The Salty Way

"Remember the opportunity cost: every hour, every ounce of effort you spend here cannot be spent there."

-Stephen Dubner

I quit my job.

I’m going to make millions flipping houses because I just finished my first rehab project. I've seen the late night infomercials..that’s how it works right?

Not a chance. In all seriousness I did quit my job but that is far from the reality of this business.

I've been working as a caretaker for an estate in Boca Raton. Detailing cars, boat, rv and taking care of anything they need around their house on the intracostal. Working 8-5 and commuting an hour each way eats up pretty much all daylight hours. I get calls during the day from people potentially interested in selling their property. They leave a voicemail (or don’t) and then I have to wait until I get home from work to call them back. By that time they may not answer and I’ll spend the next few days playing phone tag or never actually get through to them. After getting in contact and figuring out if they're actually interested in selling, I have to spend time deciding what to offer. Then I split time between calling to make offers and calling back first time callers. If someone is interested in my offer I have to arrange an appointment after work or on my days off.

No room to breathe, let alone surf.

Then there’s the rehab projects. It would have been impossible for me to do the home depot runs and handle project oversight with that work schedule so I had to hire a project manager, which is a tricky thing. Unless you trust them 100% or have a flexible schedule and knowledge to verify that they are doing right by you, the situation can turn bad quickly. This first project worked out in the end, but that’s not to say there weren’t ISSUES.

I’d like to hire a project manager or general contractor at some point so I can primarily focus on finding deals and connecting money, but for now the most important thing is maximizing profits and getting more experience in construction supervision.

What it came down to is that marketing for deals, managing projects, and working a day job was just not doable. I would go crazy and nothing would be done efficiently.

So now I have no steady paycheck but the day is mine.

Over the next few months I'll be aggressively marketing for new deals and actively managing any project worth the time and money. Starting with this one…

“The urge to destroy is also a creative urge.”
― Pablo Picasso

Now that all the junk was cleaned out, the demolition could start. I went through the house with a red can of spray paint and marked anything that needed removing. Toilets, tubs, cabinets, carpets, light fixtures and most importantly that drop ceiling. I really hated that drop ceiling.

I'm working Monday-Friday 8-5 and commute at least an hour each way between Juno Beach and Boca Raton. The surf is better up here in Juno/Jupiter so its worth the drive but the traffic is ridiculous and that commute is not fun. It eats up even more time during the day so weekdays are pretty much shot.

I hired a guy recommended to me by another investor to start on the demo. He worked a few days solo over the week and a day with me over the weekend tearing out carpets, fixtures and other miscellaneous items. He got things to a point that I could start to see what I was working with.

There’s a few ways to go about a rehab project and I had to make a decision about how to move forward with the work.

Doing everything yourself will save the most money but comes at a price. The length of time the project takes is completely dependent on how often and how fast you can work. You might be able to hang and finish drywall but how long will it take you to do a whole house? A professional drywall company might be able to do it half the time and twice the quality. The same can be said for just about any project in the scope of work. Are you really saving yourself money if the project ends up taking you twice as long and looks terrible? Could your time be put to better use? For some people with a lot of free time, a strong background in these trades who are only looking to do one house at a time, this is a decent option. For me it’s not even a consideration.

This means I need to hire the work out to contractors, which isn’t easy or black and white. There are a few options and each one has benefits and drawbacks, deciding what is right for you depends on your schedule, budget and your broader goals in investing.

Option 1- Hire a General Contractor

A general contractor will typically have pre-existing relationships with subcontractors who they hire to take care of specific projects in the rehab. Once they place a subcontractor on a project they are responsible for managing them and the overall progress of the rehab. They usually take whatever the subcontractor charges and add 10-20% on top of it. They are licensed, insured and expensive.

Option 2- Act as a General Contractor

This is the self management route. It involves mapping out the project, deciding what subcontractors are needed, getting multiple bids for each project, deciding who the best option is, buying/delivering materials, scheduling/managing the sub for each project and staying on top of the rehab schedule as a whole. It’s a very involved job especially when you consider how unreliable sub contractors can be down here. The time commitment you make to shopping around for subs and on-site management will be reflected in the cost and speed of the rehab. It's a cost and time effective way to run a rehab IF you have the schedule and ability to manage it properly.

Option 3- Hire a Handyman

Some guys will do it all. Drywall, plumbing, cabinets, tile, painting, you name it they do it. You might still have to hire out the AC, electric or other more technical work but everything else they’ll do on their own (or as a pair/small team). You give them a scope of work, they’ll give you a bid for the labor. They’re probably not licensed or insured and typically cheap. From what I’ve been told, these guys can be great value or they can do terrible work at a snail’s pace.

Sub contractors are notoriously flakey and are even worse here in South Florida...A Sunny Place for Shady People...I’ve had some experience managing subs throughout the construction of my boss' custom home on the Intracostal in Boca so I know what a headache dealing with them can be. Even though I'm working full time I decided to play out the option of acting as a general contractor to see if it was doable.

First subs on the schedule were electricians, plumbers and AC contractors. The brother of The Dude who wholesaled me the house gave me some contacts, I also reached out to real estate investors I know from networking and looked through Craigslist/Google to build a list of subs for each job. The first road block I hit was that more than half the people didn’t pick up their phones OR call back even after multiple attempts. Most that did call back I couldn’t meet at the property fast enough because of my job. I had a lock box on the house and nothing of value in there so I gave them the combo, told them what I needed done and waited for a bid. Only a few of them actually got back to me with a bid and most of those that did were trying to screw me on the price.

At the same time I was also calling GCs and handymen to schedule back to back walkthroughs over the weekend. Not all of them showed up that day but I did walk throughs with 2 GCs and 3 handymen. The one that really stood out to me was a handyman who operated like a GC. He worked in Vegas for a while renovating foreclosures, moved to Florida and now takes on any job, large or small. He has at least 4 subcontractors for any given job which gives him the ability to operate quickly and cheaply (if someone is slacking or is priced too high they KNOW there is someone in the bullpen willing to work faster or cheaper). His construction knowledge seemed strong and he was the type of guy willing to get his hands dirty and do work himself to speed up projects where it makes sense, something a lot of general contractors wouldn’t even think about.

Each person took pictures/measurements and I told them to get back to me with their bids by the end of the week. I got a wide range of prices, the highest coming in at $20,000 just for the labor estimate, the lowest at $7,000. The 7k bid came from a guy that had bailed on our walk-through appointments 3 times, each time not even calling to say he wasn’t going to make it. Crazy low bids from someone like that is a massive red flag.

The guy I had a good feeling about quoted the labor estimate around $15,000 and more importantly he broke down exactly what everything cost. The quotes for each project were directly from his subs and all seemed fair or impressively cheap. He wouldn’t be taking the typical 10-20% GC mark up. Instead he promised a 3-4 week turnaround and a project management fee of $1,000 per week with an agreement to renegotiate those terms after 3 weeks if necessary

I plan on making my focus in real estate investing finding deals and organizing financing. Having a project manager handling the day-to-day of the rehabs would allow me to focus on finding more deals, which in the bigger picture means more money for both of us. This guy is motivated by the prospect of future projects and wants to show me that he is capable of delivering.

A general contractor would be too expensive for this project, I don't see any way of fitting their mark up and typically higher priced subs into the budget.

Running the rehab myself wasn't very a good option. With my job schedule I don't have the time to aggressively push for multiple bids for each job and effectively manage the work in progress. It would probably end up costing me more money for each job and take significantly longer than if I had someone there pushing things forward all day.

I'm paying holding costs, have a tight schedule to refinance out of my purchase loan and every day without a tenant is money lost. Hiring the handyman as a project manager seems like the best bet. He's knowledgeable, aggressive with subs and motivated.

Not all bets pay off but if you don't push your chips in you'll never win anything.

Before he came in the demolition was partially complete, now it's a blank canvas and ready for work.