether.
2.Develop a trusted relationship with individual tradesmen. Don’t rely on a contractor bringing in “his own crew”. You will eventually build you own team and you will have backups for when you need them.
3.Team up with a local experienced investor to have referrals, but always double check them yourself.
4.Never pay upfront the whole amount of the job and give just a minimum down-payment (the lowest you can negotiate). The more you pay in advance the longer the project will take. You can pay in advance for the material, but always keep a fair amount of the labor payment until the job is completed and you are satisfied with it.
5.Never give the idea to a contractor that he will work for you forever. It doesn’t matter how good he is, make sure he knows that you will ask for competitive bids at every new project and that you will accept them if they are better than his. In this fashion he will keep delivering his best performance and his best price.
6.The most critical areas are structural, roofing, plumbing and electrical, pretty much in this order. Avoid structural damaged houses altogether and don’t tackle major roofing work unless you are already very experienced (repairing some shingles is ok, of course).
7.Contractors are not very good at bidding and they will often underbid so to get a project and then they will escalate the costs during the project. Make sure you validate the costs of the materials yourself before you accept a very low bid.
8.If a contractor is late at his first meeting, he will always be. Find another one.
The rehabbing side of the real estate business is where you can make the most money or lose the most money. Try to be on the right side.
Roberto Mazzoni
P.S. Write me if you want to share some of YOUR experiences with contractors.
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