On a major investment website, there is an article about the top 5 mistakes fix & flip investors make that create failed projects. The #1 item was “Not Enough Money.” Now, we should be able to agree that fix & flip investors aren’t going into a deal believing they can get it done without money, so where would they be falling short?
One of the other items spoke to their knowledge in how to evaluate properties and negotiate a purchase that allowed enough room for profit and resale. So, the problem must usually be in the “fix” part of fix & flip. There is a little information about how you’ll do much better with “sweat equity,” doing a lot of the work yourself. But, that’s not going to allow you to do multiple projects or be aggressive in getting deals done.
The way that multiple projects can be going on at the same time is using contractors to get the work done. While some investors manage to build a relationship with a general contractor who hires the subs, this adds another level of markup and reduces the profit for the investor. The sweet spot is in the middle, the investor acting as the general contractor, contracting with the subs to get the work done.
There are several websites you’ll find in a search for “remodel contract” offering free or inexpensive contracts you can use with your subcontractors. Of course, getting it blessed by an attorney is the best approach to cover your interests. These contracts will address the work quality standards, payment issues, and other project issues. Where we want to focus for this article is on the materials.
When you’re providing project specifications for the contractors, the materials selection is a major cost factor. Using phrases like “or equivalent” when you describe the countertops leaves you open to problems as to what you may consider “equivalent” versus your contractor’s ideas. Getting an accurate and reliable initial bid for the work based on your specifications involves being more specific when it comes to materials.
Yes, you’re going to be involved and spend some time here, and you should take the time necessary to nail down what you want to see when you walk into the completed home.
This is a portion of a Kitchen materials selection form provided to Lowe’s contractors free for download from their site. You can create your own as well with a spreadsheet so you can use it for any supplier. Have one for each room in the home, as well as the exterior.
Notice that you’re actually entering a stock or item number. You’re going into their store or catalog and choosing precisely what you want, adding to the description if necessary and specifying quantity and price. Your contract can then state the contractor will use only materials as specified on your sheets from the named supplier. If there is an availability problem or significant price change, they must get approval from you for replacement materials. No, you’re not specifying nails and screws (unless you want to), but these are the major cost items and items that will aesthetically influence the final look of the home.
This is where getting detailed in your specifications can help you to control costs on the most expensive, other than labor, components of a fix & flip project. Doing it right will help you to get the look you wanted and get it within your budget.
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