“PREP” is the key to getting the job done right.
When most people think about rehabbing a property, they think in terms of two main concepts:
- How much money they will make on the sale or generate in rent.
- How amazing the “after” pictures will look in their social media feed and other promotional materials.
The focus on these two things dominates the real estate investing industry to the detriment of real estate investors and their bottom lines. The truth is, there are four things, not two, that play an essential role in the ultimate success or failure of a real estate rehab project. You can easily remember them by using the mnemonic device “PREP.”
Item # 1: Purpose
The great news for most investors is they already incorporate purpose into their process, to some degree. After all, when an investor acquires a property, they are usually thinking about the purpose of that property. Perhaps they will use it to generate a one-time payoff as a fix-and-flip deal, or perhaps they plan to rent the property as a short- or long-term rental. Knowing the purpose of the project is essential to generating long-term, positive returns from that asset.
Implementation Tip: Specifically ask yourself: “Why am I doing this rehab?” Your answer should guide your decisions throughout the design and budgeting processes.
For example, when rehabbing to rent, investors should select materials that are attractive and durable over materials that are “trending.” This does not mean the investor will forego design entirely. It does mean the selection process will involve identifying construction materials that attract high-quality tenants while allowing the property to withstand the wear-and-tear associated with renters.
Element # 2: Roles and Responsibilities
Once investors identify a project’s purpose, they must identify who will be responsible for various parts of that project. In a rehab project, this is where communication with contractors comes into play. Establishing clear expectations for how and when different parts of the project will be completed (and paid for) as well as determining precisely who will handle working with inspectors and getting all the permits in place will help the project progress smoothly. Without clear expectations and communication between investors and contractors, there can not be a successful rehab project.
Implementation Tip: It is unrealistic to expect a contractor or any other party to perform reliably and responsibly if you do not also demonstrate you will behave in a similar way. In addition to telling your contractors what their roles and responsibilities will be, ask them what they want and need from you. Both parties likely will have preferred methods for making payments and draws on the budget, for example. You will get the best results if you ask up front how you can best establish a long-term, working relationship with your contractor and then craft an operating process that works for both of you.
Element # 3: Encouragement (and Exhortation)
Contractors should be both encouraged and exhorted to finish projects on time, under budget, and with sterling, quality work. The best way to do this is to provide a clear-cut system of rewards and penalties, usually financial, to create accountability for both the contractors and the investor on the project. When everyone is motivated to get the job done right, the job gets done right!
Implementation Tip: Plan weekly check-ins with your contractors. Regular meetings not only increase accountability, but they also foster report and enable you to confirm the project is still on schedule. The easiest way to develop this rapport even more quickly is to bring coffee or another easy “treat” with you to these meetings.
Item # 4: Process
A rehab project has a lot of moving parts. Every one of them should be accounted for in a trackable, predictable, repeatable way. Payment processes, punch lists, delivery of the final payments to the contractors, delivery of materials, accounting for materials, etc., all involve processes that should be standardized across all projects to streamline the entire rehab.
Many investors have no idea that a clear operating mode would eliminate most miscommunications between themselves and their contractors — along with much of the financial waste associated with their rehabs.
Instead of simply diving headfirst into your vision for your next rehab, take the time to PREP. You will find the financial rewards — not to mention a happy, speedy contractor delivering high-quality service — are far more rewarding than good pictures you can post on social media.
Tom Olson is the founder and president of Olson Group Network, which includes Conduit Capital, Olson Group, Olson Property Services, Olson Construction Management Services, Sarah Jo LLC, and Good Success.
He is the author of multiple popular books for entrepreneurs and investors, including “The 30-Day Good Success Journey,” “Active Turnkey (The Best Way to Buy Rentals),” and “Investors Vs. Contractors. ” Olson also hosts the “Good Success Podcast” and the “Active Turnkey Podcast.” The Olson Group Network will host a free real estate event Sept. 30-Oct. 20, 2022, in Gary, Indiana. Learn more at BuyOlsonGroup.com.