Yuriy 0:00

Welcome back to the Philly Landlord Guy, the show where we give you real practical information on owning and managing rentals in city of Philadelphia. I'm your host, Yuriy Skripnichenko, the guy with the impossible last name. Just think of me as the Philly Landlord Guy. I am a licensed real estate broker and certified property manager here in the city of Philadelphia. Today, I have a guest on the episode, and I'm bringing someone from the inside of our own team because honestly, some of the best knowledge isn't coming from keynote speakers or from some consultants. It comes from people who are actually in the field every single day doing the work. My guest today is Jose Favela. He's TrustArt Realty's operations manager. Before joining TrustArt Jose spent five years in construction and project management space running the renovation project, managing vendors relationship, building construction calendars, and at one point, overseeing over 30 active construction project at the same time across two markets. He has seen what works what blows up, and what costs landlords money they didn't have to spend. Today, we're talking about something every Philadelphia landlord deals with, renovations. Whether a turnover between tenants, a value add project, or a bigger rehab the difference between the profitable renovation and a money pit almost always comes down to the process. Budget, schedule, vendor management, and knowing when to walk away. Jose's going to break all of that down from the inside.

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Yuriy 1:59

Jose, welcome to the show. Your background. Five years in constructions before TrustArt Realty. What were you doing and at what scale? Oh first of all, thank you for having me, and it's great to be here with this opportunity. Before joining you guys, I have a history of between five and seven years as an architect since I graduated and I started working on my own. I got into the f- property flipping business probably five or six years ago. Actually, 2021 was when I started officially. And we were into two main markets, which was the property development market and the quick and fast-paced property rehabilitation, and this was with a specific past employer of mine. We did not do buy and hold. We did buy, renovate and sell What was the difference between as you said, development and quick flip? So development that was a ground-up construction? When we say development in the flipping business, we are thinking mainly of how would a property m- be marketed once the project ended. Technically, the fast-paced rehabs, they are also development, but they don't require s- such an in-depth study of the market once you get into them. The process by which we did each of those projects had a main difference, which is the time that you were allotted to finish each project. A quick rehab could take in average around three months, and the process to get that calendar of three months was let's study the market around the property. Let's see what's the h- best shovel to hole ratio that we can do, meaning what is the market being sold at right now in the past one or two years so that we are able to put the property to compete with other properties in the area that are also at sell. And that is the rehab market. The development market, it's a little bit more complex. That because it... First of all, it costs a lot more, and you're dealing with properties that are in the multiple millions of dollars. So the way that you study the market is different. The way that you offer it and the way that you market it, it's different. Who is your investors? Wh- who are your partners? Who are your even the vendors that you select for this kind of for this kind of projects will differ. So when I say property development, both of them are property development. It's just the specific part of property development with multi-million marketed properties differs by such a range that the development itself is where the deal is made, not the actual rehabbing. Okay. But we're still talking about the same resi- residential construction. It's not some kind of multi-family projects or not commercial. It was not commercial, and the development were multi-family. Those were the ones where you got your regular row home house, and you would develop it and renovate it, expand it so that it could allocate multiple units. But it's still in the realm of a few units. It's not a big- Yes. It's- no more than four units, let's say. So it's still residential. Can you walk us through how you built an, a renovation budget, and how does it work? Where is it coming from, and what do you think most landlords or novice investors do wrong when they estimate the cost? Before we get back into it, I want to take a quick moment to thank our sponsor at TrustArt Realty. If you're a Philadelphia landlord and you're tired of dealing with the headaches we'll be talking about, the contractors, renovation, turnover, compliance, TrustArt Realty is the professional property management solution built specifically for this and for this city. If you want to know what your property could be earning in today's market, or you're ready to stop self-managing and hand it to a team, TrustArt Realty is offering a free market analysis for all of our listeners. Reach out to us at trustartrealty@phillylandlordguy.com or go to trustartrealty.com to schedule a free session. Now, back to Jose. Okay, so here's where we have to take a couple of constraints into consideration. If you already own the property, then it's a little bit more straightforward because you're only taking into consideration taxes that you pay for the property, the time that you have to build before the property is considered vacant and you get a tax increase because it's vacant. And w- to start building the budget, you need to take those two constraints first. What is the cost of holding the property without renovating it, and what is the actual length of the project that you're envisioning? How do you estimate the length of the project that you're envisioning? Let's say I have this property in Philly. It's a regular row house. I have... I've never done the flip or I've never done some bigger renovation before. How do I know what is, what does this timeline looks like? What I would do as a former project manager in construction, first I would do a scope of work. Before getting into budget, before getting into the schedule, we need to assess the property, we need to know where we're at and where we're gonna take it at. That's done in the part of development. You study the market. You know where your property wants to be, so you make that different state of we're at part A, we gotta be at position B. B is where the property is able to go to the market and get sold. What is the difference between A and B? What do I need to do in field to make the property A be like property B? That will give you a scope of work. Once you start the scope of work, you need to grab the dependencies between each of tasks that you need to complete to com- to make the scope of work real. Let's say, for example, you're gonna have HVAC, plumbing, and electricity. All of those are considered rough MEPs when you're dealing with properties that need heavy renovation, and you need to sequence them in a way that your HVAC guy will not get in the way of the plumbing, and your electrician will not have to walk over open plumbing and piping once he's installing his cable. So what we did is we need to schedule them separately- You-- The general rule of thumb is you go the, with the ducts or piping that is the hardest to move. So you start first with the HVAC. Then you start with the plumbing and sewer piping, and you leave the electricians at the end. Why? Because electric wiring and piping is the most flexible out of the three, so they have the most room to soothe their way through the already existing nets of pipes and ducts. Once you have those tasks, then you have to consider, okay, are we doing, what kind of cabinetry are we doing in the kitchen? Are we doing your quick Home Depot already in-stock kind of cabinetry or are we doing custom-made specialty cabinetry? Depending on your vendors, those have a time that n- that they need for the fabrication of the cabinets. Also, what kind of countertops are you using? Once you have all of that deliverables delineated, you have a per task, per... It's called a WBS, work breakdown structure, WBS, and that will give you a duration per task. Once you have the duration per task and you also have the dependencies between tasks, that will give you a critical path. The critical path is the shortest time in which your project can deliver, and that is, let's say, the optimal path to finish the calendar in time. That's how you calculate the duration of a produ- of a project being flipped. So if you were considering flipping a house that you already own in Philly, I would first do, let's-- this is a list of the tasks needed for the house to be on market, how long does each of them last, what is the order of each of these tasks, and also the where are you getting the materials. Some materials have a short, medium, or very long duration. I can talk about these appliances we were shipping during COVID times. They took from anywhere from six months to a year to arrive to the property, so that would obviously play into the projects. Unfortunately, at that time, there was no other way around it. It was COVID. We were dealing with these shipping issues, so that, that did affect some of these projects. Once you actually have the calendar, the materials that you're using, and the sequencing of the materials, then you start allocating your resources to it, whether it be in-house in-house manpower, or whether you're subcontracting some of this. In order to subcontract this scope of work, you have to have your scope of work that you're gonna give to a, each specific vendor, a contract tied to it, and then you start getting quotes from different vendors. Once you choose one, then starts the part where you have to actually apply some project management to external or to outsiders subcontracted resources. Okay. Before we apply any project management let's step back and how do I know again, as a regular guy who owns a house and I want to renovate it or I want to flip it, how do I know how to build this scope of work? Or how do I know how long rough plumbing will take? Or how do I know do I need to have rough plumbing done? Like where do I begin? Okay. So in my experience that's a couple of different questions, right? So the first question is how do you know which scope of work you wanna do? That's, like I said, that's part of the development phase. That's where you get your comparable properties. You have a property in its raw form, and you have properties in the area that are equivalent to a finished property. Okay. You're- So I, I basically, I just walk around or look on Zillow or whatever this website I'm using, look at the properties that I want my property to be like and see okay, I see that they have this, I don't know, granite countertops and white shaker kitchen. That's what I want to have in my kitchen. Correct. I see that they have this one and a half bathrooms, so I want to have this half bathroom added to my first floor. And i- is that the comparable you're talking about? That's the gist of it, yes. It's called comping. You get comparable properties. And in order to get the comparable properties, you need to understand the capacity of your property. It is easy to go and say, "Okay, MLS Zillow, give me the highest selling properties or the properties that are most expensive that sold in the last year," because I want to get the best buck for my property, right? But it's not that easy. Some properties that sold in your area sold real well, but your property would require such an amount of investment into it that selling it is just not feasible to get back that investment. So it's part of understanding what the capacity of the property is, how... what can it be renovated to that it makes sense putting money into? And targeting a, an end state of the property that is realistic in a year's span. You don't wanna go too far away too far back, because conditions in the market were different, financing was different back then, mortgages were different in 2010 even, let's say. So you wanna trade the market you have, not the market you want. So it's always best to have a short scope of how, what are the parameters that I am choosing my property with. Okay. Let's say I have this row house, I went around in the neighborhood, I looked at all of the listings that I found, I saw a few properties that I really liked, and I want my property to be somewhat similar to them for whichever reason, either because of the price or because I just like the way how the, it looks like. And it doesn't have to be a flip, right? I can be... I am a landlord, I just saw what other landlords have in the area and I want to match up to them and have a nice property. So now I know that I want to have these kitchen cabinets, the countertop additional bathroom or central air. How do I do that timeline that you were talking about? How do I know how long it's gonna take to do that? Like, where do I get this timeline from? Like any business and anything you do repeatedly, you have rule, rules of thumb. And we used to have different scopes like templates or skeleton projects. We used to call some of these like cosmetic rehabs. You're not updating any of the carpentry, you're not updating any of the, any rough, any piece. You're not changing any of the piping, any of the electricity wiring. You're not doing anything utility related, right? Cosmetic would be paint, carpet, and we're stretching it here, but maybe countertops. That would be cosmetic, right? Let's just paint it and carpet it if needed and we would do sometimes also the appliances. The purpose of the cosmetic is that it's quick. Properties come in, properties go out. Sometimes you buy properties that were not such a great deal development-wise, so you just go the cosmetic route because you want to remove that property as a cost-generating asset in your portfolio. So that's one part of it, right? It can be cosmetic. The other part is it might be a mid-sized rehab where you are probably changing the cabinetry, doing closets. You're changing toiletries, like the toilet sink, tub, the s- piping, shower heads. That would be considered a mid-sized rehab. Now, a large-sized rehab, and we're not even getting into the million status of the... what we consider the property development. A large size would be anything that would require changing the layouts of the piping, of the ducts, or the wiring, anything that requires a panel to be installed, anything that would require-- that would trigger an inspection, anything that would likewise need permitting. Permitting introduces a whole other parallel activity into your flipping business, right? So you need to know which property you're buying beforehand, knowing which timeline you're gonna buy it for. We would, when we bought a property, we would buy it knowing that we would either require a permit or not. A permit can easily take three months if it's a long renovation project. So that will play into how many taxes, how many even the interest rate of the mortgage that you're gonna pay will play into the cycle, how quickly you deliver the property. So how would you know how your cal- how your calendar would go through? It's probably if you- once you choose one of those scopes, if you know that you're gonna do rough, it's anywhere between three to six months. Why do I say it's three to six months? If you're going the permit route, you're gonna have to get a permit, a design, drawings, and plus you're gonna have to do all of the paperwork to get your permit released. Parallel to it, you can start doing all of the soft or finishes, which is trims, doorknobs, doors casing for the doors, floor that is not gonna affect the layout change that you are possibly planning to do. Anything that would, in theory, be the last part of the renovation project, you can do while you're waiting for a permit to do the hard part. Depending on how the hard the layout affects the rest of the house, you will be able to push it without delaying the finishes. So like I said, it's one of those three scenarios. It's a cosmetic rehab, it's a medium, and it's a large. Okay. If you tell me- let's say we're talking about mostly Philadelphia landlords here, right? So what you're describing is what in our business we call as a turnover most likely, or make ready. Whenever you have a property, you need to get it ready for a tenant, or if your tenant moved out and you need to get your property ready for the next tenant which would fit probably in your cosmetic renovation most likely. Depends on the condition of the property. It can be a medium grade rehab. But- It's either cosmetic or medium-grade rehab. So either or. Let's take a medium-grade rehab where we want to change some appliances, maybe kitchen cabinets, maybe a vanity in the bathroom. How would you build a timeline for that, and how would you build a construction schedule? What is the realistic timeline for typical photo pharaoh home for something like that w- look like? The good news is that most of the properties that are undergoing cosmetic rehabs, the activities are not so dependent on each other. The activities don't have this relationship between them that forces them to happen one after the other, mainly because they are unrelated, right? You can paint at the same time that you change appliances probably. Or you can... the only dependency that you would have is probably if you're changing the flooring, which I guess you wouldn't in a... For a landlord that is doing cosmetic rehab, like m- a, a turnover or a make-ready, that's probably a week with a general contractor where you scope out the items that you are trying to get done And it's most likely going to be three days of a three-man crew working parallel all of those activities. And three days is already extending it like being generous with the schedule So you're saying it's after you select a vendor, after you sign that agreement, it should take them about three days to complete your project? Depending on the scope, yes. Most of the scope that I've seen for cosmetic rehab, it can be done... And because it also depends on the size of the crew you're working with. I worked with crews that had even 20 people on it, but you also had a lone GC that would do everything w- which... With a helper or two or three guys, right? So most, the standard would be, like, a three, four crew. Three, four person crew would wor- would work from small to medium rehabs. And for cosmetics, it's even a one person job that could be finished, full day job with appropriate execution, two, three days. Okay. So how would you find a- and vet contractors and vendors for a job like that, and what kind of red flags that would tell you to walk away from them? That is... There's a common saying in the construction business, the marry your GC, right? There is... The most difficult part of getting projects to work efficiently is handling the manpower on the field. It's not an easy thing to do, and in the conditions where we're working right now with so much churn or, and so much rotation of personnel, there are companies that are open and close every month. You lose GCs probably every two years, and it's a common occurrence if you go into the forums of investors, of landlords, of CEOs that are looking for GCs. Like, where do you find a good GC? It is very hard to give you a system to do that. The only thing I can think about is recommendation. You can... the typical Recommendation if the... You say go to Home Depot and hire anyone that is outside Home Depot, that is very risky because you don't know the quality of the person that you're hiring. And even finding people just randomly through ads or sponsored ads or through the streets, like working into in traffic, you see a vendor's car with their number and everything. Sure, you can save them, and you can create a database. Vetting them, that's a whole other issue. AGC will probably work very well for the first half a year, and you won't notice its deficiencies because he's brute forcing the work to finish on time, to finish on budget. Only until he has worked enough time with you, you'll start noticing patterns. Probably a lack of reporting, probably a lack of detailing on the invoices, probably that he underbid some of your quotes, and then he's giving you change orders for the half of the project and blew the budget. So those deficiencies, it's very hard to find, to notice at the beginning The only way that I could recommend to find a good GC is ask around. Know people that you know and get the recommend- and that you trust their recommendation. So how do I get to that middle ground besides trusting someone? Say you need to have your project done on time, right? Or you build your timeline and let's say your timeline, even if it should take only three days to complete the project with three people crew, which is not that common. Let's say we have smaller crew for a smaller project, maybe one or two people. Let's say it's a week of work for them to do that. So y- you just have a week of work. But it take... it may take you a month to find that crew who's going to do this week worth of work. And while you're looking for them you have, I don't know, four different vendors giving you a quote for the same thing, and it can be anywhere from $1,000 to $30,000. How do you find middle ground between that? Like, how do you make your decision? Okay, at first I need to make it done cheap, I need to make it done fast, but I also need to have quality, and those three things are n- never come together. Usually what I say is that- Yeah, the trifecta you get to choose... Yeah, you get to choose two of those. It can be cheap and bad, it can be expensive and good, it can be expensive and fast, and so on. But you cannot have all three of them. So how do you select this vendor even if all of them came from recommendation? The selection process we went through was we used a ratio of the risk and profitability of the project. If a project was low risk and low profitability, we could send a high-risk GC. Why? Because it would offset the low risk of the project. The reason the, the reason for this being that if a GC can handle multiple trades with a single crew, he will probably be cheaper, but he won't be specialized. And non-specialized people tend to take longer with each of the trades, and they tend, at the end of the project, to be more expensive, not only because they took longer, but because they are not specialized, they had to repair or do more punch, or they just got things plain wrong. This is why, depending on the complexity of your project, you have to assess the risk of the project to assess the risk of the- Subcontractor that you're getting into it. With riskier projects where it's the, of the utmost importance that you finish on time and on quality, I would say hire trades specifically. Hire specialty trades. Don't get a GC into it. Hire specific plumbing companies, hire specific carpentry companies, hire specific cabinetry companies. All of these specialized subcontractors will give you a very detailed and broken down quote for the scope that you're trying to get bid around. Now, depending on the quality of the company, quotes can vary a lot, yes. Some of them will be three times the actual cost. Some of them will be probably even lower than your internal budget. But you have to have a, an idea. If you're doing this as a business, you already have a database of historical costs and give or take, the cost of the material and the cost of labor. From there, you start the bidding, and then you start reviewing the bids that you get back. Like I said, with the higher the risk of the project and the ratio of profitability, meaning the dollar you put in, the dollar you get out, the more profitable the comp- the project is and the more, and the riskier the project is, it is more important that you define your subcontractor based on the quality of their bids. Either bids are too high and they're being unrealistic or the other way around, their bids are too low, they're also being unrealistic. Something that matches what you actually want to produce Knowing that will allow you to get a calendar and be able to manage with one person only that specific trade. A GC is harder to manage because they are outside of... If they're an external GC and they are outside of your company, or in the case if you are an individual as a landlord, a GC will give you runarounds, and it's the typical meme of when are you gonna get done?" "In the next 6 to 12 months." What does that even mean, right? Do... Are we even following a calendar? It turns out that the GC left his crew on, in, in the field and went to another project. So you as a landlord, how do you supervise that? How do you manage that? That's where project management and supervision comes in, right? People that have flipping businesses, rehabbing businesses, they have supervisors on site. They have project managers. So- What if you're not in the flipping business? If you do not have a whole team of people who's managing your rehabs or your construction or whatever you're doing, how do you manage vendors once the work starts? So let's say we selected out of this crazy bidding process, we selected a vendor that we like, trust, and like the quote that we received. We started the work, what happens? How do we manage it? Or a, let's call it a civilian. For a civilian that is a landlord that is just rehabbing his property and doesn't have the infrastructure that a flipping business has, I would highly recommend to have a weekly calendar set by goals where you can review with the GC every Saturday, Sunday, whenever you're not in your nine to five. The reality is that any work in the field requires supervision, and you will have to play the part of the supervisor. If you're a, a loner civilian landlord doing the rehab on his own, you will have to play the part of the project manager and the supervisor What happens during the week, it's harder to supervise unless you are savvy to some of the project management platforms. You could be using Asana, which is free. You could be using Trello, which is free. They all have their own subscription models, but most of them are free. Monday is also free. So some kind of platform that allows you to measure the deliverables and get reports without you being on site on a daily basis. Can you give me an example of what kind of measurable reports I will ask from my GC? I just imagine this, that I find this GC to do my turnover and I don't know, put in new kitchen cabinets in and I can find it highly unlikely that I can make this GC or this vendor, whoever is doing that, use any platform. That is fairly common, but in the flipping business, we did have those arrangements where we would onboarding to these platforms and they would use them. If you don't have the infrastructure for, of the flipping company, what most commonly will happen, and I see it every day, is WhatsApp updates. They will just flood your WhatsApp with pictures of notes or if... and this is if they're good at self-managing, right? Some of them won't even tell you anything until the week is passed and you ask them for the, the overdue updates. But if they're good, if they are responsible, if they know how to delegate, they have their weekly list of tasks that you arrange prior to them starting the job with the scope and the contract and the calendar. They know what they should be reporting on, and they would probably send you pictures of the work that has been done. And there is a risk to this. GCs are, they tend to send pictures of the work that was done to, in, for lack of a better expression, to to say face. "Oh, look at what we did," right? But they don't show you the status of the rest of the property. So they could show you a beautiful bathroom and the kitchen is a mess, and all of the garbage is still there. All the trash that they were supposed to take into the dump is still in the living room that is still yet to be re-floored or repainted. So one of, one of the conditions that we asked of our GCs is, "Don't just tell me or show me what you did. I need a walkthrough of the property." And that's a very easy way to, Relieve the responsibility of the landlord of being in the property every day. We would ask the GC to give me a video of a walkthrough of every single room, wall, floor, and ceiling of the property that you're working on. First of all, because the video would allow description of the GC, so he can talk while touring the property and tell you what's been done and the status and why is this looking like this, give you explanations. But also because it sums up in a single file all the report that you need that would be otherwise living in 50 pictures, texts, and, this flood of updates. So one video per day is probably the way that I would do it if I were in the situation of a landlord. What would you think is the biggest mistake that you see landlords make when they do or when they manage their own renovations? Oof. Arrogance. We all think we can manage construction, and there are so many variables That are not taken, not only because you are probably not trained, but also because you're not aware of things that are happening in your property while you're not there. Price changes in materials can change one day to another, one quarter to another, and you're not aware. GCs are probably not reporting with the frequency that you agreed to, and then what do you do? You already signed the contract with this GC. Do you just break the contract and find another one and install? There's a lot of issues that landlords probably are not trained to do. And a rehabbing project is a very fast-paced environment, and there's always a fire to put out. There's always something happening. There's always input needed. It's like that Jerry Seinfeld episode where he has this carpenter guy, and he keeps asking, "Do you want this kind of knob or do you want this other kind of knob?" And Jerry just loses it at the end. "I don't care. Just do whatever you want, but finish it." And he ends up remodeling the whole apartment and a big bar that blocks the view to the liv- unfortunately, as a landlord, you don't have the infrastructure to delegate decisions. You will have to make a very excruciatingly detailed scope of work so that those questions do not arise at a later date. You have to have a selections package for your GC. You have to have providers, sources- What is a selection package? Oh, okay. So while you're getting your budget done, before you sign any contract with any vendor or GC or anyone, it is very recommended that you have what paint are you using, what countertop are you using, what type of flooring are you using, what type of trim, what type of knobs. We used to do a lot of, let's say chrome and gold depending on the area we were building in. Your typical gr- millennial gray kind of paint, the white eggshell, like those colors, the color palette that you wanna work with, you also have to have that decided. What tile are you getting? Where are you getting the tile from? So selections packages include material, the technical chart of the material, the provider of the material, the lead time for the material, the price of the material, and where... Oh, obviously the floor plan of the finishes. A detailed floor plan of where every material is going to be installed. They will call and ask if they're installing tile for the bathroom and the kitchen. They will. It will always happen. So a floor plan for your GC where it tells this finish is going here, this kind of knob is going here, this kind of backsplash is going here. This is a tile for a backsplash, it's not the floor for the bathroom. So that's a selection package where you specify every kind of material that you're gonna be using for finishes. You do not need to specify like, oh, okay, this this framing material is gonna be this truss is gonna be this in measurements. No, that's not in the finishes material. Selections packages, finishes. Appliances toiletries, finishes in floor, ceilings and walls, paints, and you can consider the carpentry that goes into the finish selection package, the detailed carpentry, the noses of the stairs, the handrails, the balusters, all of that kind of carpentry goes into the selections finish package. Okay. So how do you handle it when say, you, you already have everything set up, you have I don't know, free version of Madi- monday.com, or you're using Trello, or maybe you're just using WhatsApp with video walkthrough every day that your contract- your vendor sends you, and they go off schedule or over the budget. How do you handle that? What is the process? The schedule answer is probably a bit easier to to come up. So the common method is called schedule crunching. It's not always available, and it's a sad reality that if you are trying to maximize the profitability of your project, you're going to crunch it from the very beginning as much as possible, meaning that you will leave no buffer for delays, meaning you will leave no buffer to replace materials, or you will le- leave no buffer for any kind of eventuality like rain or, God forbid a stop work order. The reality is that projects will deal with delays that are sometimes a responsibility of the GC, sometimes a responsibility of the providers of the materials, sometimes it's even just weather. So s- a realistic schedule takes into account some buffer for that. Now, if even with the buffer your schedule has gone off tracks, that's when you get into schedule crunching, and that is mainly done by understanding the dependencies of your critical path. What do we mean by the critical path? Like I said before, it's the shortest duration of the entirety of your calendar based on the dependencies between tasks. Meaning you cannot install the stove until you have installed the flooring for the kitchen, just for, as an example, right? In this one project, we had an issue with the gas provider, and it delayed the gas installation for several months, meaning that the property could not be climatized, meaning that our hardwood flooring didn't have a chance to, climatize to the room it was going to be set up in. As hardwood will expand or contract depending on the temperature That meant that it would delay the installation of our appliances because they needed to sit on top of the hardwood flooring. So schedule crunching would mean, okay, what is the actual relationship between the appliances being installed and the flooring being there? What's their actual conflict there? They just need somewhere to be staged on. Because we came into the project with this standard proct practice that appliances come after the flooring, we hadn't questioned the veracity of that. So what we did was install the appliances on top of these triple plate boards, and gave them the width, the depth that the actual flooring would have. Once the actual flooring came in, we were able to just move the appliances, remove the boards underneath, and replace it once the flooring was already installed. But the appliances were already installed, the gas was already installed, and the actual utility company could al- was already allowed to verify that the appliances' valves were off before go living the gas service. So schedule crunching basically means that what am I assuming that is the critical path and how can I change it? That's one part. On the other part of we want to reschedule, we might as well throw more money at the problem, get more people on it, and have the GC instead of having a four-man crew, an eight-man crew and finish faster with parallel activities. The basic joke of project managers it's two women don't give birth to a baby in 4.5 months, right? It's some, in some- it's something like that. There are some activities that you will be able to run in parallel with more crew in your roster. But in the end, if you haven't figured out the schedule crunching part of the dependencies of your critical path, throwing more men at it won't really move the needle. So a mistake that I see investors whether it's landlords or companies, is that they just say, "Get all of your crew there and finish." That's not gonna move the needle because there's dependencies between tasks. Some tasks cannot be done while others are being are not, are yet unfinished. Another way to schedule crunch is to divide it by sections. Maybe- If we divide the property by sections, let's say we're gonna install trim and paint differently in the first floor than in the second floor. As soon as you finish the painting the priming the primer, ins- s- install the trim. But you only painted the first the second half because you paint down, up up-down, right? And you install the trim. While you ins- install the trim, that other extra crew can start painting underneath so that when the trim crew finishes the second floor, they start on the first floor. That's another way of crunching schedule when dependencies are Where dependencies are based on the task or the trade instead of the area. Yeah. But again, to do all of that, it's on a bigger project. It's somewhere where you actively involved on day-to-day, and you can schedule the crews and tell them what to do or not to do. But when you're just doing some mid-range rehab or turnover for your property as a landlord, you don't have any ability to be there every day. Even if you do, you, you don't have that control over people who work there. And you will not have that many tasks or maybe understanding of the tasks that you can install the trim on the second floor and somebody can start painting second floor while you're working on the first floor. So that's I think a little bit dif- different scale. How... What do you think, how would a regular, as you say, civilian apply this to a smaller project if the contractor is over schedule? What would be the best way to push them? In this specific scenario, I would suggest that we have risk reduction mitigation plans before starting the project. If you already started construction or renovation or turnover or migrating whatever the scope of the project is, you have already completed the previous paths, right? You have a selection package. You have out at least three bids per trade, and you have at least, let's say, 10 other contacts in your Rolodex that you can call for either bids or new quotes, or you can call those old quotes and have them like, "Okay. Approved. Come in. When can you start?" My suggestion would be not to nickel and dime the project because you will get nickel-and-dimed. Once a GC starts getting delayed, no amount of pressure will make him finish in time because if he could finish in time, he w- he would've already done it. If by the third, if by the third attempt to pressure him to move faster he's still delaying further the job, I would just break the contract with him, pay him for what he has provided. I would update the contracts with the other two bids, ask them for the remaining bid, and have them come in. It is better to spend one week re-bidding and re-quoting and re-contracting than spending another two months with a GC that is just not reliable. Yeah. That makes sense. So Jose, looking at, back at your years in the flipping or rehab and business, what is one project that stands out to you that went wrong, and what did you learn from it? You can never underestimate the importance of code The projects that got delayed the most, and I can talk probably two or three projects that fell in the same category. The projects that got that were a disaster in every single category, budget, time, even quality, they, that happened because we hadn't set up our Pre-con, meaning pre-construction. Getting your permits in order, getting your plans in order, getting your selections package in order. That would also play into delaying the construction, which would in turn start triggering this vacancy taxes, and also it would start triggering the neighbors. When you're doing these kind of businesses, when you have construction that tend to last multiple months, if not even to a year, you will start triggering neighbors, and depending on the relationship you have with them, they will call the city on you and get a stop work order. That is the death kiss for any renovation project. Yeah. Just one stop work order will blow the profit you could get off the property, probably even depending on the profit ratio of the property. It can stop you from anywhere between half a year to a year. That being said, the worst property, and this is property not nec- necessarily project It was a property that was seven years into a stop work order because of a neighbor. Seven years. Seven years? Seven years, yes. And when I was hired, the property was already vacant. It was already in the stop work order. It was in court. The court had already stalled this for s- and, the it's also market you're at, right? When you have powerful neighbors who are, like, rich neighbors, they will use all of their contacts. But this property was stopped for seven years prior to my hiring And it would take three years to get it running again. Imagine a decade just because you didn't get your pre-con in order, because you didn't, sign in with your neighbors. Whenever you get a permit, depending on the region, you have this neighbor notice that they have to sign for construction. But even if it's a formality, I would do a first pass with the surrounding area, start to get to know the neighbors, re- develop a relationship with them, not only because you as a landlord will have to have a direct relationship with them, but also because the... you're gonna have a lot of unknown people at the property. You will have vendors. You will have your crew. You will have material providers. You have utility inspectors. There's a lot of movement going in the property. Neighbors will rightfully get angsty of who's coming and going, right? Who's taking care of these people? Oh, okay, it's a project of X and Y. He, he reaches out to us maybe once a month, or, we already know what's going on. We already have a calendar of the construction, blah, blah, blah, blah, blah. That's definitely the category where projects can get blown. And it... and funny enough, it has nothing to do with your knowledge of construction. It has nothing to do with the quality of your vendors or your materials. It's all about how well you navigate the legal and social aspect of building in a habited community. Yeah. Yeah, you definitely need help with that if you do not know how to deal with it. What would you say if you had just one thing to tell every Philadelphia landlord that they should do before they sign a contract with a contractor? Sit down with them in person, have them visit the property, not just go through a paper quote. Have them go through the property and agree on a schedule of deliverables. As a landlord, you will probably have a very optimistic, ambitious, if not cruel schedule because you're looking for the profit of your project. The reality is that you have not even yet agreed to a scope of deliverables with the GC or the contractor. Have him sit down and have him go through the scope, have him go through even the materials that he's gonna use, and schedule the deliverables, and have the payments tied to the portions of the contracts You cannot pay them A, a common occurrence with GCs is that they will blow the down payment of the contract, and then they will hardly return to the property because there's not much to get out of that contract. They will get more money if they get down payments from other clients or other projects. So you have to be very wary of how you schedule the payments because that will motivate the land- the contractor to go to the property and tr- and advance the scope of work to trigger payments. It's very... The- this only works if you're multi-year relationship with your contractor, that they won't break your trust. But when you're in less than three years of that relationship, there's still a lot of unknowns on their end that can trigger them to move money around projects, and they can blow the money destined from your project in other projects. So it's best if you have this calendar of deliverables on your end and his end, so both are accountable on that relationship. Okay. Jose, we're getting to the end here. Before I let you go, is there anything that I didn't ask you about but you think our landlords in Philadelphia really need to know about how to run their rehab? I think the most important advice that I haven't touched upon today is don't use short-term leverage for long-term investment What do you mean by that? If don't get... Le- leverage will kill deals or a company if you're not skilled enough for it. So if you want to buy a property to rent it, your leverage is how you acquire the property, whether it's a mortgage, whether it's a society with other landlords that pitched in into the same property. You have to understand the risk you are acquiring because the risk is unrelated to the property once you acquire debt. You will have to pay off the debt or the property will get repossessed As a small landlord, it will be very hard to have margin on how you get out of financing risks. You can remortgage or you can refinance loans even if they are not mortgages, but the ability to do so will be very tied to your range or your financial capacity. Don't over-leverage in the short term in the expectation to have a long-term investment That's a good advice. Thank you, Jose, for being here. And thank you, Yuriy. Jose, this was exactly the kind of conversation our listeners needed. Practical, real, no fluff. Thank you for taking the time to sharing what you've learned over the years. That we've learned the hard way so our audience don't have to. For everyone listening, if today's episode gave you some useful insights or information, do us a favor, leave us a review, share it with another landlord, subscribe so you don't miss the next one.