House #36: Lessons Learned (So Far)

July 26, 2012 · 11 comments

We closed on the purchase of The WI-1 House a couple weeks ago, and I’m up in Milwaukee again this week to continue building the team and preparing for the rehab. Since this is the first time we’ve tried rehabbing a house long-distance (and this is the first time we’ve had to build a team from scratch in nearly 4 years), I thought I was discuss some of the big roadblocks we’re facing and the lessons we’re learning along the way.

This will be my first post on the topic…but most likely not the last…

  1. You need someone on the ground you trust. We were very lucky in this regard. We found a guy early on who we both like and trust to running this rehab for us (two guys, actually). He has some experience (one full rehab that we saw, and it looked great), but he doesn’t have enough experience to always know what labor prices should look like, what the scope of work should entail, what all the permitting issues will be, etc. So, while we’re in a great spot to have someone we trust, he’s in learning mode as much as we are. You *WILL* need someone on the ground that you trust if you’ll be rehabbing long distance.
  2. Contractors are hard to find (you’ll need to spend some time at the new location). Difficulty in finding contractors isn’t anything new to anyone who has done a rehab before (and certainly not new to me). But, when rehabbing long distance, you not only need to find contractors, but it helps to actually be around to interview them, get bids, etc. I hadn’t planned to travel back to Milwaukee until the rehab was started, but this is my second trip, and we still haven’t done demo. Unless you can bring yourself to trust contractors you’ve never met, plan to be around the new area for at least a couple weeks in the beginning of the first project.
  3. Labor prices may be very different than what you’re accustomed to. This has been a slight shock for us. We expected labor prices to be different than what we’re accustomed to, but in some cases, we’re seeing prices that are 20-30% higher. It’s possible we just haven’t found the right contractors yet (in fact, it’s probable), but even when we do, I’m expecting prices to be 10% above what I’m used to in Atlanta. Make sure that you factor the local labor and material prices into your analysis before you buy.
  4. Contractors will try to take advantage of you. I was really hoping that my experience (and the fact that I could prove my experience through this site and my writing and speaking on several notable occasions) would allow me to portray to contractors the fact that they shouldn’t assume I’m naive or inexperienced. But, apparently some contractors think I’m either desperate or an idiot. I got one plumbing quote for literally 3x what I expected to pay for the job — at $8500, I could have demoed and re-piped the entire house at least once, and our scope was much smaller than that. The contractor came highly recommended from two independent investor sources, so I can only assume he thought I wouldn’t notice. Make sure you don’t get taken advantage of by contractors who assume you’re some rich, stupid, out-of-state investor (even if you are :)).
  5. Scope of work will likely be different than what you’re accustomed to. The first thing I learned when I went up to Milwaukee a few months ago is that most houses there were built in the 20’s, 30’s and 40’s, most houses have basements, and most houses were built on clay soil. This combination means that you’ll spend a lot of time fixing foundation issues when you rehab in Milwaukee. Now that I’m putting together the scope of work and getting bids on the job, I’m finding that there are a lot of other things that are different as well. Roofs need extra layering material (to protect from all the ice and snow), many plumbing systems use cast-iron drains (which are tougher to tie into than PVC), many houses actually have wells for water (ours used to, and now we have to abandon it properly), electrical codes are different (this should actually help us), etc. In some cases, this means extra work and in some cases this means more expensive work, both of which will hurt the budget. So, make sure you know the local renovation issues and customs.

11 responses to “House #36: Lessons Learned (So Far)”

  1. Justin says:

    Hey J – I’m not sure if you covered why you picked Milwaukee as your first out of state area but I’m interested to hear about your selection process. Also, did you factor in your travel expense to come up with your purchase price or are you looking at travel as organizational (and not project specific) because your trips will benefit future projects? Thanks and best of luck with WI-1

  2. J Scott says:

    Hey Justin –

    I’ll write more about “Why Milwaukee?” in a future post, but the quick answer is that I’m partnering with another investor from Phoenix, so we were considering markets that were pretty much equal distance for both of us. From there, we talked to a couple national RE analysts, looked at a bunch of market data and decided Milwaukee was a good place to “check out.” After spending some time here, we decided there could be a decent uptapped market, so we’re sticking around for now.

    As for travel costs, those will get allocated to each project, but it didn’t change our analysis — the thought is that if we do multiple projects up here (that’s the goal), the overall per-project impact of the travel expenses won’t be huge (though they’ll be pretty big on the first and maybe second projects).

  3. Joe says:

    J – I saw your post on Mr LL to Cimba – did he send you a lead? I have found LLs very willing to share info, resources, contractors, etc. and was wondering if that same attitude is shared in the flipper community. Just curious.

  4. J Scott says:

    Hey Joe,

    I can’t speak for other flippers, but I certainly share as much information as I possibly can (this website can attest to that). I’m always happy to recommend my contractors, give advice, help fellow rehabbers with their projects, etc.

    Unfortunately though, Cimba never got in touch with me, despite offering several times to help me. It’s a little disappointing, but I guess he didn’t really have any intention of helping and was just trying to gain more information about my project in his backyard (which I would have been happy to share with him regardless of whether he offered to help). Clearly not everyone is as interested in helping others as I am… 🙂

  5. Joe says:

    J – that is too bad. And I agree, you are sharing a ton of great info on this site, many thanks for that. I found the site from one of your replies on BP and have been working my way through all this great material. I’m a part time LL in north metro atl area and love to learn more about all things RE, glad to have great resources like 123flip.

  6. J Scott says:

    Thanks Joe…I appreciate the kind words!

  7. ezra says:

    Perhaps Cimba is just too busy filming the sequel to The Lion King.

  8. Leon says:

    Hey J,

    How’s it going? I actually met you back at the BP Conference. I was the guy that was investing in Las Vegas. Been following the blog for awhile you definitely helped inspire me to start mine.

    It is really awesome to see that you are taking initiatives to expand your business. Best of luck in Milwaukee!

  9. J Scott says:

    Thanks Leon! I’ll check your blog out…good luck!

  10. John Wingate says:

    Nice Article!

    Currently in Ocean City I have had a lot of investors from the international market inquire about buying beach homes.

    Condos are becoming a hot market here and I think will continue to be for local and international investors.

  11. Leon says:

    Hey J,

    Thanks! Looking forward to seeing your WI-1 in motion. And oh yeah great to hear you’ve found a partner through BP. Been a great resource for me as well.

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