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from May 2008 issue of Houston Real Estate Experts - FREE subscription

If it's not in the seed, it won't be in the harvest

by Kevin Smith

If it's not in the seed, it's not in the harvest. What the heck does that mean? Well, it has to do with planning, intending, executing, and perception among other things. It says that if you don't plan or provide for something to manifest, then don't look for it to drop out of the sky and land gently in your lap. It's like success; the elevator to the top floor is not working, so you'll have to take the stairs. You can still get there, but you'll have to work for it.

A lot of the investors reading this article are pretty new to the business. They don't know much yet, but they're eager, and a lot of them are funded. That can be a bad combination without proper knowledge, and it's time to give you some tried and true advice. There are a lot of ways to manage projects, and a lot of ways to manage the rehab projects. We are going to look at some of the things you will want to provide for in your project, and also the order in which they are usually done to complete the project on time and on budget. For the sake of this discussion, we will assume 3 sections to the rehab: assessment, documentation, and execution.

Assessment

Assessment is the part of rehab management that provides for the initial perception of the rehab. It acquaints you with the tasks at hand and lets you know what you're in for. This phase of the project starts with a walkthrough of the property. This is where you will begin to notice the things you will have to do, begin to think about who you will get to come in to do the work, and about how long it will take you. It should also get you thinking about any special tasks that will need to be performed - such as getting a gas test because there is no gas meter.

Assessment can be a visit from a licensed inspector who has the experience and the methodology. It can also mean an on-site discussion with an experienced rehab contractor or a rehabber as well. What you're doing is beginning to create your scope of work for the project, and your project budget flows out of that. At this point you are looking at everything, gathering information to formulate your plan.

You should be looking at all the parts of the house and deciding whether they are in good condition or if they will need to be repaired, replaced, removed, painted, re-done or changed in some way. You should be thinking about what you will have to pay to get all this done, and you should be thinking about who you can get to do it.

This phase is so important. How can you have a dream come true if you don't have a dream? One of the ways that successful people make their dreams come true is by thinking about their dreams all the time. They look at it from this angle and from that angle, they turn it upside down and go front to back visualizing it, then they go back to front. They make it fill them up, they get consumed with it, and they make it come alive for them. The guy who built the Exxon building downtown didn't start by saying - let's get some bricks and some wire and make something. He started by thinking about what the project would look like when it was done. When he had that picture in his head, then he could work backwards through all the necessary stages of design and construction. He knew what he wanted to get in his harvest, so he turned around and planted that specific kind of seeds.

Documentation

Once we know what we want to accomplish, the next step is to write it down in a certain way called a scope of work. A scope of work is a full list of the things that you are going to do to the property. It will include such things as roof replacement, window repair, paint inside and out, electrical repairs and fixtures, plumbing repairs and fixtures, flooring, etc. We want this scope of work to be complete in every way. If we miss something that has to be done on the project and it is not in the scope of work, then it is not going to be found in the budget. If it is not in the budget and you wind up having to do the task, then the money can only come out of your profits. That's the one number in the whole transaction of buying, fixing and selling a house that you want to pay strict attention to - because that's where you get paid. If you do a good job, the pay is good. If you do a bad job, the pay is not so good. Look the house over real good before you start.

Another important part of this discovery and documentation phase is the order and scheduling of the work. How long will it take, who will do the work, who should come in first, where do I start? There are a couple of things going on when you write things down like this. It focuses your attention on the project itself, and in being attentive to the situation, you create the situation. Your focusing your attention gives life to the project.

Planning your project like this will make you a better project manager. Planning like this will make you a better investor. Planning like this will make you money.

Budget

The next thing we do is to project a budget to go with the scope of work. Get your contractors in, get your bids, and get it done quickly. The purpose of this exercise is to help you figure out whether this deal is going to work for you, or if you pass on the deal. You want everything in your budget. "Everything" in this context means a contingency of 20% above what you think it's going to cost. Built into the budget. Every time. Don't forget it. If the choice comes down to you can do the deal but you have to take the contingency buffer out of the budget, then the deal is too thin for you, there is not enough money in it to be done this way. Pass on that one. You will live to write another offer.

Starting work on the house means that you did some planning before the house was bought. Contracts have to be signed between you and your contractors, decisions about paint and carpet have to be made, all of the details such as what gets a ceiling fan and what gets a light fixture, and if it gets a light fixture, which one, what kind? Planning makes the day. Scheduling contractors is vital to the success of the project.

The important thing to remember about doing a rehab project is to plan your work and work your plan. Sounds simple, but most folks, myself included, have found out the hard way just how hard the hard way can be if you don't have a plan for a project like this. Rehabs can be a lot of fun, and you can make good money doing them, but you have to have a plan. There's lots more to tell you.

It is one of the most forbidding swamps you'll have to wade through as a real estate investor: figuring out what to fix and how to estimate the cost of it. It's called Scope and Budget, and it is the very heart of the rehab investment project. House deals don't make sense if you don't buy them right, and if you buy them wrong, you can lose your shirt. How do you identify what to fix and how do you figure out what it's going to cost - so you can come up with a repair budget? How do I know if the water heater needs to be replaced and what will it cost to do it? Is the foundation good or bad, and what do I do about it? What about the roof, will my buyer's inspector pass it or will I have to replace it before the sale? How much is THAT going to cost? It would be good to have a little help here, wouldn't it? Well there is help to be had in this regard! It is the...

"Scope and Budget" workshop

Suppose you had the advantage of having a seasoned real estate inspector and a heavily experienced rehab contractor take you through the scope and budget process, step by step and dollar by dollar?. What if you're able to duplicate what you learned the day after training? Inspector/investor Kevin Smith (that's me!) and rehab contractor Shaun Sharry have joined forces to provide an articulate and entertaining quality education focused on just that. Join us at our Scope and Budget workshop - and you will be one of the lucky ones who have the advantage over the rest of the investors.

You will learn to spot repair items, replacement items, and items that would enhance the value of the property as well as what you can expect to pay for the materials and for the labor. Will that help you? Will that make a difference in your confidence level? Will that make you a better investor? Be better prepared for the changing market!

We will be holding this particular class once a month. Feel free to call or e-mail for class schedule and seating availability. Contact me at 713-858-1330 or Shaun at 713-702-3490 (cell) or 281-392-7295 (office). Shaun can also be reached by email.

In closing, I want to share this thought. By providing someone an affordable quality home to live in, not only have you turned a profit but you have provided a valuable service to your community that will always make you successful.

I'm Kevin Smith, and I'll see you out on the property.

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Kevin Smith, Professional Inspector

Kevin Smith of Forward Assist is a well-respected professional inspector with hundreds of investment properties inspected every year. Kevin has conducted "Mr. Fixit" workshops and served on the Board of Directors at the RICH club. He shares his treasure chest of secrets with anyone who asks. You can reach Kevin at (713) 858-1330.