Alright guys and gals, week 3. If you are like me and planned your rehab right from day one, everything should be smooth sailing, you should be right on schedule, right on budget and there definitely shouldn’t be any surprises because you thought of everything…you did think of EVERYTHING right??? C’mon now, let’s get real here for a minute, its possible that everything goes as planned, but that doesn’t happen on every deal. We aren’t doing a super light, no skills necessary, lets trick our friends and family into helping us on the weekend for free pizza and a six pack of beer, carpet and paint kind of rehab here. When doing a rehab on the scale we are doing, there are some things you cant forsee (but with experience you will be able to anticipate some potential problems, buuuuuuuuut, your kinda crossing your fingers and hoping for the best). The problem is you don’t know for sure until you know for sure. If you couldn’t tell by now, Houston...we have a problem. OK OK, its not a huge problem…more like an inconvenience, but it probably will cost us a couple grand in the end…DOH!
So what happened this week on the jobsite that we typically don’t encounter on our other rehabs? Well aren’t you glad I just felt like asking myself that question!!! Well to get where we are at, we need to go back to when we started with our evaluation of this deal and conducted our initial scope of work and inspection (If I could make that dreaming/recollection chimey music right now, I would). When looking a job of this caliber, typically the property has been vacant for quite some time and either the electric or the water has been turned off. If this is the case, it is very difficult to determine what electrical repairs are needed, unless of course you are planning on running EVERYTHING new…if that’s the case, its actually very easy to know what the cost will be. So on this property, the electric panels were so damaged that even if we had a generator hooked up to the panel, it would be too unsafe to try and get power on to “test” the electric.
On a side note, even if we wanted to test the electric lines, god forbid something happened because we gave power to the house and a short happened somewhere, a few minutes later a couple guys start running out of the house because its on fire. Next thing you know the cops show up, draw guns on you because the neighbors called them saying you intentionally just burnt a house down. So as you lay there on the ground with a knee in your back, taking a couple cheap shots, you now have to explain what you were doing and that the owner probably didn’t give you permission to do what you were doing in the first place. A month later you get some legal papers cuz now someone is suing you for burning down their crappy house…you actually did them a favor. OK, that may be my imagination running wild and a little bit of a stretch, but the point is, estimating the exact repairs needed for electricity is a real unknown unless you do everything from scratch.
So what did we estimate repair wise and what happened? Well, we knew as a fact we would need a new 200AMP service with 4 meters (1 for each of the 3 units and 1 for the common area). Based upon how someone else “renovated” in the past, I knew the smoke alarms and security lights should not be on the same line, so I knew we would be separating common electric. Additionally, we assumed that due to the age of the house, the 1st floor common electric was commonly run to the first floor unit, and the same for the 2nd and 3rd floor. Therefore we accounted that we would open some walls and separate everything as needed. We knew we were gutting the bathrooms, so we would have to update the electric there and run new home runs (a home run is a separate dedicated line directly from the panel box to desired location). From there, basic outlets and switches. So where did the problem come in…in a nutshell once some walls were opened, we saw behind them and noticed that someone just half-assed it and ran the wrong kind of wires and didn’t use the right kind of fixture boxes. For example, someone jumped from one outlet to another and used a solid green ground coated 14guage wire as the HOT wire and a bare ground wire as the neutral (Black coated wire is typically used as a HOT and white coated wire is typically used as a NEUTRAL). Some other issues are non grounded outlets and missing neutral outlets as well as BX wire (this is the wires that are wrapped in a coiled metal jacket) just tucked into a blue plastic box…basically, something you don’t want your city inspector to see.
Also, what should be accounted for is the fact that instead of running a new line from the basement to lets say the third floor for whatever reason, sometimes people…aka handyman…may just “tap” into whatever line they see, jump off that and add some new source to a different apartment, whether it be an additional outlet or a new light fixture. The end result is that the person on the third floor is now using electricity that the person on the second floor is so kind enough to pay for. We just had this on our last rehab where unit 1 was jumping off the basement common electric and was stealing an outlet which ran their air conditioning unit for “free”…well free to them, expensive for owner. I know I know, unimaginable, who would do such a thing…don’t be nieve people, know your building and keep tabs on it.
As for the rest of the rehab, are we on schedule…NOOOOOOOOOOOOOOOPE! That’s right, we had two surprises this week and now we are about 1 week behind. I am going to hit this topic quick as the 2012 NBA draft and the ESPN X Games are over and I have a meeting in a few hours so I need to wrap this up. Bottom line, when you are doing a real rehab, the Scope of Work is very important, as it clearly outlines what work is to be done and what you expect, thus eliminating a lot of confusion between you and the contractors you hired…notice I didn’t say eliminate ALL confusion. If you are not on the job all the time, there will inevitably come a time where the contractor has a question he needs you to make a call on. ANYWAY, as we started on the 2nd week, the contractor started to fix a bunch of the walls and then our end buyer we are selling to made an “upgrade” request to run a different type of heating system then what was currently used in the property. We originally had steam radiators and were now switching to baseboard heat (much more effective heat wise). The problem is that the water lines for the baseboard system were not in place and we had to open all these walls and ceilings to run the new lines. So not only did we add work to the plumbers original Scope of Work (well he was happy), but now we paid the contractor to fix walls, that he now has to repair and smooth out again. Unfortunately, there was so much that this is something I could expect him to just do for free as the additional damage had nothing to do with him.
So what was the solution: Make the buyer pay for it, just that simple. If the buyer wants to change the Scope of Work during mid-project, that’s on him/her and should be his/her responsibility. In the end, if there was ever a time to decide this, it was now. The contractor probably had 2 guys spackling for 2 days, so its not a big deal on his end, just more the fact that there even more wall repair work then there was in the first place. So why did we agree to do this? Simple, because this is a relationship business, our buyer is a repeat buyer and in the end it will be his/her property and it will make him/her happier. How are we effected? Ahhh, we loose about 1 week worth of work and now our holding costs are that much longer, so its not that big of a deal to make a fuss over.
So heres your take away notes for this week: 1- expect the unexpected, especially with electricity when the power is turned off. Try to look at how things were done, and if it is clear the work was not done correctly, assume you will find problems in other areas. Ask your electrician to guestimate how much you should add in reserves in the worst case scenario…and hope you don’t spend that much in the end. 2- If you are retailing, your Scope of Work is on you, but if you know who your buyer is before you get into your rehab, ask them if they have any special “upgrade” requests and make sure they know they will be responsible to pay for the upgrade. In our case, since this “upgrade” is not in our original Scope and not in our budget, we arranged for the buyer to pay the plumber direct for these services and the buyer is aware that IF he/she can not close for whatever reason that this expense would be non-refundable as he is requesting something that is not necessary, rather preferred.
Okaly Dokaly, that’s it for this week. As always thanks for staying with me as I like to give as much detail as possible so you can really follow the project and possibly pick up a tip or two.
If you have any questions...feel free to hit me up.