Build Back Better: Navigating Through Smaller Construction Projects
Tips, tricks, and documents to develop a successful small scale real estate construction project
Construction is not for everyone it is noisy, dirty, dangerous, and expensive. However, if you can understand it, you’re more likely to succeed at managing it. This quick guide will give you and your team a sense of direction for a task that has no single path to completion. There is no clear path to the finish line, but when in the real estate game eventually you may be tasked with a fixer upper. The only thing that is certain in a fixer upper is that you will have to start it and finish it… How you get there is up to you. '
How do you know the home you just bought will require a significant amount of work?
In a traditional purchase often there is an inspection report. It’s the inspectors job to look through the home and point out issues and note potential future issues due to the equipment and current conditions of the home. The story of a real estate investor is not an easy one, often you may waive the inspection to save time and present a competitive offer. I do not recommend this unless you have construction experience, but do not panic do the “inspection” yourself by looking:
1) For water
Water causes mold and deteriorates material water stains, and can be a sure sign of a problem that may need further investigating
2) At the basement
If the home has a basement look at the foundation for noticeable cracks
3) For the mechanicals
The up keep of the electrical panel, water piping, and boiler/furnace will give you a rough estimate of how the condition of the majority of the house is
Another trick is to call the local building department. Ask them for a list of previously used permits. It is public information, they can share any and all permits, drawings, and information they have from past construction which will give you an idea of what has not been done and therefore a good place to check first. Before buying a property you will want to reach out to the building department for permitting information to understand what you can and cannot do as that will guide everything that comes next.
Now you bought the home and you’re waiting to close… how do you set up a project for success?
Once you inspect the home you may not be given the chance to go back until closing is complete so take as many photos as possible. Setting up construction is 50% of the battle. Depending on the size of the job and the budget post analysis you will have to make a key decision. Will you manage the construction yourself or will you a hire a contractor. Whether you do the job yourself or pick up a contractor there will be a few documents you will need to get started and should verify your contractor will provide as well.
1) Project Schedule
Build a schedule by setting a max duration and a preferred duration. List everything that you want to do and break it down example:
Project ABC Duration 6 Months - Preferred Completion 4 Months
Kitchen – Demo old cabinets, Install floors, new sink, cabinets, and paint – 50 Days
First Floor Bathroom - New Dividing Wall, Plumbing Pipe, Tiles, and Toilet Install) 40 Days Month
2nd Bedroom on the 2nd Floor – Patch Walls, Molding, Paint – 10 Days
Search for a template on Google, Excel, Microsoft Project, there are plenty of free prepopulated schedules you can manipulate. Call local contractors and ask questions.
“Hey how are you I have a kitchen that is 500 sq. ft. how long would it take for a medium cost remodel including new cabinets and appliances?”
If they are really interested send them the photos you took for more accuracy and ask for an estimate.
2) Project Estimate
Project estimates will be based off of your analysis. Set a max cost for construction and then multiple it by .8. This is a standard rule of thumb that I use to ensure I have enough cash to finish the job. Assume that anything can and will happen while in the construction: permits delayed, contractor doesn’t show up, your material is late, you found unknown conditions after demolition. Similarly to the schedule start broad and break it down into smaller components. Now that you have a general baseline budget your estimates will allow you to select contractors for the right price.
Reach out to a local hardware store, search online, ask your neighbors for a referral for a local contractors contact. Start calling and ask them for an estimate
Describe the work, send the photos, or bring them to the home
If the number is in your range. You should ask them for their insurance, license, and two recent client contacts
Your key contractors will be a carpenter, plumber, and an electrician. Your estimate that you receive from a contractor should be based off your schedule so that you can get true buy in to your schedule and hold the contractor accountable.
3) Scope Sheets
Scope sheets will be generated from your schedule and estimates this itemized list is for your contractors to sign off on. This list should be generated for each contractor and it is exactly what they owe you. Their estimates should tie back to this sheet and really is basis for generating it. The list should include all trade specific items, inspections, and permitting sign offs. If there are changes to the scope sheet during construction the contractor may look for additional costs if it was not included or replaced by something with equal equivalent costs.
4) Contracts Items List
A contracts items will organize all of your material. An effective contracts items can be made up of just a few columns.
This should be used to track all material entering the jobsite. It will help you plan upcoming work with your contractors.
5) SOV - Schedule of Value and Billing Schedule
An SOV is for billing you want to give each item a value and use that value to dictate a payment schedule. When an item is complete and inspected payment is expected. Every task should have a value and if you pay bi weekly the bi weekly payment should include all that of which was complete. This will protect your assets and keep contractors motivated to keep to the schedule. The billing schedule and SOV go hand and hand and ultimately reflect the same information.
6) QA/QC Punchlist
Quality control lists prior to completion are required by your team. At this point you know your contractors, you know your scope, you know how much is left in the budget. Before you 100% pay a contractor you need to create a list for quality control. This punch list is your last chance to request repairs if something was missing or not done correctly. Once the item is complete you should sign off on the list and proceed with the final payment for all of your contractor’s hard work.
Construction can be a controlled and repetitive as long as you and your team put the work in upfront and guide the process to completion. These documents will take a significant amount of time to set up but will assist in generating the results you’re looking for. Construction is plagued because often we are working through unknown conditions but with the knowledge generated through these tips and six documents you will be able to react quickly and save your project time and money.