Don't Let Your Schedule Eat Your Bottom Line

Speaker 1: [0:02] Welcome to the collecting keys real estate investing podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Dan Austin: [0:25] Hey there. Welcome back to another episode of the collecting keys Friday focus where Mike or I talk about something that's relevant to the industry, or just something that's top of mind for us during the week in our own business. For this week, I will be your host, Dan Austin, aka Investor Man Dan. And for this week's topic, I have something that's both relevant to the market right now, and very top of mind for me, and that is my belief that managing your project schedule is one of the most important, if not the most important things you can do when you're doing renovations in today's market. I was just out walking one of our flip projects, actually, and found out, based on our progress, we're going be a week later on our finish date than I had expected and had planned for, which made me really think about where we've really evolved from new investors till now, and what I'm doing to limit that and to manage that. And I wanna talk about the top three reasons why I think it's managing your schedule is probably one of the most important, if not the most important things you can do on a project renovation in today's market. The last third of the podcast, I'll just spend some time talking about what I do, how I manage my schedule, and how I act as a project manager for our business to make sure that we are staying on time and on budget for our projects. So to start off, the first reason why I think it's really important that you're managing your schedules in today's market is labor costs. Labor costs are going up. We're in kind of a labor bubble, and I think it favors blue collar workers, and what I mean by that is that blue collar workers wages are definitely going up faster than the rest of us.

Dan Austin: [2:01] There's just such a high demand for blue collar labor right now, that it just seems to be outpacing everything. This is evident when you're talking to an investor, and you'll always hear their number one complaint right now is that it's just really hard to find a good contractor. And that's true and false at the same time. So it's false because there are good contractors out there, but those contractors are charging more than most of us want to pay, and we're trying to drop into their schedules last minute because we finally get a deal under contract, and now we want to start the renovation next week, and any good contractor out there is going to, you know, be out six months to twelve months, so it just doesn't fit into our business model right now. Anyhow, it does speak to the fact that there is a high demand for labor, which means that the labor costs, the hourly wage these people are expecting to make is going up. For us in our business, we have crews in house, and we pay them by the hour. So when I'm managing a project, I'm looking at it from a time and material standpoint. So however many hours we are working on this project directly correlates to my bottom line. Every hour eats away at my bottom line, at my profitability for the project. So, say for example, after payroll taxes and payroll expenses and all that, I'm $100 an hour to run a crew, forty hours a week, eight hours a day, that's $4,000 a week.

Dan Austin: [3:15] On a four week project, that's $16,000 in labor, And I can assure you that will outpace and is higher than the material costs we have for most of our renovations. The same thing's gonna go if you have a general contractor and you're subbing everything out, you don't have crews in house, so you're getting unitized bidding on most everything because, a, they're paying their contractors more per hour, so unitized costs, per foot costs are going up anyways, but if you're dragging this thing out, you have a bunch of change orders, or you have a lot of roadblocks that you're throwing at your contractor, your final invoice is gonna go up, and that's because they have to pay their crew by the hour, regardless of what they told you the bill is gonna be. If it drags out, they have more cost. Some of it they might eat in their profit, but likely a lot of that's gonna get passed on to you, so you really have to pay attention to your planning, your schedule, and the time you're allocating to each phase of the project. Anyhow, rising labor costs are going to hit your bottom line, so limit the amount of days, hours, weeks your projects take on, and maybe don't take on larger projects that look to be twelve to sixteen week rehabs that are just top to bottom guts, because within that, the longer you're on the project, there's just more unknowns that you find.

Dan Austin: [4:25] So the second reason why I think it's absolutely critical right now that you're paying 100% attention to your schedule and your timeline is Murphy's Law. Murphy's Law seems to kick your ass the longer you're on a project. I know it happens to us, I've heard plenty of investor stories about Murphy's Law coming in. What I mean by that is just things happen that you don't expect if you're on a project, and the longer you're there, just the more things that can happen. So for example, this project we're on, we've actually owned the house since January, but had to get tenants out and all that sort of stuff, so we've actually owned the house for quite a while. Guess what? We're working on it, everything's looking really good, and kabunk, our air conditioning stops working. And we know that's something we're gonna have to fix because an inspector's gonna see it and pull it, and it's gonna cost us anyhow. So that's $4,500 we have to fix this whole air conditioning unit for the entire house. We've had roof shingles get blown off and additional roof repairs because of it, but maybe a little bit more scarier than things in the house going bad is what your contractors can do to your project. We've had contractors just go out on the weekend, blow a little steam off, and not show up Monday because they're in jail. Definitely can happen. It's happened to us more than once, actually. Or, you know, one of my personal favorites, the contractor thinks you're not looking over their shoulder, or maybe there's, like, a day or two delay in something for your project, and they decide to go pick up another project and start working on that. And now, your project is competing with somebody else's project, and your contractor is splitting their time between the two or three or four projects and just slow rolling you.

Dan Austin: [5:51] That will really kill your budget, because they're just gonna keep charging you money and hope you don't know, or you're just gonna be on-site way too long, and Murphy's Law will come and kick your butt. But it even happens, like, if you have a good contractor, or even for us, where we have our crew in house, if you're not properly removing their roadblocks or you're constantly throwing change orders at them or just not managing the project in general very well, they get frustrated. For example, some sort of material doesn't show up, like, hey, you're supposed to kick carpet today, but they couldn't cut it, and so it doesn't show up, or something like that. Now your contractor has to bounce around another part of the project just to try to get it wrapped up. It's things like that, that they start bouncing around room to room, they get frustrated, then you throw in change orders, or say, hey, you did this, but I don't really like it, let's use this color instead. It just gets so inefficient, and it affects good contractors, bad contractors, so just try to avoid that, and just don't let Murphy's Law kick you in the butt, because it's gonna cost your bottom line. Okay, and the final reason why I think it's really important to manage your schedule is you don't want to be caught trying to catch falling knives, and what I mean by that is the market is shifting, it's trending downwards, it's literally shaking below your feet and moving as you're doing your renovations, so if you're budgeting a four week project that turns into eight weeks, that's a totally different project, you might not have taken on that project had you known it was gonna take eight weeks upfront, and the market's changed, there's time for a new comp to pop up, there's time for new listings to pop up at lower than what you were expecting to get out of your property, and you really just don't want to deal with that, honestly. By the time a project's done, I know how I feel, I just wanna just get rid of it and go on to the next one, so don't don't make it to where you're just keeping yourself up at night as as you're watching the sales prices of listings in your neighborhood go down, while Murphy's Law is kicking your butt, and why your labor cost is just eating away at your bottom line.

Dan Austin: [7:42] Okay, let's do a quick recap why focusing on your schedule is so important in today's market. One, labor costs are going up. The more hours you have on the project, the more it's eating away at your bottom line. Murphy's Law, the longer you're on a project, the more things that can happen that are gonna kick your butt, whether it's your contractor making mistakes, or things failing in your home, both eating away at your bottom line. And then lastly, we're in a shifting market. You do not want to be hanging on to properties, you do not want to be trying to catch falling knives, both are going to eat away at your bottom line. So here's a few things, pointers that I have for you, what I do, what I've learned to do, I'm not perfect at it, but they have helped us manage our budgets regarding time and labor so much closer, so much better than we used to when we started out. The first thing I do is I walk the project in-depth with my contractor, it's usually about an hour to an hour and a half walk through, depending on the size of the project, and we literally go room by room and talk about what we're going to do, and I add up any final details on materials that we'll need, and I talk to him about the type and materials and what materials we're going to use, I talk to them about the grade of the flip, is this a quick carpet and paint, or is this going to be a full renovation, is this a higher end rehab, or is this more of a below mid price point type rehab?

Dan Austin: [9:03] And we literally get on the same page about everything, we talk about the subs that are willing to come in, we talk about the electrician, we talk about anybody that's gonna, you know, if we're gonna have a carpet guy come in and kick carpet, any of that sort of stuff, we go through it in detail, and so we're on the same page. The next thing I do is once we've started the project, I'm in there weekly, doing a walkthrough, and again, we go room by room, and we look at the progress. My crew knows what I'm doing. I'm looking at projects, the quality of the work, I'm looking at the progress of the work, to where now they will point out things that aren't quality, because I'll just have to look at it, they'll say, yeah, that doesn't look good, does it? We'll have to redo that, those sorts of things, and that really helps create accountability on their end, but also gives me an idea of understanding how the crew can ebb and flow through each phase of the project so that when I'm planning this, I have a realistic timeline and realistic schedule for what they can do. Just because I want it to take four weeks, and that's all the money we have, doesn't mean it takes four weeks, it might actually be a five week project. So you have to be aware of that and understand that, and work really closely with your crew and your contractors to help learn how to manage these projects and how to manage their time. Another thing I do with my crew is I just look at their hourly wage, and I say, is this a task that they should be doing? Sometimes on a project, demo is not something I have them do, because I know I can get it way cheaper from a lower skilled labor source, and there's just other things that I just know, hey, they're not as fast at this, so it's gonna cost me more in labor. Roofing, for example, my crew can do roofs, but a lot of times, I have a great roofing contractor that gives me great pricing, and I know they can do it within a day and a half or two days, slap on a roof, Where my crew, we don't do roofs all day, every day.

Dan Austin: [10:43] They can do it, and I have had them do it, but it's just not the best use of their time. I try to zone in on what they're really good at, and I keep them focused on those areas, and then I will go out and I will find the right labor, align it with the right type of work. And that just kinda seems to help streamline things. And I always make sure I work with my lead or my foreman to make sure that days and times always line up and make sure that I'm not just sending people out there to trample all over his project, because there's nothing worse than contractors fighting on your project. So you wanna you wanna work with your main guy, your main lead on the ground to figure out to make sure that your timing, your scheduling is appropriate instead of just just calling people for a drop in. For some reason, they just don't like it. I don't know what it is. Okay. And one last just piece of advice I would have for you is don't take on major rehabs right now while the market's shifting underneath us, while labor costs are so high. It just doesn't seem like a smart business move right now unless you really know what you're doing. For example, if if you're getting ready to start your first flip or one of your first renovations, and you don't have absolutely just crazy awesome margins on it, I probably wanna do a down to the stuns renovation. I would take on something just a little bit easier for us. Anything that we can't rehab in under a month, we're just probably not gonna touch right now, at least through the end of the year, unless it's just awesome margins or it's something we're going to keep. You know, we have a deal right now that we're so far below ARV. We've been working this deal for the last six months.

Dan Austin: [12:07] We're gonna do that. It's just it is a down to the studs rehab, but we are really experienced in it, and we do plan to keep this. And there is a couple $100,000 in equity in this thing that we're gonna be able to capture. So yes, we're keeping that, and we're gonna do that. But anything outside of that kind of reasoning, we're really just gonna kind of moderate what we're doing, especially on the flip side. So I I just would stress that you should do the same thing. Don't tackle things that are gonna get away from you and cost you more money and eat away at your profitability and possibly cost you money. So that's all I have for today's Friday Focus. If you like this, hit me up in the DMs. Investor man Dan at Instagram is probably the best way to get ahold of me. I'd love to hear from you guys. Other than that, please go out and download our podcast. Give us a five star review and say something nice. If you don't like us, don't say anything at all, but actually say something nice about us anyways in a five star review. Other than that, I will see you all next week.

Speaker 1: [13:03] Thanks for listening. Please leave us a review iTunes or wherever you get your podcasts, and check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.