This is the eighth and final episode in our ELEVATE Your Flip series.
There was no agenda or presentation for this episode. Rather, it was a live Q&A to answer any questions viewers had about the series or flipping in general.
An overview of the ELEVATE Your Flip Course can be found here
This post is part of the ELEVATE Your Flip Course. The course gives you an introduction into fix and flipping properties in Denver.
Three Learning Options:
- Listen to episode “#134: ELEVATE Your Flip Live Q&A” on the Denver Real Estate Investing Podcast
- Watch the YouTube video at the bottom of the page.
- Read the blog post.
Questions and Answers
Question: Do you provide general contractors (GCs) with any sketches to show changes such as adding islands, windows, or taking down walls, etc. If not, how do you communicate exactly where something is going to go?
Answer: If you are pulling permits, you will typically have to do
drawings of some sort, especially if you’re removing walls or finishing an
unfinished basement. Don’t just sketch it out on a piece of paper if you’re
submitting it to the city.
There are free programs where you can do designs or layouts. Bluebeam is a higher level one.
If you’re not moving walls, you won’t necessarily need to provide drawings,
but if you’re pulling permits, count on it.
We do the sketches ourselves when it’s a less involved remodel. When we hire licensed GCs and they’re pulling permits for us, they will generally do those drawings for us.
If you’re finishing an unfinished area like a basement, it’s helpful to get
everyone onsite and snap chalk lines to get an idea of the physical layout of a space.
Question: Do you require that a supervisor for the GC is
always on site or checks the work at the end of each day?
Answer: We do not require that the person be onsite. However, it’s
important to keep an eye on your timeline. If deadlines aren’t being met and the project is falling behind, we may ask a supervisor to be onsite.
It also depends on how big your project is. If it’s a big project, and we have
a licensed GC, a lot of times there will be a supervisor onsite. We don’t
require it in our contract as standard practice.
On our side, we are onsite for large projects 2 times a week. For smaller
projects, someone from our team will be onsite at least once a week and maybe two to three times a week depending on the size of the project.
Question: How do you have your GC ready to go on day 1?
Answer: If you’ve listened to our previous episodes, you’ll remember
our big 4 documents. We use those to help us do all our planning in advance, so we can hit the ground running day 1. If it’s an MLS property, we try to be in it at least three times before close, so we can refine the Statement of Work, the budget, meet with contractors, etc. to do preliminary work before close.
It’s more challenging with off market transactions where we’re dealing with a renter or family member who is still occupying the home. We shoot for getting in at least twice in these situations.
Question: Are everyone of your subs, handymen, etc. licensed and insured?
Answer: Handymen by definition are not licensed. They typically do
entry level or cosmetic type of work. Our contractors are all licensed. We do
work with people who have let their licenses lapse or may not be licensed in a particular county where the property is located.
As a precaution, you do need to vet your contractors, ask them the right
questions and make sure if they say they have a license, that the license is
actually under their name. Many times a person will have a license, and someone else will work on their behalf. Be careful about that situation, because it adds a layer of complexity. The person who actually holds the license is the one who can file a lien on your property.
Question: For the daily burn, how do you figure how long
construction will take at the beginning of the project?
Answer: There’s really no way to manipulate the daily burn rate or
try to make it lower. It’s a matter of how much are you spending on your
project and how long is it going to take. You really need to look at it and
make sure it’s not too high based on the return you’re going for or the net
The daily burn will work it’s way out if your ROI, net profit and dollars
per day are within your guidelines.
Additionally, you can get an idea of how long the rehab will take by diligently filling out the Statement of Work, giving it to your contractor and
holding them to the timeline.
General Guidelines: For a relatively cosmetic rehab on condo or townhome
under 1,000 square feet, you’re in a 30-45 day rehab window. If you’re working on a single family home that’s 1,000-2,000 square feet, you’ll be in the 8-12 week rehab window. If it’s above 2,500 square feet, classic two story with basement, 5 bedroom/3 bath house, you’re looking at 3-4 month window.
Penalties on GC for going over due date are close to the daily burn rate. If
you make it too high like $400, no contractor will sign it. If you make it too
low, it won’t motivate the contractor the way you intend it to. The goal is to
cover your cost. You also don’t want to set unrealistic expectations or have
the quality of the work suffer.
Another option is to tie a bonus to achieving the deadline or finishing early.
For bonuses, we’re normally we’re in the $500 to $1,000 range for smaller
properties under $300,000. For larger homes, we’re in the $1,000 to $1,500 bonus range.
Question: How can you come up with accurate repair estimates since you have not seen the house/property prior to writing your offer, since many times the pictures are not an accurate representation of the condition of the property?
Answer: We ask tons of questions and try to get them to give us an
idea of what major systems will need to be replaced. With older properties, we assume we will have to redo all cosmetics. We try to hone in on dates by asking if they’ve replaced furnaces, roofs, water heaters, etc in under five years, ten years, etc. By asking for dates, we can estimate expenses for capital expenditure items.
We never engage a property with hard earnest money. All of our deals have
refundable earnest money. We are also completely honest with our sellers and let them know we need to get in and look at the sewer line and structure of the property before moving forward. We might still be interested if we find issues with those, but we will probably want to reexamine the price at that point.
If everyone is truthful, the deal will either work or not based on the numbers. It’s okay if it doesn’t make sense.
Question: The cost analysis cost does not include plumbing in the major systems. How do you handle that estimate?
Answer: Usually the plumbing numbers are factored into how much
remodeling are you doing in the bathrooms, the kitchen and unfinished spaces. We don’t come across too many properties where we have to replumb the entire house.
Question: How did you learn how to visualize the remodel: walls coming down, kitchen layout, etc.? Is it instinctive to you, or did you do something to train yourself?
Answer: I think it makes sense to watch HGTV. I subscribe to design
magazines and want to see what smart designers are doing. We have a kitchen designer on our team. It’s half instinctive and half learned by consuming TV shows and Instagram feeds.
You need to know your strengths and your skill set. If it isn’t your thing, bring in a professional.
Question: Can you show an example of one of your finished flips?
Answer: We don’t have anything set up for this episode, but we are
developing ELEVATION Office Hours in 2020 where we will let everyone know when we’ll be onsite at different projects on a quarterly basis. People can come check out what we’re doing, have an open Q&A and do meetups onsite. We will keep everyone posted.
Question: Do you have a checklist for the Blue Tape Inspection?
Answer: We are in the process of creating that right now.
Question: On condos when you’re trying to get your $100,000 spread between purchase price and sale value, do those typically involve taking down walls or can you achieve that $100,000 spread with strictly cosmetic changes?
Answer: Normally that will include one wall takedown. In our Budget rehab spreadsheet, typically in the kitchen spreadsheet, we allocate a $500 expense toward a non load bearing wall takedown. The $1,000-$1,500 range is for a medium load bearing wall takedown. If we’re doing a lot of reconfiguring, we figure $2,000 plus.
Typically the only areas we’ll open up are the kitchen, living room and
dining room. In condos and townhomes, those walls are typically not load bearing.
Question: Going back to design ideas. Do you get new ideas from new construction?
Answer: Yes! Attend the Parade of Homes in Denver. It’s a showcase with top designers and builders in Denver. You pay an admission and get to see new designs and some new builds. It’s a good way to get ideas for fixtures and finishes.
Question: Do you have a hard and fast rule for when you use a licensed GC versus a jack of all trades contractor?
Answer: Any time you’re pulling a permit, you 100% have to use a licensed GC. That takes out 60-70% of the work we do. With condos and townhomes, it’s not as definitive. If the work is purely cosmetic, we’re more comfortable using a contractor that is not licensed. They always need to be insured but not necessarily licensed. You still want to use someone who has a license if you’re redoing an entire kitchen or moving plumbing.
A whole home permit needs to be pulled if you’re moving load bearing walls, adding egress windows, finishing unfinished square footage. This means you will need to pass every inspection.
If you’re not doing any of the above and simply putting in a new electrical panel, an electrician can pull a “trade permit” which will not open you up to every inspection.
Question: What is the best strategy to start finding contractors.
Answer: This is an ongoing process for us. You can look digitally and search online in your area. Angie’s List, Home Advisors and Nextdoor are good places to start.
If you’re in the Home Depot parking lot and see a truck in good shape but not excellent shape, strike up a conversation and get their contact information. Ask questions, call references and look at their work after that.
That does it for our final episode in our ELEVATE Your Flip series.
If you’re interested in working with us, here are options to consider:
- Level I: ELEVATION Academy. Intense 2-day learning academy. In person in a classroom and in the field in Denver.
- Level II: Individual Consulting on a project basis. You fund the purchase of your own property and your own rehab. We help take you through every step of the process. We meet with you 1-3 hours a week in person.
- Level III: Partnership Flip. We work with a client who has a property with good bones. We partner with the homeowner and use ELEVATION rehab dollars, team members, and contractors to run the project. We do a profit share on the backend with our partner who may not even be involved in the flip process but want to share in the profits.
Go to the Denver Fix and Flip Investing Consultation page to learn and more and schedule a call.