Real estate project management requires more than just supervising your crew, handling paperwork, giving feedback, and checking materials. There is so much more to it that you must understand, especially on the product, material, and budget monitoring aspect. In this episode, Robert Orfino lets us understand the importance of learning contracts inside out and buying the materials yourself, thus ensuring the quality that you expect. He talks about how to work closely with contractors and make sure that they are sticking to their part of the deal.
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Project Managing with Co-Host Robert Orfino
We’re talking about project managing. We talked about project management from flipping and buying and holding. It’s the same skills that you use for any job. The project management skills and the project management format is the same that NASA uses. Identify the issue, come up with a plan, implement the plan, review the results and see if we have to do it again. There’s that circle and that’s good business practice. We’ll talk about that when we do a webinar. It’s called Running Like a Business. It’s one of those $97 education things that we do. We’ll break down structure, how to do hiring, insurance, but most importantly, we’re going to talk about a couple of books, The Pumpkin Plan, Pay Yourself First, and we’re going to get into making sure that your business is viable.
The Seven-Minute Repair Calculator
When I have to sit down and do project management, I’m very good at it. However, you get a little tired of contractors lying to you all the time. I’m going to start this segment off and give everyone the quick seven-minute repair calculator. If you’re in this game, if you’re getting into real estate and trying to figure this out, I’m going to give you a quick repair calculator that you can do on your phone. It’s not an app. You’re going to need to know the difference between a mild rehab, a moderate rehab and an extensive rehab. I walked a property with a good friend of mine. It is a very mild rehab. We can do a couple of light fixtures in the bathrooms, a couple of the faucets, light switches and paint and we’re good to go. That’s about 2,000 square foot house. I wouldn’t even paint the outside. The outside trim was fine. We’re going to do a little garden and cut some trees back. $5,000, that’s a very light rehab.
The moderate rehab is more than blow-and-go. It is when you do the walls, the floor and the fixtures. Typically, our blow-and-go are going to take care of light switches. I like a switch over to single poles over into the rocker panel. I like that clean look in the house. I like all the outlets and all the switches look like that. This is what we say when we take a C or D property and bring it up to a C-plus, B-minus. Very quickly we’ll do the rocker panel or decora, outlets and switches. We’ll have a nice clean look on that and it makes it look new. It might be a family room or living room. We’re going to shoot crown molding. That’s not a lot. We’ll do paint for sure on the inside. On the outside, we may only do a trim. We’ll replace the light fixtures in the bathroom. I’ll replace the faucets in the bathroom and in the kitchen, probably leave the sink. By painting or replacing some of the finished fixtures, the lighting and the plumbing, replacing the switches and putting a little crown in those rooms, it’ll look amazing. There will be a big difference. That’s a light rehab. For that house, we can probably get all of that done in a week for about $5,000 to $6,000, but it’s a rental.
A moderate rehab is going to include your vanities. It’s going to include your kitchen redo. You absolutely want this beautiful white shaker, countertops, specialty tile black splash, the pull-down faucet on the spring and crown molding on the cabinets or better yet, the cabinets are all the way to the ceiling if you can make it work. There’s new tile throughout the kitchens and bathrooms, new vanities in the bathrooms. We’ll leave the tub sometimes. We’ll do the shower insert different. We do the tile. We’re talking about a moderate rehab and make it look good. Make those bathrooms and kitchens pop because bathrooms and kitchen sell houses. We’ll redo the floors. We’re going to do tile in the wet areas. We’ll do a vinyl snapping everywhere else. If we’re going to hold it or sell it, we might do carpet in the bedroom.You don't need to know any more reasons why you should rehab; you need to know how to do it. Click To Tweet
A heavy rehab or an extensive rehab is going to be everything from studs out. There are still flood houses all over the place and you walk in and it’s like, “This is heavy rehab.” That light rehab is going to be about $10. The fireplace countertops as well, sometimes I do that in light rehab. If the cabinets look good and I can just put courts down because I do courts for about $20 per square foot. I’ve got to get the right crew but I might do courts at light rehab. It’s $10 or less a square foot. That moderate rehab, because I’m doing the kitchens, I’m doing the bathrooms and then do other stuff, it might be at $20 to $25 a square foot. In that gut rehab, you’re going to be $40 a square foot, maybe $35 to $45 depending on where you’re doing it.
Once you understand that it’s going to be under $10, $20 to $25 and $35 to $45 because once we’re doing extensive rehabs, we got a whole bunch of things we have to do about. You got a real quick number when you run in. On top of that we’ve got seven extra things we have to do. When you stand in front of the house, you look up at the roof. If the roof looks wavy, it’s not solid. If the tabs on the shingles are pulling up, if that ridge cap is flaking off, you need a new roof. The roof was not included in that $10 a square foot price. Walk around to the side of the house. You’re going to see the air conditioning unit. You’re going to look at the tab, there’s a little plate on there. If it says R22, that means it’s older because we don’t use R22 that often. If it’s just rust, you know it’s old and it’s beyond its half-life. It’s time to replace it.
We’re going to look at the air conditioning. We’re also going to walk inside. We’re going to get the hot water heater. On the hot water heater, there’s usually a service date on there or there’s an ANSI number. The ANSI number is given out every two years. You’re going to figure out the age of the hot water within two years. If it says 1998 on it, then it’s somewhere between 1997 and 1999. That’s a twenty-year-old water heater, so you have to replace that. You need to know light rehab, moderate rehab and extensive rehab. You need to know how much does that’s going to cost with your contractors. You’re going to look at seven items. We just talked about three, the roof, the HVAC, and the hot water heater.
How To Hit The Backhand
We’re teaching you how to hit the backhand and getting into it. You’re either into real estate and you understand all the good things about it. You don’t need to know any more reasons why to do it. You need to know how to do it. Everyone knows that playing tennis is going to be good for your health or you’re going to get some activity. You want to figure out, “How do I hit the backhand?” We’re talking about project management. We’re going to talk about assessments on your rehab numbers. You got to know what a moderate rehab is, a light rehab and a heavy rehab. It’s $10 a square foot or under on the light. A moderate rehab is going to be about $20 to $25 a square foot. A very extensive rehab could be up to $45 depending on what we’re looking at. There were seven caveats. When you take a walk, you get out of your car, the first thing you do is look up at the roof. If it’s an old house there will be stains, the shingles are already in different colors, but you’re looking for waviness in the roof.
That means that some of the boards underneath has a leak. It’s rotting. You can look at the ridge cap. If that’s all flaking up, there are shingles that are all peeling up, turned up corners, you’re at the end of the life. You can get into it and go up and look how many layers we got done. Go onto the air conditioner, if there’s a big metal ball of rust on the side of the house, you’re going to need a new air conditioner. You go into garage, usually, the hot water heater is there. If the ANSI number is 1998, this thing is twenty years old and you’re going to need a new hot water heater. Go underneath the kitchen sink. You look at the valves that are coming out. You’re going to have to know between copper and galvanized. Copper gets patina, which means it turns green, galvanized gets rusty. It’s usually silver. If you see a thick silver pipe coming out of the wall, it might be a galvanized pipe. You might have to re-pipe.
Go look at the panel. Run around to the side of the house, it’s usually right next to the air conditioner. Flip that thing up. That main breaker up top, the big one, if it says 150 or there are two 100s, you’re good to go. If it says 100, I may not have everything I need in this house. If I see something that says 50, then I definitely know I need to upgrade the panel. If you’re looking at the panel and anywhere on there, it says the word “Federal,” you got to replace the panel. You should get a home inspector to do all this. We always recommend it, but you can run through the house quickly. Maybe someone was a fan of the 1980s indoor Dodgeball team, the Federal Eagles. Maybe they put a sticker on there. You could be wrong, but most of the time if it says “Federal Electric,” then we’re going to need to upgrade that panel mostly because it is a known fire hazard. We’re going to go into the house and we’re going to see if it feels like we’re walking on a bouncy hut. Is it up and down? If we have foundation problems, we got to get a foundation guy out there.
Look at the windows. There are not very many windows I would have replaced. Once in a while, you come across louvered windows. This is a thing back in the day. Louvered windows are usually in the bathrooms so you could ventilate. We probably want to replace those. There’s your seven and you need to figure out the cost on those seven pieces because then you can add those on top of your $10 for a light rehab, $20, $25 for a moderate, $35 to $45 for heavy rehab. You add those on top and you’re usually within 10%, 15%. It’s good enough to start the process. It’s good enough to see, “Should I do my due diligence?” Don’t come back to me and say, “Robert, I ran your numbers and it came out to $72,000 and when I got all my bids together, it was actually $83,000. You were wrong.” No, I’m just telling you, this is how I do quick seven-minute runs. I did it and there’s a kid with a camera following me around. I was like, “Get out of my way. I’m doing this.” I’m running around looking at the roof, the panel, the hot water, the air conditioner, everything I needed to do and I said, “We’re good.”
B Level Properties
We looked at a nice sexy little house. A lot of our landlords that are with us want B-level properties where they can cashflow. We found one and we have another one coming up. We have two B-level rentals that people will feel good about and you can put your grandma on them. They’re so nice. If you want, reach out to us, 281-401-9008 to get ahold of our buying agents and they’ll sit down and interview with you. They’ll talk about those two B level properties that we have that will cashflow. If they will cashflow to B level property, then you know there’s going to be a ton of equity in them in the next five years. Can you buy the app? Yes. Are you an engineered type and the app is probably better for you? Yes. Are you an I-type, an innovator, an excited person, and can you take my little method and run through because it’s quicker? Yes. Are you a dominant personality trait and you’ll use my little method because it’s fast instead of you sitting there filling out the app? Yes. Are you the social type, the mommy type? You want to make sure everything is right and everything is good for everyone. Will you use an app? Yes. I have an app on my phone, but what I’ve learned over the course of time is just to run in and run out and to do these quick numbers.If you were buying the property and flipping, take a little time and put together a contract and just go through it. Click To Tweet
They don’t build me a scope. There are apps out there that will build a scope for you. That’s not what I’m talking about. I ran into them and said, “I know where I need the number. I think this house is worth $220,000, which is a very hard number to sell at. I’ve got to get it because of the way that I get my loans. I’ve got to get at least 75% ,76% ARV.” I did my quick math. It’s going to need a roof, an air conditioner, and hot water heater. You’re only going to need about $5,000 on the inside. For the roof, I put $6,000, $6,500 in my number, the air conditioner I put $4,500 in my number, so it’s $11,000 and the hot water heater $1,000. It was at $12,000 plus $5,000, you’re working with $17,000 in rehab. I’ll be within 10% of that number, but when the text came back to me within fifteen minutes on the price on it, I can make a decision there then without having to go through my spreadsheet or my app. We talk about this market. It’s beginning to move fast. If you’re a flipper, you already know. These deals are moving fast.
The Contractor’s Point Of View
Let me tell you how to do a cattle call. Let me talk to you from the contractor point of view. It is very hard to be a contractor. All the problems that you have with your contractor they have with their subcontractors. It rolls downhill. If they don’t show up, it means the contractor’s not there. We typically recommend that you find a project manager or a good company. There are some good companies in this town. There are some good project managers and we’re on our third active project management crew because of all the stuff we’re doing. We’re careful with this stuff. You have to have a contract for everyone and most of the time you’ll have problems around the contract that you either didn’t use, didn’t sign or you signed the contractor’s contract. He who writes the contract wins. We always recommend that if you were buying the property and flipping it, you take a little time and you put together a contract and just go through it. You say, “This is what happens.” It’s not hiding anything in the contract.
What you need to do is sit down with the project management or the contractor and say, “Let’s go through some worst-case scenarios. We’re committed. We put all this effort into this project. We try and get everything rolling. We spend a lot of money, spend a lot of time and you don’t show up. What happens then? How long does it take to get paid?” The contractor only cares about one thing. How fast can I get paid? In this town, they expect it in 24 hours, which blows my mind. It tells me a lot of these guys have gotten burned before. It’s like, “Where’s our money? It’s over.” I’m like, “If you submit the invoice on Wednesday, you will get a check on Friday or Saturday. If you submit the invoice on Friday, you will not get a check on Saturday.” What happens is we buckle because they’re doing a good job. We liked them. We were like, “Let’s go ahead and run the check.” We’re at a point where like, “No more.”
You can’t just throw me this invoice on Friday afternoon and saying, “Can I get paid on it?” No, you put the invoice in by Friday, we match it up to the PO, we keep good record keeping of it and we pay on Friday. As a flipper or someone who’s rehabbing, you’ve got to set the expectations from day one. You’ve got to have a meeting; you’ve got to go over the expectations. If you ignore that, you’re just going to get into fights and arguments and is not going to be a good deal. Here’s what happens if you guys abandoned the job for two days. Here’s what happens when you want to get paid. Here’s what happens before I can cut you a check. Here are all the things I need. You need to have that conversation.
A lot of people are like, “Can you paint the house?” I’m like, “Yes, we can paint the house.” They’re like “How much to paint this house?” I’m like, “It’s 2,000 square feet. I’ll do it for $2,300.” They’re like, “The last guy was at $3,500. I’ll take the $2,300 offer.” He’s doing one tone and the guy who gives a quote of $35,000 was doing a three-tone job. What does that mean? This is why our apartments are different than the C-level apartments. The C-level apartment does one tone, meaning they tape off the windows and they spray the ceiling, the walls and the trim all the same color.
There are times we’ll do a two-tone, which means we’ll do the ceiling and the walls, the same color and the trim different. A three-tone is going to be ceiling paint, wall paint and then trim. Typically, they’re not just different colors, they’re of different grades. You didn’t define that you wanted a two-tone or three-tone and they show up. They tape off the windows, they put their mask on and they get in the house with a bunny suit, “We’re done.” We used to have guys in California that do as cheap as $0.65 a square foot for one-tone. You didn’t have that meeting. You didn’t set the expectations. You didn’t tell them what you’re expecting.
From the contractor side, I always talk about Caesar. He’s the best landscaper I ever had. He was there with me when we’re doing all those hedge fund houses out in California. Caesar was fantastic. He was at a good price and he did good work, which means he wasn’t fast. We all know good, fast and cheap. Any project can be done with two of those three. I don’t care how much of a type-A personality you are and how much you think you can bend the heavens and the earth to get things done. You are not going to get more than two. It’s certainly not on a consistent basis. We should pity contractors. Contractors have the most unhealthy families ever. Their mother is always sick, their wife is always sick, their kids are always sick and on top of that, they have the most unreliable transportation. Their trucks always break down and have flat tires and they always have transmission problems. It’s such a horrible existence. I can’t imagine having to take your wife to the doctor every Friday and every Tuesday morning your truck breaking down.
Here’s what’s going on. You have set up this pretty elaborate pay schedule and you’re going to give him 10% down because that’s what some guru told you. You’re not going to hold back, you’ve got inspections, and we got draws and we got to get Johnny to come out and take pictures. Kevin’s coming out and he’s looking at pictures. It goes over to this guy and he said, “There’s a stain on the floor. We’re not giving this draw.” All this stuff gets tied up with the money and Caesar says, “My truck broke down, I can’t be there.” What’s he doing? He’s working a cash job. He’s going to take two days off of your job because you’re screwing around with the payments and he’s going to go out and make some money.The reality is when your contractor is not showing up, they're more than likely on a cash job. Click To Tweet
Typically, these guys can make $500 cash for someone who knows what they’re doing and has a crew truck tools. They’re going to run out and go make $1,000 for the two days that you’re screwing around. Their family isn’t that sick. Their truck doesn’t break down that much. They’re going to do cash jobs. It’s going to happen. My friend Caesar would go out every Friday. He would not show up at the job. There could be flats of plants and pallets of mulch and big piles of gravel waiting for Caesar to put it in. It got delivered on Thursday and he’s not there on Friday, which means I’ve got to come back every day and hose down the plants so they don’t die. I got to run out there every morning and I’m like, “What is the problem?”
He confessed. He said, “Robert, we got a poker game from Friday night to Sunday morning.” I’m like, “What?” He’s like, “Yes, I played poker from Friday night to Sunday morning.” I’m like, “You do?” He’s like, “It’s not a lot. It’s $0.25 or $0.50 pot. We barbecue, we eat, we drink lot of tequila and we have a great weekend.” I can’t imagine playing poker for more than four hours, let alone all weekend. He’s like, “Robert, you’re not going to cut my check until Wednesday, but I need at least $300 to sit down to this game. I’m going to go work on Friday and make $500, pay my two guys $100 each and I’m going to keep $300 so I can sit down and play poker, drink tequila and eat barbecue.” I’m like, “I got it.”
Setting Contract Deadline
Once you have the truth, now you’re in a very interesting situation. What do you do with it? I started getting his checks to him on Friday morning so he can go cash it at the end of the day and he can go play poker, but he would be at my job on Friday. He was that good. If he was a horrible landscaper, forget it, he’s gone. The reality is when your contractor’s not showing up, they’re more than likely on a cash job. That’s what’s happening. When they say they’re going to be there at 10:00 AM and they show up at 4:00 PM, they did another job. I can perfectly understand that scenario, so I built in the contract deadlines. It’s like, “I don’t care if you don’t work on Saturday. I would think you should work on Saturday to get this finish, but if you don’t want to work on Saturday, that’s fine. We got to get this thing done by this date.” We all agree.
We like to have a consistent look in our homes, in our apartments, so we will buy the finished products. We have a managed account with Home Depot. We have some accounts with some other supply houses. We’re working on a paint account, but I know that I’m going to get the same trim and finish products for all my properties. Once I know that then I can start buying in bulk. At one point I was buying toilet bowls for $37 because I was able to buy in bulk and I don’t have a warehouse. Those who have been following us on Facebook, I don’t have a warehouse and most of the stuff I’m doing for the Airbnb is just piling up in my living room. I do not think I want to put toilet bowls in my living room. We’ll find a warehouse space and we’ll warehouse some of this stuff. Being able to buy in bulk, even just contractor packs, like at Lowe’s and Home Depot, if you buy four, you get a deeper discount. You buy five of this, get a deeper discount.
If you keep it all the same and you have your spec list, these are my finished products and try and keep it the same, then your production is going to be cheaper. You’re going to save on that. For sure, go to Home Depot and sign up for the Fuel Rewards program. Once you start hitting some bigger numbers, you’re going to get credit back at Shell stations. If you ever have seen my video where my gas bill for twenty gallons is $4, that’s through that program. Others walk Home Depot on Sunday mornings, that’s when they’re doing their price reductions and their change-outs and closeouts. Look for the yellow tags and green tags at Home Depot. Those are going to be products that they’re closing out and you’re going to get deep discounts on faucets, lights and things like that.
We’ve talked about the deals. We’ve talked about a quick little seven-minute analyzer. That’s what it usually takes me and run through a house. I’m just looking at things I need to look at and making some understandings. We talked about making sure that you have the contract. Make the contractors sign your contract. We have a seventeen-page contract that freaks everyone out. We’ve dumbed it down to seven pages, but you have to go through it line by line, “This is what this means. This is what you’re signing. Place your initial here.” We’ve talked about why your contractors are disappearing from your job. It’s the pay. They all want to get paid fast. You’re telling the job, “Kevin hasn’t come out yet and he hasn’t taken a picture.” You’ve got to send it back to Johnny. Johnny’s got to send it over to this guy and this guy doesn’t like it. He goes, “There’s a spot on the wall.” You’re going back and forth of all this nonsense. Your contractor’s like, “I’m out of here. Maybe I’ll come back if you have money to pay me.” This is why these hard money guys are like, “We want to see the reserves so you can keep the job going.”
We talked about understanding that stuff. We talked about buying your own finished products so you can have consistency in your job. If you let your contractor pick your finished products, you’re going to get the Jelly Jar lights outside. You’re going to get plastic faucets. It’s going to be a nightmare. You have to have your own spec lists. We have them somewhere too. If you’re interested, we’ll find it for you. We used to sell the whole contractor package. For sure. you want to save money. Buy in bulk. That helps. Get the Fuel Rewards program at Home Depot. All the people at Home Depot are friends of Merrill Chandler of CreditSense. Home Depot has a $25,000 line of credit that does not hit your FICO, but you’re going to need to show some actions. You’ve got to get your account going there. Go on Sunday’s and look for yellow tags. These are closeout items. A lot of times we’re switching over the 2017 or 2018 designs on the faucets and they’re up there and you can buy these things at 40% off. Hopefully, this has been helpful for you. I appreciate your likes and loves on Facebook. Make sure you set your notifications.