221 – When to Expect Your Rehab to Fall Apart

In today’s episode we’re going to be talking rehab, and specifically when you can expect your rehab to fall apart. If a rehab falls apart, it’s not necessarily going to be because of something you did wrong. Sometimes rehabs have a life cycle; they usually start out really strong and then something happens. I’m going to tell you what might happen and how you can avoid having this happen to you.

You buy a house, you bring a contractor in to quote the job, you award the job to a contractor, they start prepping the rehab, and everything is looking great. Let’s say the project is supposed to take four weeks. Maybe you go in week three and the progress isn’t as visible, but that’s ok, that can happen. Going into week four everything is on track and on budget. But by the end of week four, the house doesn’t look all that different than it did in the beginning of week four. You’re getting to the end of the project, and suddenly little things aren’t getting done. There’s a lot of finishing touches left and they’re just not getting done. A lot of rehab projects fizzle out at the end. A lot of investors pay their contractor too much in the beginning and middle of the rehab, so at the end the contractor isn’t as incentivized to come back.

I know what you’re thinking: why do I have to incentivize my contractor to finish a job they’ve committed to doing? That’s a great question, but this happens a lot with contractors. They might have everything under control at first, so the project becomes a lower priority for them and they shift focus to other jobs. What ends up happening is that your project gets pushed aside because they’ve already been payed most of the money and another project has more obvious, immediate need than yours. The contractor’s priority isn’t to get the house on the market, but to be paid for the project.

Never finish paying a contractor until a project is 100% done–otherwise, you’re going to be left with a project that might only need a half day’s work to be finished, and the contractor won’t feel any urgency to come back and finish it. Hold back at least 25% of the pay until the project is completely done, so the contractor will feel the need to finish it.

About the author, Mike

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