August 31, 2023 • 28 mins
Massively Increase Your Net Operating Income™ with The TCO Method™
Are you running your business and your projects, or are your projects and business running YOU? Andy continues the conversation around the need to show up and do the work to get ahead of your business.
Read the transcript
Watch the episodes on YouTube
Our Saturday Special interview episodes have landed! Listen to our second episode with net lease commercial broker, Dan Lewkowicz
Want to know more about The TCO Method™?
Check out the website
Learn more about Andy McQuade
Follow us on:
LinkedIn | Instagram | Twitter | NEW Free Facebook Group
Subscribe to our upcoming Substack Newsletter
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
And when your business is running you when your projects are running you and you're not running your project you're not running your business your opportunity cost skyrockets because you're not doing things for the future.
(00:16):
[Music]
(00:39):
Welcome to the TCO Method the only show focused on helping you massively increase your net operating income. I am Andy McQuade. Thank you so much for joining me for today's episode of the program.
We're going to continue the conversation from the last episode talking about project planning, purchasing, vendor relationships, all that fun stuff.
(01:05):
We're going to get a little bit more in the weeds because they already got feedback on the episode and this isn't a listener feedback episode.
This is a clarification episode. So in the last episode we talked about how business leaders, business owners, operators are letting their companies and projects run them and that they're not running their company or project.
(01:32):
The job as a business owner is 100% of the time to be running your company and running your projects and not have it be the other way around.
If you let your projects, if you let your business run you you're going to burn out.
(01:53):
You're going to have to be very clear of how this works and the reason people don't do a good job successfully running their projects and successfully running their businesses is because they don't actually have a strategy.
What they have is a whole mess of tactics that they use, things they do to get jobs done and to make money in their business.
(02:19):
But without a strategy tying all those tactics together all you have is chaos and you're constantly being run by your business.
You can't let that happen.
So we got a call from somebody who basically said, well sure everything you talked about on that show was great because it was all about apartment complexes.
(02:40):
But you know what do you do when every project you do is different.
Okay, listen again the science of construction is the same you have walls, floors, ceilings, siding roofs, right you have a structure, a building structure.
Everything that goes into those structures is the same every time.
(03:02):
Yes, there's a difference between a two by four and a two by six and you need to know what that is.
Yes, there's different types of drywall for different rooms, but it's all dictated by really proven scientific method and it's not science it's construction.
There is building science that is a thing I am a student of building science right I've got a bunch of certifications from the home builders.
(03:26):
The n a h b.
And yes, there is a building science right.
But it is not anything that people need to get a certification in to do well.
Do I believe in the certifications yes, I do because you're going to learn things you didn't know hopefully along the way to help you do better in your business.
(03:49):
But you don't need to have a bunch of letters after your name you don't need alphabet soup to do this job.
Okay, you need to be able to plan so your project is not running your business and is not running you.
You need to run your business your business needs to run your project.
Doesn't matter if it's a flip or rehab a make ready new construction.
(04:13):
You need to be able to plan ahead.
If you're constantly running to mr. seconds and home depot to get cabinets and then they don't have it in stock and you got to drive to another place and get more that match and you got to go to another place than more the match.
You're being run by your business or your business is being run by your project.
Not the other way around.
You're doing it wrong because you don't have a strategy you don't have a plan.
(04:36):
And if you do it all the time.
I don't even know how to help you other than don't argue with me legit I've been doing this for decades.
Okay, this is not rocket science anybody can make this work.
Well, we don't know yes you do know you absolutely know how long ago to before you started.
You started working on that project did you buy that house did you buy that apartment complex did you buy that building how long.
(05:01):
Did you close on it on Friday you found it.
You did your due diligence you came up with a budget to do the right the rehab you know who you're going to put in there for a tenant.
Did you buy that project.
Without doing any due diligence.
Your planning should have started then you don't have to have exact numbers.
(05:24):
But you should at least know when you walk in all this place is going to need a floor.
It's going to need windows it's going to need doors.
It's going to need this it's going to need that right due diligence walk every unit.
After you closed.
Did you have a crew on site 20 minutes after the closing in the paperwork was signed and the title was filed with county.
(05:48):
Or was there some time between the closing and one construction started.
How long did you know that you were going to have to do this project.
I'm waiting.
The only reason that you don't have a plan and you don't have a strategy and you don't know what you need to put in that unit is because you didn't bother to do the work.
(06:14):
Stop whining and do the work.
All the excuses in the world don't change the fact this is completely controllable.
You just have to be willing to do the work.
What is your time worth.
Let's go back to that core question.
If you're going to be able to save.
(06:36):
10 20% on material cost because you're ordering in bulk and you're getting everything from someplace that's going to put it in the unit.
You're going to have everything ready to go so your guys aren't wasting windshield time.
So you're saving money on product.
You're saving labor on drive time.
You're saving labor on meeting delivery trucks and all the other crappity goes into it.
(06:58):
What is that money worth to you?
How much do you pay yourself when you're driving back and forth getting stuff for your guys.
Because you don't have what they need to do the job.
How much money are you losing paying the guys to go to the store and shop every day and drink coffee if they're going to home depot or lows.
Any idea?
Because I know what those numbers look like.
(07:19):
Have you done process costing to see what everything your guys do?
Of course not because we wouldn't be having this conversation.
If you had actually done any type of process costing because it goes without saying.
That as a business owner.
Or a project lead.
Doing any type of rehab or an construction project manager whatever.
(07:40):
You should be going into there before the project starts with enough lead time to build the material list of stuff that you need to have there for everything.
You should have a checklist.
If you don't know how to do it in your head.
You should you need a checklist and you should be using it every day every time you go into a job.
(08:03):
You should have a page for every phase of construction.
How much flooring do I need?
How much molding do I need?
How many interior doors? How much electrical stuff?
How much plumbing stuff?
What do I need for the kitchen?
Here's a little piece of paper that says I need to measure this kitchen.
Okay, I'm going to measure the kitchen.
I'm going to grab my little electric tape measure, my little laser tape measure.
(08:24):
I'm going to stick it on a wall. I'm going to plug that one.
I'm going to plug that one.
I'm going to look at it.
I'm going to figure out.
Oh, there's not enough electric up there. So I got to get the electrician to add a couple of circuits.
And I got to do this and I got to do that.
You have the checklist.
You know what needs to be done, right?
There's freaking 5,000 damn books written for real estate people to figure out how to do construction.
(08:48):
It gives them everything they need to be looking at to plan out a flip or a remodel or a turn or a rehab.
Use the book.
Good God.
And then tune it to your business and your risk profile.
But for the love of God, build a relationship with some vendors.
Get them to give you discounts because you're going to make their job easier and your job easier.
(09:17):
Why are you paying people to go shopping?
That is the dumbest thing in an world.
You can regardless of the size of the project.
You can steal the ideas that the big guys use to scale and be efficient and make money.
And put it into your business so you can scale and be efficient and make money.
(09:40):
But you got to do the work.
You got to show up and do the work.
If you have a construction project manager, part of their job, other than managing the labor and keeping things on time,
is to do the coordination with the vendors to make sure that the stuff is going to be where it needs to be when it needs to be there.
(10:05):
I guarantee you that a kitchen designer from a kitchen supply house that does investment properties
is going to be able to suggest an inexpensive cabinet and an inexpensive type of countertop,
whether it's quartz or granite or whatever.
Inexpensive fixtures that are used all the time.
(10:28):
And I'm not saying make your stuff look like everybody else's stuff, right?
You're still going to want to do things to stand out.
But they're going to design a kitchen in a way that gives you your work triangle.
So your tenants are a little happier with how the kitchen layout is.
And you're a little happier with how the kitchen layout is.
But they're going to say, hey, this brand of cabinet takes four weeks.
(10:51):
So when you order from me, Mr. Project Manager, Mr. Business Owner,
you need to give me six weeks so that we can make sure everything arrives.
And we can deliver it to you in a timely fashion and have it in the unit when you're ready for it.
And if something comes in damage, we have enough time to get a replacement.
If you keep using stock junk cabinets, you're going to get terrible results.
(11:16):
I'm sorry, you just are.
You need to be able to plan ahead. You need to be able to order ahead.
If you're Project Managing Construction and you don't know what's needed to install cabinets or you don't know what's needed or how it should look when a door is hung or installed correctly versus not correctly.
If you don't know how to measure something to check to see if it's installed correctly.
(11:40):
And if you look at a replacement window that's been installed or a new construction window that's been installed.
And you can't identify all the different things that go with that window, right?
Because you have the window and then you got to have the foam strip all the way around the outside and you got to have a piece of term that hides it.
If it's a replacement, if it's new construction, you got to have shims at the bottom on both corners of the window, right?
If it's multiple units, you got to have support any place.
(12:03):
There's a piece of plastic or wood, vinyl or wood coming down.
Like you need to gap at the bottom.
When you frame a door opening, right, you're going to add a door somewhere. You need to have at least an inch, three quarters of an inch, half inch above the top of the door.
It's just open.
So if the house settles and moves, it doesn't crush the door.
(12:25):
Same thing with windows. You need to have that gap at the top with nothing.
And you got a couple shims at the bottom, right?
And if you need shims on the sides, cool.
But you need to know how these things go together. Like it's worth just opening a book of how these things are supposed to be done.
Like there's a million of them. Watch a YouTube video for Christ sake. It's five minutes.
How to install cabinets. There's like 40 videos.
(12:48):
Hopefully they're correct. Not all of them are.
So anyway, absolutely 100% of the time you can plan ahead and pre-purchase.
And pre-buy and get discounts on.
And get better service on what you need to complete a flip or re-hab a make ready, whatever.
(13:13):
Absolutely you can.
Now does that mean you're not going to open a wall and find something weird that you didn't plan to have an answer for?
Yeah, that's going to happen once in a while.
But it's not going to happen every day.
There's no reason for your guys to be at a store every day. None.
Do you think the guys that are out stripping a roof and they need to have a roof on in a day.
(13:39):
You think they're letting their guys leave the job to go and run to the store to grab a bundle of shingles.
They forgot to order? No.
That project supervisor, that project manager, that lead guy is calling the roofing supplier and saying, dude, I screwed up.
I need two bundles of cap shingles, a roll of starter and one four foot ridge vent because I totally measured this wrong.
(14:08):
And it's our fault.
Or if they planned ahead, like I talked about in the last episode and they went to that mom and pop and said, get me a satellite photo, they're calling that vendor and saying, hey, I got all this stuff here and I'm missing this and this and this.
Is it on the order?
If it's on the order, they bring it out. They just forgot it on the truck. Guess what? Delivery mistakes happen.
(14:29):
If it's not on the order, it's a different conversation because it could go like this.
Hey, I'm up here on this roof. You guys did the takeoff. I'm missing a ridge vent and a roll of shingles starter and two bundles of cap shingles. Where are they?
Or, hey, I'm missing this stuff.
You guys did the takeoff. Bring it out now. Oh, and you're paying for it.
(14:54):
I'm not a big fan of that ladder one.
And estimate means it's an estimate. It doesn't mean it's an exactiment, right? And that's actually software that insurance companies use. It's called exactly mate.
Literally, it will tell you you need to use 330 screws. If there's 500 in a box, they only want to pay for 330. It's the biggest cluster to work with. But anyway, you're here and we're there.
The reality is that every single thing on a job can be accounted for.
(15:21):
If you've ever worked with an insurance company, speaking of exactimate, if you've ever done a rehab job for an insurance company, they will literally put on their takeoff that their adjusters come out and do a half a bucket of mud and a half a roll of paper tape and less than a full pound of nail or screws.
(15:44):
But you can't buy them that way. So an experienced contractor, project manager will go, no, you cannot give us money only for a half a bucket of screws. You cannot give us money for a half a bucket of mud because we can't buy them in a half a bucket.
We have to buy it in a whole bucket. You're going to give us the money for that. And that is a common thing.
(16:07):
What you need to do is get comfortable controlling your business and not letting your business control you.
Control your rehab project. Don't let your project control you. Don't let your project run your business.
If you are a business owner, your job is to control your business. If your business is doing projects like flipping houses, managing properties, doing rehab work, you need to make sure that the business, whoever is in charge of that particular job function is running the project.
(16:54):
Not the other way around. Do you think that when a remodeling company walks on to a homeowner's job, they look at it and go, yeah, I don't really know what this is going to take from material. So I'm just going to tell you it's $15,000.
And you know, if it goes more than that, I'm just going to bill you for it. What? Who's going to sign that contract, man? No, no, that's just dumb.
(17:20):
Don't be dumb. There's a tax to being stupid. And usually it's involves things that you don't see. You don't focus on. I tell people to understand what everything they do costs them so that they can put it in a light that motivates them to take action to change.
If you know that doing stupid thing, a cost to your business, 20 or $30,000 a year, then you're probably going to stop doing thing. Here's an example.
(17:54):
I've probably already told this story, but I'm telling it again. This is a different context. So there's a property with a bunch of buildings on a bunch of acres on a campus.
So the point it was big enough where they had a golf cart for their maintenance people to get from point A to point B.
(18:15):
They were not keeping track of how much downtime between repairs maintenance calls, service calls was being taken by the guys on the maintenance team.
And it wasn't like downtime like I'm in the middle of a project and I take a phone call or I'm texting while I'm working like that is not what I'm talking about. I'm talking about legitimate.
(18:41):
I get the call. I go to the unit. How long does it take me to get to the unit? How long does it take me to go to the shop or go to the store or whatever?
Like they're not tracking that stuff. They're not tracking time to repair. And with three maintenance guys, it was costing them $20,000 a year in lost labor and opportunity cost.
(19:10):
You know that tenant satisfaction goes up when you repair their problems quickly. The faster you fix it, the happier your tenant is. The more likely you are for them to take care of your property.
Right. There are proven strategies that go into maintaining your quality of product, equating to maintaining your quality of tenant, getting paid on time, getting renewals, getting rent increases without complaints, all that kind of stuff.
(19:45):
They were losing 20 grand a year because every time a maintenance request would come in, their maintenance guys would either walk or drive a golf cart to the office to get the maintenance pay for.
There was some being lost in windshield time, obviously, driving the lows, driving home depot because they had no inventory on site at all.
There's a large enough complex where they had a shop, which is empty, and nothing in there. And like old dusty junk specific to the property, right? Like boiler parts and whatever from 40 years ago that no one knows if they worker if they don't because they're gonna rusted or corroded, because they've been sitting on the shelf for so long.
(20:25):
But they had nothing that they used frequently like there was no inventory of flappers, there was no inventory of toilet seats, there's no inventory of fill valves or shut off valves or, you know, sink strainer's, there's none of that stuff.
So every time something went wrong with this property, they were in a truck and they were just driving back and forth, driving back and forth, driving back and forth, driving back and forth, the average maintenance job literally had as much travel time as it did time in the unit fixing the problem.
(20:55):
Sometimes more, but most of the time it was pretty close to a 50/50 split, like within 10% either way. That was 20 grand a year, just evaporated.
Because guess what happens when your guys can fix the problems on their schedule during their normal business hours less overtime.
(21:16):
One is less overtime due for your payroll expense. Oh, it goes down? Is that on your P&L? No. Oh, wow. Oh, wait. And, oh, your P&L is where you're not operating income comes from? Who knew?
Oh, and when I want to go and refinance that property, and I want to take some equity out to do other things, if I have higher NOI, I get more money from the bank. Holy crap!
(21:50):
Literally, this is completely in your control. The reason you're not controlling it is because you're not willing to do the work. Do the work.
I don't know how else I can say it. This isn't rocket science. I keep saying that, but it's true. But it is the differentiator. And I don't say that lightly. It really is.
(22:17):
The companies that figure out the systems in the processes are the guys who go from one crew or two crews doing stuff to six or ten crews doing stuff.
They go from working out of their garage to working out of a showroom. It's true in construction and it's true in property management. Now, are you going to have a showroom? No. But you're probably going to have an office with the shop. You're probably going to have vehicles.
(22:43):
You're probably going to have crews of guys that specialize in stuff. Maybe you'll have a plumber on staff. Maybe you'll have an electrician on staff. You'll probably have a project manager on staff who does your estimating and your ordering and your coordination of your crews.
Some of the best operators I worked with in my career in the multifamily side integrated their construction function brought everybody in house with the exception of some subcontractors.
(23:10):
They would have a VP of construction who was the project manager for a territory. So there might be one or two apartment complexes they were working on rehabs for. They wouldn't get involved in maintenance. That was a completely different thing. It was specific to each property.
But they would get involved in the rehabs and the upgrades and the value add projects. And they would help pick the products, specify what needed to be used. Negotiate with the vendors for service levels and availability timing.
(23:38):
And they would ask questions like, Hey, I order cabinets from you number one. What styles are good? What are people using in this market?
Number two, how long does it take for me to get them if I order them? Are we talking like they're in stock on the shelf and I can order them a week before I need them and you'll be okay and I'll get a hundred percent fill rates.
Or is this something where if I do that, I'm going to get like every delivery is going to be missing a cabinet or has something damaged.
(24:03):
Oh, I don't want damaged stuff. I don't want missing stuff. I can't afford to have delays in my production. So why don't we look at ordering stuff ahead of time?
So they work with the vendors, they work on the selections of stuff to match whatever their designer picks out. They fight with their designers and architects. If those people are involved to say I'm not putting a $400 light fixture in this unit that's stupid.
It'll take it's going to add 20 years to my freaking payoff for this property if I put designer fixtures at four to $600 a piece into this unit that's stupid.
(24:32):
All I need is something that lights up and doesn't look like hot garbage. They negotiate with all the subs.
I'll pay you this to this job. They control the crews. Now they're not the super of the crew. They're not the form of the crew.
They're not in every unit every day, but they're communicating with those form and every day to make sure that they're on schedule and to have the stuff they need that the vendors are performing correctly.
(24:56):
They're creating a vendor performance scorecard to make sure that the stuff is showing up on time and complete.
They're working with the vendors to make sure that issues and headaches are solved. Project management is not something that is a part time job.
They need to own it. So that's why they gave these people a vice president position. The property needs to run the property.
(25:18):
So the leasing manager, the property manager, the maintenance manager, they do their thing. They coordinate, you know, upgraded units with the project manager, the VP of construction.
Whatever reason to call it. So they can have those units leased before they're done. They have it committed. The sale is in.
That holds the construction manager accountable in the unit who's running that it holds the vice president of construction or the regional manager of construction or whatever title they have to making sure things are going smoothly so they can stay on that timeline.
(25:54):
Systematizing makes it predictable. It's when you don't have systems that your costs rack up and you don't even realize it half the time because you have nothing to compare it against.
The only comparison is doing it right versus not doing it right and seeing where the pitfalls are. We're looking at everything you do as a cost.
(26:17):
Because if it's not a cost directly in labor and materials, it's an opportunity cost in what you could be doing instead to make you money.
And when your business is running you when your projects are running you and you're not running your project, you're not running your business, your opportunity costs skyrockets because you're not doing things for the future.
(26:42):
Systems force the time into position so you can work on the business and not in the business.
I think I'm done. That was a hell of a rant. Sorry.
You're watching this on YouTube hit the bell subscribe love you long time leave me a comment I will respond on YouTube unless it's a stupid spammy ad you stupid robots who leave posts on my YouTube videos advertising your
(27:11):
crypto bro crap stay off my site if you're listening on Spotify I heart radio Apple podcast Google podcast wherever podcasts are found.
Please subscribe leave me a review if you can.
Leave me a comment if you can check out the website tco method dot com send me an email with your feedback.
(27:36):
I'll do another episode like this if you want to keep arguing podcast at tco method dot com thank you so much have a great weekend I will see you next week.
(27:59):
(upbeat music)
(upbeat music)
And when your business is running you when your projects are running you and you're not running your project you're not running your business your opportunity cost skyrockets because you're not doing things for the future.
(00:16):
[Music]
(00:39):
Welcome to the TCO Method the only show focused on helping you massively increase your net operating income. I am Andy McQuade. Thank you so much for joining me for today's episode of the program.
We're going to continue the conversation from the last episode talking about project planning, purchasing, vendor relationships, all that fun stuff.
(01:05):
We're going to get a little bit more in the weeds because they already got feedback on the episode and this isn't a listener feedback episode.
This is a clarification episode. So in the last episode we talked about how business leaders, business owners, operators are letting their companies and projects run them and that they're not running their company or project.
(01:32):
The job as a business owner is 100% of the time to be running your company and running your projects and not have it be the other way around.
If you let your projects, if you let your business run you you're going to burn out.
(01:53):
You're going to have to be very clear of how this works and the reason people don't do a good job successfully running their projects and successfully running their businesses is because they don't actually have a strategy.
What they have is a whole mess of tactics that they use, things they do to get jobs done and to make money in their business.
(02:19):
But without a strategy tying all those tactics together all you have is chaos and you're constantly being run by your business.
You can't let that happen.
So we got a call from somebody who basically said, well sure everything you talked about on that show was great because it was all about apartment complexes.
(02:40):
But you know what do you do when every project you do is different.
Okay, listen again the science of construction is the same you have walls, floors, ceilings, siding roofs, right you have a structure, a building structure.
Everything that goes into those structures is the same every time.
(03:02):
Yes, there's a difference between a two by four and a two by six and you need to know what that is.
Yes, there's different types of drywall for different rooms, but it's all dictated by really proven scientific method and it's not science it's construction.
There is building science that is a thing I am a student of building science right I've got a bunch of certifications from the home builders.
(03:26):
The n a h b.
And yes, there is a building science right.
But it is not anything that people need to get a certification in to do well.
Do I believe in the certifications yes, I do because you're going to learn things you didn't know hopefully along the way to help you do better in your business.
(03:49):
But you don't need to have a bunch of letters after your name you don't need alphabet soup to do this job.
Okay, you need to be able to plan so your project is not running your business and is not running you.
You need to run your business your business needs to run your project.
Doesn't matter if it's a flip or rehab a make ready new construction.
(04:13):
You need to be able to plan ahead.
If you're constantly running to mr. seconds and home depot to get cabinets and then they don't have it in stock and you got to drive to another place and get more that match and you got to go to another place than more the match.
You're being run by your business or your business is being run by your project.
Not the other way around.
You're doing it wrong because you don't have a strategy you don't have a plan.
(04:36):
And if you do it all the time.
I don't even know how to help you other than don't argue with me legit I've been doing this for decades.
Okay, this is not rocket science anybody can make this work.
Well, we don't know yes you do know you absolutely know how long ago to before you started.
You started working on that project did you buy that house did you buy that apartment complex did you buy that building how long.
(05:01):
Did you close on it on Friday you found it.
You did your due diligence you came up with a budget to do the right the rehab you know who you're going to put in there for a tenant.
Did you buy that project.
Without doing any due diligence.
Your planning should have started then you don't have to have exact numbers.
(05:24):
But you should at least know when you walk in all this place is going to need a floor.
It's going to need windows it's going to need doors.
It's going to need this it's going to need that right due diligence walk every unit.
After you closed.
Did you have a crew on site 20 minutes after the closing in the paperwork was signed and the title was filed with county.
(05:48):
Or was there some time between the closing and one construction started.
How long did you know that you were going to have to do this project.
I'm waiting.
The only reason that you don't have a plan and you don't have a strategy and you don't know what you need to put in that unit is because you didn't bother to do the work.
(06:14):
Stop whining and do the work.
All the excuses in the world don't change the fact this is completely controllable.
You just have to be willing to do the work.
What is your time worth.
Let's go back to that core question.
If you're going to be able to save.
(06:36):
10 20% on material cost because you're ordering in bulk and you're getting everything from someplace that's going to put it in the unit.
You're going to have everything ready to go so your guys aren't wasting windshield time.
So you're saving money on product.
You're saving labor on drive time.
You're saving labor on meeting delivery trucks and all the other crappity goes into it.
(06:58):
What is that money worth to you?
How much do you pay yourself when you're driving back and forth getting stuff for your guys.
Because you don't have what they need to do the job.
How much money are you losing paying the guys to go to the store and shop every day and drink coffee if they're going to home depot or lows.
Any idea?
Because I know what those numbers look like.
(07:19):
Have you done process costing to see what everything your guys do?
Of course not because we wouldn't be having this conversation.
If you had actually done any type of process costing because it goes without saying.
That as a business owner.
Or a project lead.
Doing any type of rehab or an construction project manager whatever.
(07:40):
You should be going into there before the project starts with enough lead time to build the material list of stuff that you need to have there for everything.
You should have a checklist.
If you don't know how to do it in your head.
You should you need a checklist and you should be using it every day every time you go into a job.
(08:03):
You should have a page for every phase of construction.
How much flooring do I need?
How much molding do I need?
How many interior doors? How much electrical stuff?
How much plumbing stuff?
What do I need for the kitchen?
Here's a little piece of paper that says I need to measure this kitchen.
Okay, I'm going to measure the kitchen.
I'm going to grab my little electric tape measure, my little laser tape measure.
(08:24):
I'm going to stick it on a wall. I'm going to plug that one.
I'm going to plug that one.
I'm going to look at it.
I'm going to figure out.
Oh, there's not enough electric up there. So I got to get the electrician to add a couple of circuits.
And I got to do this and I got to do that.
You have the checklist.
You know what needs to be done, right?
There's freaking 5,000 damn books written for real estate people to figure out how to do construction.
(08:48):
It gives them everything they need to be looking at to plan out a flip or a remodel or a turn or a rehab.
Use the book.
Good God.
And then tune it to your business and your risk profile.
But for the love of God, build a relationship with some vendors.
Get them to give you discounts because you're going to make their job easier and your job easier.
(09:17):
Why are you paying people to go shopping?
That is the dumbest thing in an world.
You can regardless of the size of the project.
You can steal the ideas that the big guys use to scale and be efficient and make money.
And put it into your business so you can scale and be efficient and make money.
(09:40):
But you got to do the work.
You got to show up and do the work.
If you have a construction project manager, part of their job, other than managing the labor and keeping things on time,
is to do the coordination with the vendors to make sure that the stuff is going to be where it needs to be when it needs to be there.
(10:05):
I guarantee you that a kitchen designer from a kitchen supply house that does investment properties
is going to be able to suggest an inexpensive cabinet and an inexpensive type of countertop,
whether it's quartz or granite or whatever.
Inexpensive fixtures that are used all the time.
(10:28):
And I'm not saying make your stuff look like everybody else's stuff, right?
You're still going to want to do things to stand out.
But they're going to design a kitchen in a way that gives you your work triangle.
So your tenants are a little happier with how the kitchen layout is.
And you're a little happier with how the kitchen layout is.
But they're going to say, hey, this brand of cabinet takes four weeks.
(10:51):
So when you order from me, Mr. Project Manager, Mr. Business Owner,
you need to give me six weeks so that we can make sure everything arrives.
And we can deliver it to you in a timely fashion and have it in the unit when you're ready for it.
And if something comes in damage, we have enough time to get a replacement.
If you keep using stock junk cabinets, you're going to get terrible results.
(11:16):
I'm sorry, you just are.
You need to be able to plan ahead. You need to be able to order ahead.
If you're Project Managing Construction and you don't know what's needed to install cabinets or you don't know what's needed or how it should look when a door is hung or installed correctly versus not correctly.
If you don't know how to measure something to check to see if it's installed correctly.
(11:40):
And if you look at a replacement window that's been installed or a new construction window that's been installed.
And you can't identify all the different things that go with that window, right?
Because you have the window and then you got to have the foam strip all the way around the outside and you got to have a piece of term that hides it.
If it's a replacement, if it's new construction, you got to have shims at the bottom on both corners of the window, right?
If it's multiple units, you got to have support any place.
(12:03):
There's a piece of plastic or wood, vinyl or wood coming down.
Like you need to gap at the bottom.
When you frame a door opening, right, you're going to add a door somewhere. You need to have at least an inch, three quarters of an inch, half inch above the top of the door.
It's just open.
So if the house settles and moves, it doesn't crush the door.
(12:25):
Same thing with windows. You need to have that gap at the top with nothing.
And you got a couple shims at the bottom, right?
And if you need shims on the sides, cool.
But you need to know how these things go together. Like it's worth just opening a book of how these things are supposed to be done.
Like there's a million of them. Watch a YouTube video for Christ sake. It's five minutes.
How to install cabinets. There's like 40 videos.
(12:48):
Hopefully they're correct. Not all of them are.
So anyway, absolutely 100% of the time you can plan ahead and pre-purchase.
And pre-buy and get discounts on.
And get better service on what you need to complete a flip or re-hab a make ready, whatever.
(13:13):
Absolutely you can.
Now does that mean you're not going to open a wall and find something weird that you didn't plan to have an answer for?
Yeah, that's going to happen once in a while.
But it's not going to happen every day.
There's no reason for your guys to be at a store every day. None.
Do you think the guys that are out stripping a roof and they need to have a roof on in a day.
(13:39):
You think they're letting their guys leave the job to go and run to the store to grab a bundle of shingles.
They forgot to order? No.
That project supervisor, that project manager, that lead guy is calling the roofing supplier and saying, dude, I screwed up.
I need two bundles of cap shingles, a roll of starter and one four foot ridge vent because I totally measured this wrong.
(14:08):
And it's our fault.
Or if they planned ahead, like I talked about in the last episode and they went to that mom and pop and said, get me a satellite photo, they're calling that vendor and saying, hey, I got all this stuff here and I'm missing this and this and this.
Is it on the order?
If it's on the order, they bring it out. They just forgot it on the truck. Guess what? Delivery mistakes happen.
(14:29):
If it's not on the order, it's a different conversation because it could go like this.
Hey, I'm up here on this roof. You guys did the takeoff. I'm missing a ridge vent and a roll of shingles starter and two bundles of cap shingles. Where are they?
Or, hey, I'm missing this stuff.
You guys did the takeoff. Bring it out now. Oh, and you're paying for it.
(14:54):
I'm not a big fan of that ladder one.
And estimate means it's an estimate. It doesn't mean it's an exactiment, right? And that's actually software that insurance companies use. It's called exactly mate.
Literally, it will tell you you need to use 330 screws. If there's 500 in a box, they only want to pay for 330. It's the biggest cluster to work with. But anyway, you're here and we're there.
The reality is that every single thing on a job can be accounted for.
(15:21):
If you've ever worked with an insurance company, speaking of exactimate, if you've ever done a rehab job for an insurance company, they will literally put on their takeoff that their adjusters come out and do a half a bucket of mud and a half a roll of paper tape and less than a full pound of nail or screws.
(15:44):
But you can't buy them that way. So an experienced contractor, project manager will go, no, you cannot give us money only for a half a bucket of screws. You cannot give us money for a half a bucket of mud because we can't buy them in a half a bucket.
We have to buy it in a whole bucket. You're going to give us the money for that. And that is a common thing.
(16:07):
What you need to do is get comfortable controlling your business and not letting your business control you.
Control your rehab project. Don't let your project control you. Don't let your project run your business.
If you are a business owner, your job is to control your business. If your business is doing projects like flipping houses, managing properties, doing rehab work, you need to make sure that the business, whoever is in charge of that particular job function is running the project.
(16:54):
Not the other way around. Do you think that when a remodeling company walks on to a homeowner's job, they look at it and go, yeah, I don't really know what this is going to take from material. So I'm just going to tell you it's $15,000.
And you know, if it goes more than that, I'm just going to bill you for it. What? Who's going to sign that contract, man? No, no, that's just dumb.
(17:20):
Don't be dumb. There's a tax to being stupid. And usually it's involves things that you don't see. You don't focus on. I tell people to understand what everything they do costs them so that they can put it in a light that motivates them to take action to change.
If you know that doing stupid thing, a cost to your business, 20 or $30,000 a year, then you're probably going to stop doing thing. Here's an example.
(17:54):
I've probably already told this story, but I'm telling it again. This is a different context. So there's a property with a bunch of buildings on a bunch of acres on a campus.
So the point it was big enough where they had a golf cart for their maintenance people to get from point A to point B.
(18:15):
They were not keeping track of how much downtime between repairs maintenance calls, service calls was being taken by the guys on the maintenance team.
And it wasn't like downtime like I'm in the middle of a project and I take a phone call or I'm texting while I'm working like that is not what I'm talking about. I'm talking about legitimate.
(18:41):
I get the call. I go to the unit. How long does it take me to get to the unit? How long does it take me to go to the shop or go to the store or whatever?
Like they're not tracking that stuff. They're not tracking time to repair. And with three maintenance guys, it was costing them $20,000 a year in lost labor and opportunity cost.
(19:10):
You know that tenant satisfaction goes up when you repair their problems quickly. The faster you fix it, the happier your tenant is. The more likely you are for them to take care of your property.
Right. There are proven strategies that go into maintaining your quality of product, equating to maintaining your quality of tenant, getting paid on time, getting renewals, getting rent increases without complaints, all that kind of stuff.
(19:45):
They were losing 20 grand a year because every time a maintenance request would come in, their maintenance guys would either walk or drive a golf cart to the office to get the maintenance pay for.
There was some being lost in windshield time, obviously, driving the lows, driving home depot because they had no inventory on site at all.
There's a large enough complex where they had a shop, which is empty, and nothing in there. And like old dusty junk specific to the property, right? Like boiler parts and whatever from 40 years ago that no one knows if they worker if they don't because they're gonna rusted or corroded, because they've been sitting on the shelf for so long.
(20:25):
But they had nothing that they used frequently like there was no inventory of flappers, there was no inventory of toilet seats, there's no inventory of fill valves or shut off valves or, you know, sink strainer's, there's none of that stuff.
So every time something went wrong with this property, they were in a truck and they were just driving back and forth, driving back and forth, driving back and forth, driving back and forth, the average maintenance job literally had as much travel time as it did time in the unit fixing the problem.
(20:55):
Sometimes more, but most of the time it was pretty close to a 50/50 split, like within 10% either way. That was 20 grand a year, just evaporated.
Because guess what happens when your guys can fix the problems on their schedule during their normal business hours less overtime.
(21:16):
One is less overtime due for your payroll expense. Oh, it goes down? Is that on your P&L? No. Oh, wow. Oh, wait. And, oh, your P&L is where you're not operating income comes from? Who knew?
Oh, and when I want to go and refinance that property, and I want to take some equity out to do other things, if I have higher NOI, I get more money from the bank. Holy crap!
(21:50):
Literally, this is completely in your control. The reason you're not controlling it is because you're not willing to do the work. Do the work.
I don't know how else I can say it. This isn't rocket science. I keep saying that, but it's true. But it is the differentiator. And I don't say that lightly. It really is.
(22:17):
The companies that figure out the systems in the processes are the guys who go from one crew or two crews doing stuff to six or ten crews doing stuff.
They go from working out of their garage to working out of a showroom. It's true in construction and it's true in property management. Now, are you going to have a showroom? No. But you're probably going to have an office with the shop. You're probably going to have vehicles.
(22:43):
You're probably going to have crews of guys that specialize in stuff. Maybe you'll have a plumber on staff. Maybe you'll have an electrician on staff. You'll probably have a project manager on staff who does your estimating and your ordering and your coordination of your crews.
Some of the best operators I worked with in my career in the multifamily side integrated their construction function brought everybody in house with the exception of some subcontractors.
(23:10):
They would have a VP of construction who was the project manager for a territory. So there might be one or two apartment complexes they were working on rehabs for. They wouldn't get involved in maintenance. That was a completely different thing. It was specific to each property.
But they would get involved in the rehabs and the upgrades and the value add projects. And they would help pick the products, specify what needed to be used. Negotiate with the vendors for service levels and availability timing.
(23:38):
And they would ask questions like, Hey, I order cabinets from you number one. What styles are good? What are people using in this market?
Number two, how long does it take for me to get them if I order them? Are we talking like they're in stock on the shelf and I can order them a week before I need them and you'll be okay and I'll get a hundred percent fill rates.
Or is this something where if I do that, I'm going to get like every delivery is going to be missing a cabinet or has something damaged.
(24:03):
Oh, I don't want damaged stuff. I don't want missing stuff. I can't afford to have delays in my production. So why don't we look at ordering stuff ahead of time?
So they work with the vendors, they work on the selections of stuff to match whatever their designer picks out. They fight with their designers and architects. If those people are involved to say I'm not putting a $400 light fixture in this unit that's stupid.
It'll take it's going to add 20 years to my freaking payoff for this property if I put designer fixtures at four to $600 a piece into this unit that's stupid.
(24:32):
All I need is something that lights up and doesn't look like hot garbage. They negotiate with all the subs.
I'll pay you this to this job. They control the crews. Now they're not the super of the crew. They're not the form of the crew.
They're not in every unit every day, but they're communicating with those form and every day to make sure that they're on schedule and to have the stuff they need that the vendors are performing correctly.
(24:56):
They're creating a vendor performance scorecard to make sure that the stuff is showing up on time and complete.
They're working with the vendors to make sure that issues and headaches are solved. Project management is not something that is a part time job.
They need to own it. So that's why they gave these people a vice president position. The property needs to run the property.
(25:18):
So the leasing manager, the property manager, the maintenance manager, they do their thing. They coordinate, you know, upgraded units with the project manager, the VP of construction.
Whatever reason to call it. So they can have those units leased before they're done. They have it committed. The sale is in.
That holds the construction manager accountable in the unit who's running that it holds the vice president of construction or the regional manager of construction or whatever title they have to making sure things are going smoothly so they can stay on that timeline.
(25:54):
Systematizing makes it predictable. It's when you don't have systems that your costs rack up and you don't even realize it half the time because you have nothing to compare it against.
The only comparison is doing it right versus not doing it right and seeing where the pitfalls are. We're looking at everything you do as a cost.
(26:17):
Because if it's not a cost directly in labor and materials, it's an opportunity cost in what you could be doing instead to make you money.
And when your business is running you when your projects are running you and you're not running your project, you're not running your business, your opportunity costs skyrockets because you're not doing things for the future.
(26:42):
Systems force the time into position so you can work on the business and not in the business.
I think I'm done. That was a hell of a rant. Sorry.
You're watching this on YouTube hit the bell subscribe love you long time leave me a comment I will respond on YouTube unless it's a stupid spammy ad you stupid robots who leave posts on my YouTube videos advertising your
(27:11):
crypto bro crap stay off my site if you're listening on Spotify I heart radio Apple podcast Google podcast wherever podcasts are found.
Please subscribe leave me a review if you can.
Leave me a comment if you can check out the website tco method dot com send me an email with your feedback.
(27:36):
I'll do another episode like this if you want to keep arguing podcast at tco method dot com thank you so much have a great weekend I will see you next week.
(27:59):
(upbeat music)
(upbeat music)
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.