We recently completed our first flip. It was an incredible experience, and one we cannot wait to do again. Before we do, we wanted to share our five biggest lessons learned.
1. “The 5 P's”: Proper Planning Prevents Poor Performance
Mistake: Our first mistake was thinking the work only started when we actually bought the property and had keys in hand. While we had a pretty good idea of what work was needed when we made the offer, we only had a rough cost and timeline estimate. Of course this resulted in the project going over budget and taking twice as long to complete. As this was our first flip, we sought three estimates for each job. Between obtaining three estimates per job, meeting with the subs to do the actual estimates, and waiting for their written estimates, this delayed the overall flip by three weeks. We also got estimates as needed, instead of getting them all upfront. If we knew all of the pricing upfront, we would have changed some of the decisions to save costs, and apply those funds where it was needed most. Lastly, like most rehabs we needed permits for the renovation. One permit was for an addition (We know you are saying, “Addition?!?! Are they crazy??? It's their first flip!!!!” Trust us, we know now; and that will definitely be the subject of a future posting). We did not get the architect out until after we had the property in our possession, and based on his schedule, sickness and holidays, the project was delayed for over two months!!
Lesson Learned: Before closing on a property, you should have a close to final version of the Scope of Work (SoW). Knowing your SoW will not only assist in your assessment of your maximum purchase price, but it will also serve as a roadmap to the renovation.
Corrective Action: For our next project, we will utilize the cost figures from our first project as benchmarks in creating a final draft SoW prior to making an offer on a property. (Note: I know sometimes this is not possible due to timing of the sale of the property, as well as other outside factors. In those cases, we will do our best estimate and allow a 30% rehab cushion for unknowns). When our offer is accepted, we will bring in all of the subs prior to closing on the house. We will still include a 15-20% buffer, depending on the scope of the job, for any unforeseen circumstances that arise. Then we will line-up all of the subs. Thus, our SoW will drastically reduce the possibility for poor performance to occur!
2. & 3. Having a great onsite Manager, and great Sub-Contractors
Mistake: Your first question might be why we grouped 2&3 together? To be honest, if we wrote an article prior to flipping this house, we would have separated these topics, but now we realize they are intertwined. The initial mistake we made was thinking having a great onsite Manager would negate the need for perfect subs. Often, we would settle for what we consider “just good” and unfortunately in one situation, due to time constraint, we settled on one “bad” sub. This situation not only created more stress for the onsite Manager, but affected other subs, due to delays and the overall morale on the job site. It also required the Manager to micromanage this sub, taking the Manager away from all of his other priorities.
Lesson Learned: It is vital to hire great subs, and not rely solely on the quality of the Project Manager. While the Project Manager is still responsible for the oversight of the subs, having great subs allows the Project Manager to still focus on the overall project.
Corrective Action: While we are very fortunate to have a great onsite Manager, we will not settle for “just good”, nor “bad” subs (even in times of great need). For our next project we will be more diligent in hiring subs (ie. Arriving on time, or early to provide an estimate, providing a written estimate in the requested time, and confirming references to verify both quality and timeliness). By hiring only “great” subs, the Manager will be able to focus on the overall project. Helen Keller said it best, “The world is moved not only by the mighty shoves of heroes, but also by the aggregate of the tiny pushes of each honest worker”.
4. “Expect the best. Prepare for the worst. Capitalize on what comes” -Zig Ziglar
Mistake: As soon as we identified the SoW, we had several gaps in knowledge on both the timeline and the budget of specific tasks. For example, we had a rough idea of what the metal roof repairs would cost, based on material and general roofing labour fees. However, we did not realize how difficult it would be to find a roofer who works on metal roofs in our area. We also did not factor in the some overall administrative/operational tasks. For example, when we hired subs we did not obtain their Tax ID Numbers. We have now wasted several hours obtaining this information. We also did not factor the maintenance of the house while it was on the market (specifically lawn care).
Lesson Learned: Take the time to methodically walk through every step of the process when considering a potential property. While it is important to capture budget and timeline information, it is equally important to recognize the administrative aspects in each step.
Corrective Action: For every item where we are not 100% certain, we will educateourselves until we are an expert on that topic. To insure we capture all administrative tasks, our SoW will now include an Administrative Section. We will also streamline as many tasks as possible. Some of these tasks include a standard contract for signing on subs, including the Tax ID form, payment schedule, SoW, and contractual requirements & expectations.
5. Sticking to the timeline & budget
Mistake: Even though our SoW was completed, we did not map out the work on a calendar. Having a great Manager, eliminated problems with order of tasks; however, we did not know the actual timing, and would call subs two weeks prior to start time. With respect to the budget, we thought it would save us money by purchasing the materials ourselves. Although it may have saved some money, there were often times where we needed to go and get more materials which impacted the budget. This also made it more difficult to track spending.
Lesson Learned: There are two lessons learned here. 1) A SoW needs to be translated on a calendar to define start and end dates for each job. 2) If you do not have concrete timelines, your subs will not take you seriously. They will assume an approximate start date allows them flexibility too. The lesson learned with the budget is we should analyze the cost saved by purchasing the materials ourselves to determine whether or not it is worth it.
Corrective Action: In regards to the budget, we will choose the method that yields the larger savings when purchasing materials. With respect to the timelines, after completing our SoW we will translate the tasks to a calendar to provide start and end dates for each job. We will share this calendar with all subs, and keep to this schedule as best as possible. If there are any adjustments, we will make the adjustments, and distribute an updated calendar to the subs. This will not only serve as a roadmap to us, but will also illustrate to the subs our commitment to staying on time. In the words of the late Yogi Berra, “If you don't know where you are going, you might wind up someplace else”.
It is unrealistic to say we only learned five lessons in our first flip...we probably learned over a hundred. Regardless of how many flips we do, we know we will always learn something. It is important to take a moment and do a debrief. Reflecting on your experience allows you the time, that you most likely did not have in the moment, to think not only of alternative solutions, but also actions to prevent you from getting in that same situation again.