The Hardest Part of Rehabbing

Rehabbing properties is something that most real estate investors are going to deal with at some point.  Be it apartments or retail homes, rehabbing is a part of real estate.  Starting a major rehab and doing them is actually pretty easy and it can be fun to watch a property get demolished and then brought back.  The hardest part of rehabbing however is getting it completed.

In this post, I want to share with you why I think the final 10% of a rehab job is the hardest part and then some tips to hopefully it less difficult.

The Rehab Process

All major rehabs will generally follow the same process.  You set a budget.  You make out a list of items that need to be done.  You have contractors give estimates.  You hire one and sign a contract.  Work starts.  Work progresses.  Bumps are smoothed over.  The rehab is completed.

I have done many rehabs over the past 15 years and have followed the above process time and time again.  And without a doubt, the hardest part in that process is getting the thing competed.  It is not cost over runs, those are expected.  Writing checks is not too hard as they were budgeted for (as are most of the over runs).  Getting started is easy.  Nor is it not hiring contractors.  It is the final 10% of any rehab project that, at least in my experience, is the hardest part to complete.

It is the final painting touches.  It is getting those last pieces of molding in place.  It is making sure all the appliances are hooked up and running correctly.  It is making sure all of the fixtures are in place.  In sum, it is making sure everything you wanted done is done.

Three Reasons It Is Hard

Why is the last 10% of a rehab so hard?  For three reasons I think

1.  Coordination

There are often many different contractors that have specific jobs to do in a major rehab.  These jobs often require coordination.  One contractor has to finish their job before another can complete theirs.  For example, you do not want to put carpet in until the painters have finished.  Coordinating all of this and being able to do it properly is a special, learned skill.  Not everyone has it and one mess up can set everyone else back.

2.  The Little Details

Now is the time when the little details matter.  The details are what are going to be seen by your final customer, be they a tenant or a buyer.  They will touch the door knobs and the faucet handles.  They will see the missing molding and switch plates.  They will notice stickers on light and plumbing fixtures.  It is these little details that make your project stand out above the rest and must be done.  The thing is, they can be easily missed or passed over.

3.  Everyone Is Tired Of the Project

The initial excitement of starting a project, felt by both you and your contractors is gone.  Everyone is now ready to move on.  In fact, many of your contractors have likely already moved on to the next job.  And getting them to pull their crew off another big job to finish that last little bit for yours can be like pulling teeth.

So What To Do?

Here are a few ideas to ensure that last 10% gets finished without becoming too much of a pain.

• Start With A Good Contract – A good contract at the front end helps greatly. Spell out everything you expect to be done and when you expect it to be done.
• Hold A Significant Final Payment – Never pay in total for any job until a job is completed. In fact, hold back as much as you can get your contractor to agree to.  That lure of money is often the only thing you have to get folks moving and finishing the job.
• Develop A Final Punch List – Make that last payment contingent upon a final punch list. Go through your rehab as it is nearing completion and make a list of all of the little things that need to be done to get that last payment.  This will help both you and your contractor see the light at the end of the tunnel.
• Add a Bonus – Money talks.
• Add a Penalty – Maybe. But what happens if they run past the deadline anyway (which they often do)?  What incentive will you then have to keep them going?  I have not found penalties to be very useful.

The Final Analysis

I think that in the final analysis, getting that last bit of the job completed with minimal difficulty comes down to spelling out details on the front end and management.  What you want has to be spelled out on the front end, in writing.  Then, you or your contractor has to manage the job closely, especially towards the end.  Someone has to be available to answer questions, make decisions, smooth out the bumps and even yell at folks if necessary.  Someone has to keep the ball rolling and handle problems quickly.  That someone is often you whether you like it or not, it is just part of the life of a real estate investor.

They say that the devil is in the details.  The last 10% of any rehab job is nothing but details, hence the difficulty.  But knowing where the devil is going to be is half the battle and will help you get past him.

What do you think?  Is the last part of a rehab project the hardest?  Let me know with your comments.