In all of the years of managing property for myself and others, nothing has caused me, my clients and my management team more heartache and consternation than repairs, maintenance, and rehabs. I resisted doing rehabs for our clients for a long time. This was because of the difficulty I had getting projects done for myself within the budget I had in mind. I would explicitly tell people that we are a management firm not a construction firm.
We preferred that our clients bring us finished properties. We were happy to handle ongoing maintenance with our employees in occupied properties, but rehabs were another story. Eventually, I came to the realization that if we could offer construction management services to our clients, we could probably double or triple our business. In 2012, we decided to make initial rehabbing and completing large ‘turn’ projects between tenants a central pillar of our value proposition.
Our First Contractor Luncheon
After my ‘Aha’ moment, we made plans to hold a Contractor Lunch and Information Session at our office in Springfield. We asked everyone we knew to recommend who we should invite. We ended up with over thirty people attending. Almost all our guests were independent men and woman who were already doing rehab work either full or part-time.
Our agenda focused on the following:
- Background about our company.
- How many properties we managed and hoped to manage in the future.
- The number of rehabs and turn projects we needed help with each month.
- What we expected from our contractor partners.
- What our contractor partners should expect from us.
- What their bids and estimates needed to include.
- How and when they would be paid.
Quoting Labor and Materials
Our policy is to obtain two bids for each project. Each contractor is to quote labor and estimate materials separately. This gives us more control over the project. Even though we will generally supply the materials, the estimate supplied by the contractor gives the owner an idea of the total cost of the project before committing to going forward.
Some of our larger clients have their own Lowe’s or Home Depot contractor accounts and pay for the materials based on the contractor’s shopping list. For other smaller projects and repairs in occupied units our employees purchase materials on our Lowe’s or Home Depot account and we bill back the owner during the next rent cycle. This way there is no question about the cost of materials incurred by our owners. We have all the receipts.
We pride ourselves on not marking up the cost of projects we manage for our owners. We see getting the properties ready for rent as part of the service we provide. Many property management companies charge a surcharge or obtain ‘rebates’ from the contractors they send work to. In my experience this is the reason most investors lose confidence in their management company and decide to make a change. We have never done that and never will.
Having said that, there is one place where we charge our owners an administrative fee and it is outlined quite clearly in our management agreement. The last sentence in paragraph six states “Materials purchased on our accounts are billed at 110% of purchase price and tax to cover clerical and billing costs.” As you can imagine, there are months when there are literally hundreds of entries on our monthly statement that must be assigned to different owners and their properties.
Once we obtain a quote or quotes for a project, our property manager reviews them and scans and emails them to the owner for approval. Again, the actual cost of labor and materials as quoted by the contractor is the expense our owners incur. This policy applies to lawn mowing and snow removal contractors as well as third party service providers like licensed plumber and electricians. Our owners make the final decision as what work is going to be done and who is going to do it.
We also ask the contractor to provide a timeline for completion. While there are times when a project will start and finish earlier than expected, there are more times when the project takes longer than we think it should. While we never allow an open-ended timeline for a project, the less expensive contractors tend to take longer to finish the job. There is a direct correlation in our experience between the cost of labor and how long it will take. It is a factor the owner and the property manager have to consider before automatically awarding a job to the contractor with the lowest bid.
If the contractor is supplying materials for a project, they will want a material check before starting work. Larger projects may warrant interim labor payments at predetermined completion milestones. In these situations, we ask our owners to keep money for the project in our Property Management Trust Account. Once a contractor meets a milestone or completes the project, the property manager inspects the project and if all is well, releases the owner’s funds for payment.
Our Maintenance Team
In addition to the cadre of independent contractors who do initial rehabs and between-tenant turns for our owners, we have a team of skilled people on our payroll. Being employees, they are covered by our general liability and worker’s compensation insurance policies. We will only allow our employees to work in tenant occupied units as a liability mitigation measure. We cannot send people we do not know into tenant’s homes.
Our senior maintenance team members can do most HVAC, plumbing and minor electrical work. They have decades of experience between them and have been with us for several years. Consequently, they are paid well. As I write this in September of 2019, we bill our owners back for maintenance and repairs at $34.00 per hour and $51.00 per hour for after-hours and weekend work. Our current costs are also outlined in our management agreement.
Our maintenance team members supply their own tools and transportation and we pay them mileage and travel time between jobs in fifteen minute increments. These costs are passed along to our owners as well. The hourly cost of our employees is not insignificant. However, our owners have found over the years that having our people handle an HVAC emergency or a broken pipe situation in the dead of winter is far cheaper than hiring a third party contractor to do the same work – even at after-hours rates.
Maintenance Answering Service
Our tenant service standard is to complete routine requests within 72 hours and to stay in touch with the tenant throughout the process. There is nothing more frustrating for a tenant than having something broken in their home and not be able to get it fixed. Our property management software vendor Appfolio provides us with a 24 hour answering service for maintenance requests from our tenants. If a tenant has an emergency situation or a routine request, they call an 800 number and speak to a live person.
The system allows us to designate what is considered an emergency and who is to be contacted to do the work for each unit under management. If an owner is doing his or her own maintenance, the service will contact the owner directly. All maintenance requests are documented on our management portal and on the Appfolio mobile tablet application. Our maintenance team members each carry an Android based tablet with the Appfolio application installed.
What Contractors Can Expect When They Work With ROOST™
We strive to treat the independent contractors we hire as if they were internal team members on our payroll. They require and deserve the same leadership commitment an employee does. Our goal is to attract and retain the finest rehab partners we can. Here is what our contractors can expect form us:
Top 10 Reasons to Work with ROOST Real Estate Co.
- FAST / CONSISTENT Payment – Checks for draws and reimbursements are scheduled for delivery every Friday by noon.
- Lock Boxes on Every Property – No more waiting for someone to show up to unlock the door so you can begin.
- Easy Process — We define the project scope, you complete the project. We create a punch list, you complete the punch list items. We review your work, you get a check.
- Vacant Homes — No home-owner living in the house means no moving furniture, no covering up couches to paint, no taping off TV sets to reduce dust, no moving fragile decorations.
- Flexible Working Hours — Because our homes are vacant, you can work anytime you want. (Just don’t keep our neighbors up with loud banging or running saws or hammering or whatever! We love our neighbors.)
- Consistent Income — We rehab up to a dozen houses a month and we’re always looking for quality contractors and sub-contractors.
- Great Owners — Honest. Fair. Realistic. Straightforward.
- No Committees, No Pointless Meetings, No Bureaucracy — Decision are made quickly.
- Same Style, Same Colors, Same Materials, and Same Fixtures — We always use the same materials, paints, fixtures, etc. in each of our houses so our contractors don’t have to guess what type of light fixtures to buy or color to paint or windows to order.
- Quality Product — We want all of our homes to look much the same. We want a prospective buyer to walk into our house and say, “This is a ROOST House”
What We Expect from Our Contractor Partners | What Success with ROOST Real Estate Co. Looks Like
The End Result – Our expectations for the end results our contractor teams produce are no different than what any other client expects. We expect our projects to be finished on time, within budget and to our specifications for quality.
On Time: Every project is unique in some way. Prior to starting a project we will sit down with you and discuss what will make the property a successful investment and get your input on how long it will take to complete. Once we all understand the scope of the project we will set a deadline for completion.
On Budget: Again, every project is unique, but our homes are all the same in terms of the type, style and color of materials used. This helps us accurately estimate costs together. Yes, unexpected things can come up during a project, but as a rule, our contractors come in on budget. Planning, involving the entire team, accurate estimates, and sticking to the plan are the keys to making the numbers.
On Standard: Every home we rehab for a client needs to be a ROOST home. We may miss a budget or a deadline from time to time but we NEVER put an inferior product on the market. On standard means that on turnover day, the house is done. We are not talking about “substantial completion”. It is finished and ready for market.
Improving a Property to the Neighborhood Standard – No More, No Less.
We have seen investors become very product-focused when embarking on a new purchase and rehab project. The worst thing an investor can do is lose sight of what it takes to attract tenants in a competitive market. We believe product focus has to be balanced with a client-focused attitude.
Product-focused investors can become wrapped up in potential returns versus what the market or a specific property can and will return. It is easy to cut corners here and there when preparing a home for rent and suddenly find oneself with a house that looks great on paper, but is not appealing to an actual buyer or tenant when compared to others on the street.
The client-focused attitude must be top of mind during the planning and purchase process so that any costs associated with finishing a competitive product are incorporated up front. Having to incur unforeseen costs at the end to make a property competitive in the marketplace will negatively impact your return on investment. For planning purposes, it is prudent to add 20% to whatever you think the final cost of a project will be.
Preparing a Home for a New Tenant
At a minimum every unit we manage, regardless of the value of the investment, must be safe, clean, and secure with all mechanical systems in working order. We also recommend that the property be upgraded to the neighborhood standard but no more. We want to offer the best value in the neighborhood but if we can rent a house for less than the competition and still get a fair return, everybody wins.
Most of the mistakes I made early in my investing career involved over improving properties. In effect, improving them beyond the neighborhood standard. However, there were times when I was just wrong about how much things really cost. While it is natural to want to negotiate with a contractor on his or her labor bid, it is helpful to keep in mind the costs they hopefully considered before submitting their bid.
A reputable contractor with an established work history is going to have some overhead. This overhead may include transportation costs, insurance, local licenses, and tools to name a few. A low bid that does not include these considerations can end up costing money, and or time, down the road. Remember, we have greatly reduced the possibility of ‘slush’ in a bid by separating labor costs from material costs. We are only paying for the actual cost of materials and no more. A labor quote that seems too good to be true probably is.
Consider These Suggestions When Renovating a Home to Rent
Here are a few items other investors may not do:
- Replace the toilet(s) or at least the seat. Use the larger units found in new homes.
- Install air conditioning
- Make as many things handicap accessible possible. Install bathtub grab bars for instance.
- Dishwashers are appreciated – stick with a very basic unit.
- Install garage door openers. Remotes can be replaced inexpensively.
- Exterior lighting – make sure what is there works.
- If there is a partial fence, consider completing it and /or installing gates that can be secured if they are missing.
- Install storm doors front and rear.
- Washer and dryer hookups are imperative.
- Keep the grass mowed and trimmed. Pull old bushes out and add mulch and maintenance-free foundation plantings.
- Install a new mailbox and house numbers.
- In Ohio vinyl replacement windows are a big selling point and we are continually amazed at how many investors skip this step in an effort to save money. Check Lowe’s and Home Depot prices against local sources.
- Paint the basement walls and the basement floor, including the stairs leading to the basement. This goes a long way towards showing the care you took with the rehab.
- Clean and touch up paint furnace and water heater.
It often is the little things that attract the greatest number of qualified applicants to choose from. But spending money on any part of a rehab that goes above and beyond the standards of the neighborhood is simply money wasted. Don’t do it. You will never earn the extra rent necessary to justify the cost.
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For more information about The ROOST Landlord Advantage™ property management system, visit us at www.ManageWithROOST.com.