Construction and Rehab
Here at this stage, is where you review and execute a purchase agreement. This is the agreement where you say you’re going to buy it at this price, in the end, any conditions related to the purchase.
After you purchase the asset, this is the part where you go and execute your construction or rehab plans.
Now the scope of what kind of work could be done would largely depend on the type of investment that you’re making. It can range from little to nothing for a fully stabilized product.
So if you’re buying into a duplex or apartment that is completely leased and it’s relatively new or recently renovated, there’s not much for you to do. This is a core type of investment.
Or it can go the opposite, where you’re building completely new from the ground up with full-on construction, and that would be a more opportunistic type of investment.
And if you do something kind of more in between where there’s some work, but not the full construction from the ground up, then you’re looking at something kind of more value-added.
some of the key considerations to consider during this construction or rehab phase will be:
- Type of rehab
- Change plans and orders
- How much time it’s going to take and set aside some funds for contingency funds to account for any changes that are likely to happen.
When you are working with contractors or if you need to work with contractors for doing some sort of rehab or construction:
- Get multiple bids
- Look at their prior projects and references
- Size of prior projects
- Completing on time and within budget
- Client and financial references
- History of disputes
- Visit a current job site, look at how they organize their job site, just visit unannounced to check them out and see what their workers are like and see how they manage their jobs.
- Itemize cost estimates
- Their communication style
- When you get multiple offers, make sure you throw out the low ball bid, lowball bids tend to come from those who are desperate for work for different reasons, they are desperate for work and they’re motivated potentially to cut corners and materials. So low ball bids could lead to higher costs later. That’s the way you should think about the lowball bids because they will cost you a headache and cost you more time.
- Get Proof of liability and worker’s comp insurance
- Make sure there are no current leans against the contractor for either pay that hasn’t been issued to workers or other things
- Payment schedule
- Document everything
- G Max or guaranteed Max arrangements- these are common in bigger projects, especially working with experienced contractors who’ve done similar work frequently and are very experienced at doing the kind of work that you’re hiring them for. You can get something called a guarantee, max, arrangements where they have a target cost they want they can try to do it towards. And then there’s a guaranteed maximum that is the guaranteed maximum that you would spend for them to do X, Y, Z. And by those dates, and if it costs more than that, they would have to front the additional costs. to deliver for you. But the maximum out-of-pocket for you as a client would be guaranteed. And that’s something to consider negotiating.