Rehabbing a house

Passive income comes in all shapes and sizes. Also, not all passive income ideas are created the same. I personally have many different streams of passive income but my primary means to gain my freedom from my J.O.B. (Just Over Broke) is through investing in real estate rental properties.

How to quit your job best sellerIn my book “How to Quit Your Job with Rental Properties” I explain the mechanics and methodology to quitting your job with passive income in rentals. Recently, I had a reader ask the question about rehabbing a house from far away. Obviously it would be a much easier task if the house you are rehabbing is next door to where you live.

You would be able to wake up, look outside at the progress on your rehab and even walk through the property whenever you want to make sure the job is getting done properly.

But, what is the process of rehabbing a house from another state?

Should you fly there and watch the rehab? Should you try to do it yourself remotely? Or should you hire someone else to do the work?

These are all excellent questions and is what a reader recently asked me and is the topic of this blog post for reader questions.


Hi Dustin, I’m in California and looking out of state.  How do you select and manage rehab crews etc?
– Greg


Successfully Rehabbing a House from Another State

Well Greg, good for you that you are getting into real estate rental properties! Honestly, I am able to live my life without a job because of my rental properties. Over the years, I have rehabbed many houses and have done it almost every way imaginable. To answer your question, I’ll give you two of the best scenarios you can choose from for the rehab of your properties. In my opinion, there are only two options.

  1. Hire a Contractor or Property Manager to do the work

  2. You do the work and manage all the subcontractors, laborers, etc.

Since passive income is all about working less and making more money, the easy answer would be to hire others to do all the work while you go on vacation and sip on a margarita relaxing on am amazing beach with your family. The harder answer is that it depends on the property, your finances, and you level of control you need over the rehab. For most of my properties I have my property manager handle all the repairs and rehab.

For a some others, I do the work myself. For my Houston Texas property, the rehab costs are much higher so I managed all the contractors, sub contractors, and laborers myself. Here is the finished product and the pictures for the rental listing:

For this property, I managed everyone from my phone. Many people think this would be a very hard thing to do because they don’t trust people to do the work properly and not steal their money. I personally don’t have any issues with allowing others do work while I verify what they do.

This is a concern for all investors but some are able to push through it and rehab properties from afar.

The rehab cost $22,000 in total and would have cost a lot more for the rehab. Most contractors add around 10% of the price to the total price to the entire job which would be around $2,200! Now if I were Donald Trump, I would not worry about that but I’m not. I have a wife and four kids and my goal is to quit my job with my passive income and I spend my money wisely.

$2,200 is a lot of money that I saved by spending my time managing the rehab from my phone.

 

The Key to Managing Anything from Remotely is to Trust but Verify Everything

When I talk with my contractors, sub contractors, realtors, property managers, inspectors, yard workers, etc I verify all the other workers work.

  1. Verify with other people

  2. Before and after pictures of everything

  3. Have the property manager check ALL the work done on the property

Here’s an example: The septic company is on the premises repairing the septic system. I ask the contractor what he sees with the other parts of the property. If I have someone fixing the sliding back door, I ask the septic company owner how it looks and for him to open and close it to see the functionality.

Most companies and contractors are totally fine with helping out. Plus, they realize that I am checking on them too with the other workers on the property. Also, using my property manager as my eyes and ears for everything on the property.

 

Payment for work done by contractors should NEVER be paid up front before work is done!

Many horror stories have been told of how people have paid a contractor 100% of the payment before the work is done. After the guy doing the work gets started, he skips town and takes all the money with him. He never answers the phone, and the money is GONE!

I hope this never happens to you and if you follow my schedule below, it will not happen.

Payment for the work should be as follows:

  • 10% of the price up front to get started
  • 1/3 of the balance paid as a draw once 1/3 of the work is done
  • 1/3 of the balance paid as a draw once 2/3 the work is done
  • The balance is paid (final payment) when the work is completed and verified

Example: Concrete work total of $3000

  • First payment to get started: $300
  • Second payment for 1/3 of the work done: $2700 x 1/3 = $900
  • Third payment for 2/3 of the work done: $2700 x 1/3 = $900
  • Fourth payment for 100% completion of work: $2700 x 1/3 = $900
  • Total payments: $300+$900+$900+$900=$3000

 

Now, let’s looks at what goes into each type of rehab so you can make the decision yourself to hire someone or manage the rehab yourself.

Hire a Contractor or Your Property Manager to Manage the Rehab and Save Time:

  1. Have your property manager handle all the repairs
    1. Hands off
    2. Higher cost
    3. Little to no headaches – besides higher costs…
  2. Hire a contractor to run your rehab
    1. Hands off
    2. Higher cost
    3. Less headaches
    4. You already trust and know your PM so it should be easy to have them do the work

 

You Manage the Project Yourself and Save Money:

  1. Find, Manage, Pay, Verify All the Sub-Contractors Yourself.
    1. Hands on and very time consuming
    2. Little to no added costs on top of the project by a contractor for their service
    3. More headaches because you handle every problem, issue, and hassle
    4. You manage everything remotely
  2. How to Finding Good Subcontractors, Suppliers, and Companies
    1. Yelp.com
    2. Google
    3. Word of mouth referral
  3. Selecting the Right Company or Service Provider
    1. Yelp and google reviews tell a lot about the company and if you should go with them
    2. For each item, concrete, AC repair, paint, etc. get at least three bids for the work
    3. Interview each over the phone and ask many questions
    4. If the company is hard to work with before you give them the business, they won’t get better after you hire them
    5. See portfolio of work to make sure you like their work
    6. Call references and verify they are a reputable company
    7. Get and review all prices and consider all the other factors when deciding on a company
    8. Go with your gut Managing
  4. Stay on top of each job they do by calling daily and getting progress reports
    1. Inspect as they go with others companies, property managers, etc.
    2. Keep a detailed schedule to make sure you stay on your timeline
    3. Stay on schedule and push the companies to get the job done ASAP
    4. Always get before and after pictures to verify the work done
    5. Have other sub-contractors tell you the status of the other work being done by other subs
    6. Have your property manager verify all the work done
    7. Follow the payment schedule listed above
    8. Don’t pay until you verify all the work is done by many others and you see pictures

 

In the end, if you hire a contractor or do the rehabbing yourself, it really depends on your situation, amount of cash to spend, and your level of fear allowing someone else to do the work.

How do you manage your rehabs from afar? Let us know. Leave a comment below!

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Guide to Rehabbing a House Remotely : DIY or Hire a Contractor – Reader Questions #3