August 29, 2023 • 35 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 talks about how planning ahead, systems, and standards will help you take control of your operations so you can scale.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
because it's the differentiator between you running the project or the project running you.
(00:06):
[Music]
(00:30):
Welcome to CCO Method, the only show focused on helping you massively increase your net operating income.
I am Andy McQuade, thank you so much for tuning in to this episode of the program.
Today, I want to talk about something I didn't really realize was as prevalent as it is.
And this is found across all forms of real estate investing.
(00:56):
There's challenges in the industry that we see all the time.
And it doesn't matter if this is a multi-family commercial operation or a smaller guy looking to flip houses, looking to manage properties, looking to do rehabs in residential or small multi-family.
(01:18):
The differentiator between the businesses that run efficiently and run well and can scale versus the ones that constantly seem to be chasing their tails, being less efficient, less effective.
(01:40):
It comes down to systems, comes down to processes, standards. And we've talked about this stuff in the past.
But what we haven't really touched on, and we haven't taken a deep dive look at, is the construction management side of the process.
And I say I'm blinded to this, to a certain extent, because it's what I do. It's what I live and breathe.
(02:10):
As a material supplier for the first 20, whatever years of my career, I did estimates and take-offs, material lists, for people to complete projects.
What I never really took a look at, and I still kind of take it for granted, because it's built into my system, it's built into my program.
(02:34):
It's what I help people figure out how to do is project planning.
And it's really important, because it's the differentiator between you running the project or the project running you.
How much money you make, and how fast you're done, and onto the next job, or onto the next unit, can drastically affect how much money you make on that job.
(03:05):
How much that turn is worth to you.
The less amount of time that a property is vacant, the less number of doors you have, or you're paying your overhead and operating expenses and not getting a return of income in exchange,
the better. In new construction, it goes without saying. You have a house project, you have a renovation or remodel in addition.
(03:31):
You don't pay that contractor by the hour. By default, you're paying that, whether it's a sub, or a GC, or whatever, you're paying them by the project.
Scope of work matters. But by paying them by the project instead of by the hour, you create an incentive.
(03:57):
What's that incentive? Well, if they're a subcontractor, right? They're an electrician, they're a plumber, they're a framer, trim carpenter.
You pay them hourly, you're incentivizing them to take more time.
You pay them by the project, they're incentivized by their own need to make money to complete the project and move on to the next project so they can get paid again.
(04:27):
That doesn't mean that they get to just use bubble gum and caulk to complete a project and move on.
Your contract needs to have standards of work, finish expectations and hopefully a timeline to push them to complete regardless.
(04:52):
Because we know that these subs will pay their labor hourly, even though they're getting paid by the contract project scope.
And this isn't necessarily a surprise to anybody listening, or maybe it is, but it's relevant to the rest of the conversation because apparently there's a disconnect where people are allowing their projects to run them instead of them running their projects.
(05:28):
So we talked about briefly in a different podcast that some of the most successful businesses that I've worked with that have been able to scale commercial, real estate, value add operators, build their own teams internally, or have a team that's 10.99s that they work with all the time on their projects, that run the construction, the rehab.
(05:57):
And then they have to work with them for them.
Right, they vertically integrate their construction function, right, they call it construction, even though it's rehab, remodeling, renovation, whatever you want to call it, flipping units.
And then they have to operate to, typically, but there are still companies that bring in project managers on a 10.99 and they manage the subs and stuff for the job.
(06:28):
That's really not here or there.
When they do it internally, they bring a W2 team together to manage these renovations and rehabs.
And then they have to work with them for the job.
And then they have to work with them for the job.
(06:49):
And then they have to work with them for the job.
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And then they have to work with them for the job.
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(07:38):
And then they have to work with them for the job.
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And then they have to work with them for the job.
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And then they have to work with them for the job.
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(10:20):
And then they have to work with them for the job.
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(10:47):
And then they have to work with them for the job.
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(11:14):
And then they have to work with them for the job.
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And then they have to work with them for the job.
Are you fucking kidding me? No, it's not.
(11:38):
I used to make my living working with rehabbers and flippers and property managers
making sure that we could put a pallet in their unit in their house
that had everything we could provide for that job in one place when they started the project.
(12:03):
The difference is that the operators I worked with like that planned head understood construction management, understood project management.
And even if they didn't have the resources internally to do the takeoff, to do the estimating, to do the materialist creation,
(12:25):
they had a resource that could me. I was their vendor.
If I wanted to sell a product, I should know how it's installed and what needs to go with it to complete that particular install of that product.
And you're not going to get this from like HD supply because they're just basically root sales people.
They just drive around taking orders, right? Or you order from online or order from a catalog.
(12:49):
Your mom and pop building materials providers. And I wasn't mom and pop at this time, right?
I was either working at 84 lumber or working at home depot, but I had somewhere between 7 and 18 pro desks in the stores where I would help the teams figure this stuff out and provide service and guidance and coaching and training and all that stuff.
(13:11):
And then I had key customers that I would deal with to make sure that they were getting the service, the product and whatever else they needed from the stores.
And if I couldn't do a good job at it as a provider, I wouldn't sell it to them.
I got to create lots of cool programs for home depot, lots of cool pilots to the point where I had a full time, salaried guy on the road hitting the accounts.
(13:35):
I didn't have time to hit because I was on a plane every three weeks, line up the careliners or Texas or Michigan or Ohio or whatever to help my customers set up with stores in the local area.
So they could do the project, but these customers had integrated internal project management construction management.
And I would go out for due diligence. I would go out for project preplanning. I'd go out for specification and I would onboard the local store to the program because here's what the program was.
(14:06):
In the next year and a half, we're going to turn 300 700 1000 2000 apartments.
We're going to upgrade them from a C minus or a C or a B to a B plus or an A or C plus in some cases.
And here's what we need to provide this customer.
We need all of their flooring to required underlayment, all the glues, fasteners and repair stuff, palatized and ready to go broken out by whichever style of apartment this is.
(14:43):
So here's the square footage we need and the materials we need for a one bedroom. Here is a two bedroom. Here's a two bedroom, two bath. Here's a three bed, two bath.
This is what we need exactly. Here's the color. Here's the quantity. Here's all the other accessories that need to be on that pallet.
And then over here, we need a pallet that has all of the stuff for their bathrooms. Here are the vanities, the toilets, the wall cabinets,
(15:10):
the p-trap, the supply lines, the cocks, any type of adhesives that are being used, thin set, grout, all of the lav pop-ups, faucets, tub assemblies,
diverter valve, shower heads, everything. All per the customer's spec for that project. Here's the exact item that we need.
(15:34):
You, Mr. Store, you are going to pre-order and inventory in your overheads, all of this product. So we can deliver five to ten units a week.
Because this customer is going to go through and they're going to complete this entire project with no more than four weeks down time for each unit.
(15:56):
They are going to pay or bribe their current tenants to move into units that were vacant that have already been refurbished, and they're going to complete this project in a year, two years, whatever it is.
All of that product for those bathroom turns would be on another pallet. And then we'd have another pallet for all of the kitchen product.
(16:17):
All the cabinets, we would provide, based off of kitchen takeoffs that I would measure, we would drop all the kitchen cabinets off because we would have them ordered 16 weeks in advance.
Because we were ordering RTAs or other cabinets from China in some cases.
(16:39):
We used American cabinets too. We used an all made American cabinet for some customers. But there were certain finishes that we needed to achieve in the, as far as look went and we had a price point, we had a budget that we had to hit.
So if that meant we were ordering literally container loads of cabinetry from China, that's what we were doing.
(17:00):
So all the stuff for the kitchen cabinet installed was there, all the token, light rail, chair rail, all the end panels for islands.
All the side panels if they were required because there was an unfinished side on this particular brand of cabinet. All the electrical that needed to change from standard to decor, all the wall plates, all of the miscellaneous electrical lighting, the whole nine yards. That was another pallet.
(17:25):
And then there was a bundle of interior doors and then a pallet with miscellaneous hardware and other things that were needed to complete the job or it was in boxes on another pallet somewhere.
So we'd have all the interior doors ready to go, all the locks, that's ready to go, all the replacement hinges ready to go, all the bump stops of every single kind, floor stops, hinge stops, spring door stops.
(17:47):
If there were hand rail brackets, if there were whatever, everything was color aligned, all the cabinetry knobs and all that stuff was, was there.
The goal was for these operators to walk in the door with whatever sub was turning that unit and all the product was in the room.
They would go, all the product would be on the pallet set off to one side of the of the apartment out of the way and they would start the demo.
(18:13):
They'd rip out all the doors, all the molding, if it was going, all the hardware plumbing, electrical vanities, gut the whole unit. So literally, it was just wires hanging out everywhere. So the breaker was off.
Wires hanging out everywhere, no appliances in there, no cabinets in there. Just drywall, they would patch all the drywall, then they would go in and replace all the flooring after the drywall was patched.
(18:39):
And then the cabinets would start going in and yeah, we had hiccups, right? There was always a cabinet like one out of 50 or 60 would come up damaged, missing whatever.
We had a plan for that because we knew what happened. Damages happen in everything.
If you've been in this industry long enough, you know that we had a plan to deal with it. So we had a couple of each cabinet in the overheads in the store that were just extra that we ordered in for the customer.
(19:04):
Customer paid for them because home depots of pain in the butt and won't just inventory unsolved product unless it's a stock item for that particular store.
So we had all of the extra parts and pieces there. So if they had a 28 inch base drawer cabinet or a 30 inch above the refrigerator cabinet or a 36 inch corner cabinet that was extra tall.
(19:25):
So they didn't want a 30 so they went to a 36 so it gave it that accent look just as a extra perk for the tenant. We had that there so they could just grab that 36 assemble it and put it in where the one that was damaged or missing.
And then we'd replace it later. We'd get another one from the from the supplier. We'd send back the damaged one and get a credit from the manufacturer.
(19:47):
But the point was everything was pre-planned to the tube of cock to the nail to the screw. There is a science behind construction and material takeoffs.
So the fact that this gentleman had peers telling him it couldn't be done just means that they've never actually done it.
(20:11):
It obviously can be done because I did it across tens and tens and tens of thousands of apartments and houses and remodels over my career.
When a framer showed up to a job site when I was in 84 lumber, the first thing he needed was pressure treated lumber or boring and sill sealer.
(20:34):
So he could put the plate down on top of the concrete block and bolt it so he had something to nail the framing to so the house didn't slide apart. I knew that had to be there every time.
And then it took joists and then it took flooring sub flooring on top of the joists and then it took studs for the walls and plywood to cover those studs.
(20:56):
Oh, and they also needed headers so they needed 2x8s and 2x10s and 2x6s and LVLs and glue lambs. Oh, and then they needed more joists.
If it was a two story house, which most of the more, because I was doing 6,000 square foot mcmansions in Victor, New York and Pittsburgh, New York.
So if you know where that is, that was my cookie cutter house. It was a 6,000 square foot hip roof mcmansion. Like this is long, heavy product.
(21:21):
24 foot joists, 30 foot LVLs. There was no way that the contractor could get in a truck in the middle of the project and stop doing what he was doing and stop making money because he was being paid by the square foot not by the hour.
There was no way he could get in a truck and drive to 84 lumber and pick up a 30 foot LVL.
(21:44):
What was it going to happen? Absolutely pre-planning is a thing, absolutely knowing what it's going to take is a thing.
Well, every house is different. You don't know what you're going to get until you open it.
It's not that different, bro. Every single project where you're replacing molding door trim, you know, baseboard.
(22:05):
Every single project, whether it's new construction or Renault, takes the same stuff.
The baseboard, the nails. If the walls are crooked, some shims, some cock, it's not that complicated. You walk in, you don't even need to use a tape measure really.
You walk in, you got four walls. Well, how many pieces of baseboard is that? It depends on how long the walls are, but probably at least four.
(22:31):
Oh, there's crown. How many pieces of crown is that? Oh, there's four walls. It's four pieces of crown.
So here I'm going with this. How many pieces of casing does it take to do a door? Doors are six foot eight. You need 84 inches on a piece of casing, so that's seven feet.
So you can cut a miter in it and get it to go together. Okay, so there's two legs on each side of the door. So that's four.
(22:53):
And then there's the center part of the door, which is no wider than 36 inches. So 36 and 36 and 72. Oh, I could take another seven footer and cut it in half and miter it and put it on top of whatever size door I've got.
Unless it's a, you know, a double door, like a closet, you know, four foot, five foot, six foot wide.
In which case, you can still use seven footers, right? You see where I'm going with this? There's a science to this and it isn't rocket science by any means.
(23:20):
This is like elementary school math and geometry. This is this is not something where there's really an excuse other than your project is running you and you're not running your project to get this done.
And I know that that's not going to make a lot of people really happy with me saying that I don't care.
Honestly, there's no excuse. Every bathroom you do. If you're going to own or manage this property, even if you're not, you go into do a bathroom.
(23:49):
If you're replacing the vanity, you're probably replacing the faucet. If you're replacing the faucet, you're probably replacing the supply lines. How many supply lines does a faucet take?
How many p traps does a faucet take? Well, none, but the pop-up assembly for the drain takes one, but if there's two sinks in one vanity, then there's going to be two faucets and four supply lines.
(24:13):
Oh, and two p traps or S traps.
And what size are they? In a quarter because that's the industry standard for a laboratory. How many toilets?
Yeah, more than one toilet per bathroom. I don't know. I hope it's a public restroom because that's weird. Oh, you have a shower stall? Oh, what do I need a shower head?
A diverter? Some shut-ups? You've got a toilet. One faucet and one shower. How many shut-ups do you need?
(24:41):
A toilet takes one, the faucet takes two, and the shower takes two. How many of that? Five? You absolutely, 100% of the time can and should pre-plan your project. It doesn't have to be to the penny.
Everybody's got their formulas when they walk into a property to go $15,000 to do this turn. $20,000 to do this turn.
(25:07):
There are ways to get those materialists. Use your vendors. Did you know you could walk into a mom and pop roofing and siding supplier right now? Or not a mom and pop? Go to an EBC, go to a beacon, go to an SRS distribution.
Say, "Hey, I've got a house at or a building at one, two, three main street. I need a new roof. Tell me what I need."
(25:32):
Two things will happen. One is, they'll charge you like $20 to get a satellite imagery estimate done of the property. Or they'll send a sales rep out to walk the job and do the estimate by hand.
Either way, the result is the same. You get a complete materialist with everything you need to complete that project from the ground up.
(26:00):
Sometimes they'll even provide dumpster services for your tear off. Go to a lumber supplier. When I was at 84 lumber and my specialty was framing, I also sold all the windows, all the exterior doors, all the other interior trim, interior doors, moldings.
And when I shipped the job, I shipped everything that installer needed to complete the install. Nails, screws, glues, joist hangers, all the shims, all the finish nails, all the wood glue, all the specialty hardware, all the actual interior doors and molding, crowns, whatever.
(26:43):
If it was windows, it was shims, roofing nails, sometimes accessories for siding, sometimes not, sometimes shutter, sometimes not. But you're not shoehorned in to going to a lumber yard to just buy lumber and going to a window store to buy windows.
You're also not shoehorned in and doing all the estimates yourself. You can rely on suppliers to do that for you.
(27:07):
But moral of the story, moral of this episode is don't let your project run you. Yes, every time you open a wall in a city house, everyone is different.
But the stuff you use to fix them isn't like, do you know for sure that you're going to need to replace all the plumbing in a house until you open the walls? No.
(27:31):
But if you plan ahead and you order it and you order everything you need or think you need to complete that project at once, you go worst case scenario, you buy the pecs, assuming that the plumbing is going to be bad and need work.
You buy a couple pieces of PVC because you think you're going to have to replace some. You don't need to know exactly how much because you're going to buy this stuff in a hundred foot coil, earn a ten foot length.
(28:00):
You don't need to know whether you need three foot or five foot. What you need to know is do I need ten feet or twenty feet? Do I need a hundred feet or two hundred feet?
And if you don't use it all, if you haven't done anything to cut into it yet, you return the whole entire piece intact and you get your money back at the end of the job.
(28:23):
Or you move it to the next job if you're busy. So for companies looking to scale, for companies looking to do more with less, to do better, to be able to spend time working on their business and not in their business, to running their business instead of letting their business run them, being able to preplan your project and pre-order the materials for that project.
(28:52):
Before the day you need it is really important. There's a reason why these companies, when I started working with them, had seven thousand doors and by the time I was done, after three years were over twenty thousand.
Well, how did they do that? They brought their construction in house. They hired a full time construction manager to run their rehab projects and they pre-planned everything to the day on a work schedule.
(29:21):
They knew within a couple days of when a unit was going to start construction, demo and construction and when it was going to be completed.
Because after doing five or ten of them on a property, they knew, oh, well, this should take about two days to complete and this should take five and this should take ten and then, you know, the total turn, finished coat of paint and then cleaning should be complete by day twenty six, day twenty eight.
(29:48):
And when you systematize it and you repeat it, it becomes so easy that it's almost impossible to fail. That's what your goal needs to be.
If they had extra material left over from a turn because they didn't need all the shut-offs or didn't need all the supply lines or didn't need all the square foot of flooring or didn't need all the blinds or didn't need all the whatever.
(30:13):
You did it to the next unit that that crew went to or they returned it to the store if it hadn't been cut open or damaged.
Don't let your projects run your business.
You need to be running both of those and if that means you stop for five minutes and take a deep breath and just focus.
(30:35):
What are we doing next week? Oh, I'm supposed to be finishing the demo and getting the kitchen started.
I probably need cabinets a week really isn't enough to get anything but crap stock cabinets out of home, deep or low or Mr. seconds or whatever.
Now if you make it a habit and you take that deep breath and you stop for five minutes and you go.
(30:58):
For weeks from now I need to be doing this kitchen because we just stripped the roof today and they're delivering the roofing and booming it to the roof.
I'm not climbing a ladder. I guess I should probably be ready to do that kitchen.
I got to go to the store and you go to a supplier that specializes in kitchens for investment properties.
(31:22):
You say, hey, here are my dimensions on this piece of paper. I just measured this.
I got a seven foot wall and an 11 foot wall and I'd like to put an island but I don't know how big.
You know what that kitchen designer is going to do? They're going to punch everything into a computer system.
Ask you what colors cabinets you want, what kind of features you want on those cabinets, what your budget is.
(31:47):
And they're going to design that kitchen so that your work triangle is settled.
Make sure that you've got the appliances backed out that you want and you can say, hey, I always use this fridge, this oven, this microwave, and this dishwasher.
I don't include it a garbage disposal or I do but the garbage disposal has to be corded. It can't be hardwired.
(32:09):
You give them all these specs. You say the cabinets can't be thermal foil to have to be painted because thermal foil peels off anytime somebody cooks.
A lot of really moist foods over an oven and they're hard to clean because they delaminate.
I want a painted cabinet so I can clean it with a magic eraser.
And that kitchen designer in like an hour will spit out a kitchen design with everything you need every piece of filler every end panel every cabinet every piece of trim that you need, whether it's crown, light rail,
(32:43):
toe kick, whatever.
And wow, there's a step taken out. You don't actually have to figure out what cabinets you want.
You actually had somebody on your team who does it every day, making recommendations to make your life easier.
So you can do your job faster and more efficiently and make more money in scale.
(33:07):
What a concept. This is really hard stuff, isn't it?
No, it's not. It takes common sense and a little bit of foresight.
But if you're a business owner, you're an operator and you're not planning these things ahead, you're just showing up on day one, figuring out what you're going to do for a couple days or for that week and then going to the store and getting it,
(33:30):
you will never be able to scale.
You will constantly be chasing your tail.
And usually you're going to be stuck in the race to the bottom because you're not buying in bulk. So everything's costing you more.
You're not pre-planning. So you're pissing money down the drain in windshield time and mileage.
(33:51):
You're literally doing so many things wrong that you don't even see because you don't think it's possible.
Meanwhile, this is construction 101.
This is the dumbest, lowest level fruit that you can pluck from that tree to start making more money.
Anyway, thank you for listening. My rant is over for today.
(34:14):
Just did a great interview episode with Dan Lukawitz. Check it out. All about triple net investing.
How to make more money in real estate? Protect some of your cash.
If you're on YouTube, hit that bell, subscribe. If you're on Apple podcast, Spotify, I Heart Radio, Google Podcasts, or anywhere else you're listening to this, please like, subscribe, leave a comment if you can.
(34:43):
Every single review helps spread the word.
You can send us an email podcast@tcometha.com. And please have a great rest of your day.
[MUSIC]
(35:06):
[MUSIC]
because it's the differentiator between you running the project or the project running you.
(00:06):
[Music]
(00:30):
Welcome to CCO Method, the only show focused on helping you massively increase your net operating income.
I am Andy McQuade, thank you so much for tuning in to this episode of the program.
Today, I want to talk about something I didn't really realize was as prevalent as it is.
And this is found across all forms of real estate investing.
(00:56):
There's challenges in the industry that we see all the time.
And it doesn't matter if this is a multi-family commercial operation or a smaller guy looking to flip houses, looking to manage properties, looking to do rehabs in residential or small multi-family.
(01:18):
The differentiator between the businesses that run efficiently and run well and can scale versus the ones that constantly seem to be chasing their tails, being less efficient, less effective.
(01:40):
It comes down to systems, comes down to processes, standards. And we've talked about this stuff in the past.
But what we haven't really touched on, and we haven't taken a deep dive look at, is the construction management side of the process.
And I say I'm blinded to this, to a certain extent, because it's what I do. It's what I live and breathe.
(02:10):
As a material supplier for the first 20, whatever years of my career, I did estimates and take-offs, material lists, for people to complete projects.
What I never really took a look at, and I still kind of take it for granted, because it's built into my system, it's built into my program.
(02:34):
It's what I help people figure out how to do is project planning.
And it's really important, because it's the differentiator between you running the project or the project running you.
How much money you make, and how fast you're done, and onto the next job, or onto the next unit, can drastically affect how much money you make on that job.
(03:05):
How much that turn is worth to you.
The less amount of time that a property is vacant, the less number of doors you have, or you're paying your overhead and operating expenses and not getting a return of income in exchange,
the better. In new construction, it goes without saying. You have a house project, you have a renovation or remodel in addition.
(03:31):
You don't pay that contractor by the hour. By default, you're paying that, whether it's a sub, or a GC, or whatever, you're paying them by the project.
Scope of work matters. But by paying them by the project instead of by the hour, you create an incentive.
(03:57):
What's that incentive? Well, if they're a subcontractor, right? They're an electrician, they're a plumber, they're a framer, trim carpenter.
You pay them hourly, you're incentivizing them to take more time.
You pay them by the project, they're incentivized by their own need to make money to complete the project and move on to the next project so they can get paid again.
(04:27):
That doesn't mean that they get to just use bubble gum and caulk to complete a project and move on.
Your contract needs to have standards of work, finish expectations and hopefully a timeline to push them to complete regardless.
(04:52):
Because we know that these subs will pay their labor hourly, even though they're getting paid by the contract project scope.
And this isn't necessarily a surprise to anybody listening, or maybe it is, but it's relevant to the rest of the conversation because apparently there's a disconnect where people are allowing their projects to run them instead of them running their projects.
(05:28):
So we talked about briefly in a different podcast that some of the most successful businesses that I've worked with that have been able to scale commercial, real estate, value add operators, build their own teams internally, or have a team that's 10.99s that they work with all the time on their projects, that run the construction, the rehab.
(05:57):
And then they have to work with them for them.
Right, they vertically integrate their construction function, right, they call it construction, even though it's rehab, remodeling, renovation, whatever you want to call it, flipping units.
And then they have to operate to, typically, but there are still companies that bring in project managers on a 10.99 and they manage the subs and stuff for the job.
(06:28):
That's really not here or there.
When they do it internally, they bring a W2 team together to manage these renovations and rehabs.
And then they have to work with them for the job.
And then they have to work with them for the job.
(06:49):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(07:11):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(07:38):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(08:05):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(08:32):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(08:59):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(09:26):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(09:53):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(10:20):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(10:47):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
(11:14):
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
And then they have to work with them for the job.
Are you fucking kidding me? No, it's not.
(11:38):
I used to make my living working with rehabbers and flippers and property managers
making sure that we could put a pallet in their unit in their house
that had everything we could provide for that job in one place when they started the project.
(12:03):
The difference is that the operators I worked with like that planned head understood construction management, understood project management.
And even if they didn't have the resources internally to do the takeoff, to do the estimating, to do the materialist creation,
(12:25):
they had a resource that could me. I was their vendor.
If I wanted to sell a product, I should know how it's installed and what needs to go with it to complete that particular install of that product.
And you're not going to get this from like HD supply because they're just basically root sales people.
They just drive around taking orders, right? Or you order from online or order from a catalog.
(12:49):
Your mom and pop building materials providers. And I wasn't mom and pop at this time, right?
I was either working at 84 lumber or working at home depot, but I had somewhere between 7 and 18 pro desks in the stores where I would help the teams figure this stuff out and provide service and guidance and coaching and training and all that stuff.
(13:11):
And then I had key customers that I would deal with to make sure that they were getting the service, the product and whatever else they needed from the stores.
And if I couldn't do a good job at it as a provider, I wouldn't sell it to them.
I got to create lots of cool programs for home depot, lots of cool pilots to the point where I had a full time, salaried guy on the road hitting the accounts.
(13:35):
I didn't have time to hit because I was on a plane every three weeks, line up the careliners or Texas or Michigan or Ohio or whatever to help my customers set up with stores in the local area.
So they could do the project, but these customers had integrated internal project management construction management.
And I would go out for due diligence. I would go out for project preplanning. I'd go out for specification and I would onboard the local store to the program because here's what the program was.
(14:06):
In the next year and a half, we're going to turn 300 700 1000 2000 apartments.
We're going to upgrade them from a C minus or a C or a B to a B plus or an A or C plus in some cases.
And here's what we need to provide this customer.
We need all of their flooring to required underlayment, all the glues, fasteners and repair stuff, palatized and ready to go broken out by whichever style of apartment this is.
(14:43):
So here's the square footage we need and the materials we need for a one bedroom. Here is a two bedroom. Here's a two bedroom, two bath. Here's a three bed, two bath.
This is what we need exactly. Here's the color. Here's the quantity. Here's all the other accessories that need to be on that pallet.
And then over here, we need a pallet that has all of the stuff for their bathrooms. Here are the vanities, the toilets, the wall cabinets,
(15:10):
the p-trap, the supply lines, the cocks, any type of adhesives that are being used, thin set, grout, all of the lav pop-ups, faucets, tub assemblies,
diverter valve, shower heads, everything. All per the customer's spec for that project. Here's the exact item that we need.
(15:34):
You, Mr. Store, you are going to pre-order and inventory in your overheads, all of this product. So we can deliver five to ten units a week.
Because this customer is going to go through and they're going to complete this entire project with no more than four weeks down time for each unit.
(15:56):
They are going to pay or bribe their current tenants to move into units that were vacant that have already been refurbished, and they're going to complete this project in a year, two years, whatever it is.
All of that product for those bathroom turns would be on another pallet. And then we'd have another pallet for all of the kitchen product.
(16:17):
All the cabinets, we would provide, based off of kitchen takeoffs that I would measure, we would drop all the kitchen cabinets off because we would have them ordered 16 weeks in advance.
Because we were ordering RTAs or other cabinets from China in some cases.
(16:39):
We used American cabinets too. We used an all made American cabinet for some customers. But there were certain finishes that we needed to achieve in the, as far as look went and we had a price point, we had a budget that we had to hit.
So if that meant we were ordering literally container loads of cabinetry from China, that's what we were doing.
(17:00):
So all the stuff for the kitchen cabinet installed was there, all the token, light rail, chair rail, all the end panels for islands.
All the side panels if they were required because there was an unfinished side on this particular brand of cabinet. All the electrical that needed to change from standard to decor, all the wall plates, all of the miscellaneous electrical lighting, the whole nine yards. That was another pallet.
(17:25):
And then there was a bundle of interior doors and then a pallet with miscellaneous hardware and other things that were needed to complete the job or it was in boxes on another pallet somewhere.
So we'd have all the interior doors ready to go, all the locks, that's ready to go, all the replacement hinges ready to go, all the bump stops of every single kind, floor stops, hinge stops, spring door stops.
(17:47):
If there were hand rail brackets, if there were whatever, everything was color aligned, all the cabinetry knobs and all that stuff was, was there.
The goal was for these operators to walk in the door with whatever sub was turning that unit and all the product was in the room.
They would go, all the product would be on the pallet set off to one side of the of the apartment out of the way and they would start the demo.
(18:13):
They'd rip out all the doors, all the molding, if it was going, all the hardware plumbing, electrical vanities, gut the whole unit. So literally, it was just wires hanging out everywhere. So the breaker was off.
Wires hanging out everywhere, no appliances in there, no cabinets in there. Just drywall, they would patch all the drywall, then they would go in and replace all the flooring after the drywall was patched.
(18:39):
And then the cabinets would start going in and yeah, we had hiccups, right? There was always a cabinet like one out of 50 or 60 would come up damaged, missing whatever.
We had a plan for that because we knew what happened. Damages happen in everything.
If you've been in this industry long enough, you know that we had a plan to deal with it. So we had a couple of each cabinet in the overheads in the store that were just extra that we ordered in for the customer.
(19:04):
Customer paid for them because home depots of pain in the butt and won't just inventory unsolved product unless it's a stock item for that particular store.
So we had all of the extra parts and pieces there. So if they had a 28 inch base drawer cabinet or a 30 inch above the refrigerator cabinet or a 36 inch corner cabinet that was extra tall.
(19:25):
So they didn't want a 30 so they went to a 36 so it gave it that accent look just as a extra perk for the tenant. We had that there so they could just grab that 36 assemble it and put it in where the one that was damaged or missing.
And then we'd replace it later. We'd get another one from the from the supplier. We'd send back the damaged one and get a credit from the manufacturer.
(19:47):
But the point was everything was pre-planned to the tube of cock to the nail to the screw. There is a science behind construction and material takeoffs.
So the fact that this gentleman had peers telling him it couldn't be done just means that they've never actually done it.
(20:11):
It obviously can be done because I did it across tens and tens and tens of thousands of apartments and houses and remodels over my career.
When a framer showed up to a job site when I was in 84 lumber, the first thing he needed was pressure treated lumber or boring and sill sealer.
(20:34):
So he could put the plate down on top of the concrete block and bolt it so he had something to nail the framing to so the house didn't slide apart. I knew that had to be there every time.
And then it took joists and then it took flooring sub flooring on top of the joists and then it took studs for the walls and plywood to cover those studs.
(20:56):
Oh, and they also needed headers so they needed 2x8s and 2x10s and 2x6s and LVLs and glue lambs. Oh, and then they needed more joists.
If it was a two story house, which most of the more, because I was doing 6,000 square foot mcmansions in Victor, New York and Pittsburgh, New York.
So if you know where that is, that was my cookie cutter house. It was a 6,000 square foot hip roof mcmansion. Like this is long, heavy product.
(21:21):
24 foot joists, 30 foot LVLs. There was no way that the contractor could get in a truck in the middle of the project and stop doing what he was doing and stop making money because he was being paid by the square foot not by the hour.
There was no way he could get in a truck and drive to 84 lumber and pick up a 30 foot LVL.
(21:44):
What was it going to happen? Absolutely pre-planning is a thing, absolutely knowing what it's going to take is a thing.
Well, every house is different. You don't know what you're going to get until you open it.
It's not that different, bro. Every single project where you're replacing molding door trim, you know, baseboard.
(22:05):
Every single project, whether it's new construction or Renault, takes the same stuff.
The baseboard, the nails. If the walls are crooked, some shims, some cock, it's not that complicated. You walk in, you don't even need to use a tape measure really.
You walk in, you got four walls. Well, how many pieces of baseboard is that? It depends on how long the walls are, but probably at least four.
(22:31):
Oh, there's crown. How many pieces of crown is that? Oh, there's four walls. It's four pieces of crown.
So here I'm going with this. How many pieces of casing does it take to do a door? Doors are six foot eight. You need 84 inches on a piece of casing, so that's seven feet.
So you can cut a miter in it and get it to go together. Okay, so there's two legs on each side of the door. So that's four.
(22:53):
And then there's the center part of the door, which is no wider than 36 inches. So 36 and 36 and 72. Oh, I could take another seven footer and cut it in half and miter it and put it on top of whatever size door I've got.
Unless it's a, you know, a double door, like a closet, you know, four foot, five foot, six foot wide.
In which case, you can still use seven footers, right? You see where I'm going with this? There's a science to this and it isn't rocket science by any means.
(23:20):
This is like elementary school math and geometry. This is this is not something where there's really an excuse other than your project is running you and you're not running your project to get this done.
And I know that that's not going to make a lot of people really happy with me saying that I don't care.
Honestly, there's no excuse. Every bathroom you do. If you're going to own or manage this property, even if you're not, you go into do a bathroom.
(23:49):
If you're replacing the vanity, you're probably replacing the faucet. If you're replacing the faucet, you're probably replacing the supply lines. How many supply lines does a faucet take?
How many p traps does a faucet take? Well, none, but the pop-up assembly for the drain takes one, but if there's two sinks in one vanity, then there's going to be two faucets and four supply lines.
(24:13):
Oh, and two p traps or S traps.
And what size are they? In a quarter because that's the industry standard for a laboratory. How many toilets?
Yeah, more than one toilet per bathroom. I don't know. I hope it's a public restroom because that's weird. Oh, you have a shower stall? Oh, what do I need a shower head?
A diverter? Some shut-ups? You've got a toilet. One faucet and one shower. How many shut-ups do you need?
(24:41):
A toilet takes one, the faucet takes two, and the shower takes two. How many of that? Five? You absolutely, 100% of the time can and should pre-plan your project. It doesn't have to be to the penny.
Everybody's got their formulas when they walk into a property to go $15,000 to do this turn. $20,000 to do this turn.
(25:07):
There are ways to get those materialists. Use your vendors. Did you know you could walk into a mom and pop roofing and siding supplier right now? Or not a mom and pop? Go to an EBC, go to a beacon, go to an SRS distribution.
Say, "Hey, I've got a house at or a building at one, two, three main street. I need a new roof. Tell me what I need."
(25:32):
Two things will happen. One is, they'll charge you like $20 to get a satellite imagery estimate done of the property. Or they'll send a sales rep out to walk the job and do the estimate by hand.
Either way, the result is the same. You get a complete materialist with everything you need to complete that project from the ground up.
(26:00):
Sometimes they'll even provide dumpster services for your tear off. Go to a lumber supplier. When I was at 84 lumber and my specialty was framing, I also sold all the windows, all the exterior doors, all the other interior trim, interior doors, moldings.
And when I shipped the job, I shipped everything that installer needed to complete the install. Nails, screws, glues, joist hangers, all the shims, all the finish nails, all the wood glue, all the specialty hardware, all the actual interior doors and molding, crowns, whatever.
(26:43):
If it was windows, it was shims, roofing nails, sometimes accessories for siding, sometimes not, sometimes shutter, sometimes not. But you're not shoehorned in to going to a lumber yard to just buy lumber and going to a window store to buy windows.
You're also not shoehorned in and doing all the estimates yourself. You can rely on suppliers to do that for you.
(27:07):
But moral of the story, moral of this episode is don't let your project run you. Yes, every time you open a wall in a city house, everyone is different.
But the stuff you use to fix them isn't like, do you know for sure that you're going to need to replace all the plumbing in a house until you open the walls? No.
(27:31):
But if you plan ahead and you order it and you order everything you need or think you need to complete that project at once, you go worst case scenario, you buy the pecs, assuming that the plumbing is going to be bad and need work.
You buy a couple pieces of PVC because you think you're going to have to replace some. You don't need to know exactly how much because you're going to buy this stuff in a hundred foot coil, earn a ten foot length.
(28:00):
You don't need to know whether you need three foot or five foot. What you need to know is do I need ten feet or twenty feet? Do I need a hundred feet or two hundred feet?
And if you don't use it all, if you haven't done anything to cut into it yet, you return the whole entire piece intact and you get your money back at the end of the job.
(28:23):
Or you move it to the next job if you're busy. So for companies looking to scale, for companies looking to do more with less, to do better, to be able to spend time working on their business and not in their business, to running their business instead of letting their business run them, being able to preplan your project and pre-order the materials for that project.
(28:52):
Before the day you need it is really important. There's a reason why these companies, when I started working with them, had seven thousand doors and by the time I was done, after three years were over twenty thousand.
Well, how did they do that? They brought their construction in house. They hired a full time construction manager to run their rehab projects and they pre-planned everything to the day on a work schedule.
(29:21):
They knew within a couple days of when a unit was going to start construction, demo and construction and when it was going to be completed.
Because after doing five or ten of them on a property, they knew, oh, well, this should take about two days to complete and this should take five and this should take ten and then, you know, the total turn, finished coat of paint and then cleaning should be complete by day twenty six, day twenty eight.
(29:48):
And when you systematize it and you repeat it, it becomes so easy that it's almost impossible to fail. That's what your goal needs to be.
If they had extra material left over from a turn because they didn't need all the shut-offs or didn't need all the supply lines or didn't need all the square foot of flooring or didn't need all the blinds or didn't need all the whatever.
(30:13):
You did it to the next unit that that crew went to or they returned it to the store if it hadn't been cut open or damaged.
Don't let your projects run your business.
You need to be running both of those and if that means you stop for five minutes and take a deep breath and just focus.
(30:35):
What are we doing next week? Oh, I'm supposed to be finishing the demo and getting the kitchen started.
I probably need cabinets a week really isn't enough to get anything but crap stock cabinets out of home, deep or low or Mr. seconds or whatever.
Now if you make it a habit and you take that deep breath and you stop for five minutes and you go.
(30:58):
For weeks from now I need to be doing this kitchen because we just stripped the roof today and they're delivering the roofing and booming it to the roof.
I'm not climbing a ladder. I guess I should probably be ready to do that kitchen.
I got to go to the store and you go to a supplier that specializes in kitchens for investment properties.
(31:22):
You say, hey, here are my dimensions on this piece of paper. I just measured this.
I got a seven foot wall and an 11 foot wall and I'd like to put an island but I don't know how big.
You know what that kitchen designer is going to do? They're going to punch everything into a computer system.
Ask you what colors cabinets you want, what kind of features you want on those cabinets, what your budget is.
(31:47):
And they're going to design that kitchen so that your work triangle is settled.
Make sure that you've got the appliances backed out that you want and you can say, hey, I always use this fridge, this oven, this microwave, and this dishwasher.
I don't include it a garbage disposal or I do but the garbage disposal has to be corded. It can't be hardwired.
(32:09):
You give them all these specs. You say the cabinets can't be thermal foil to have to be painted because thermal foil peels off anytime somebody cooks.
A lot of really moist foods over an oven and they're hard to clean because they delaminate.
I want a painted cabinet so I can clean it with a magic eraser.
And that kitchen designer in like an hour will spit out a kitchen design with everything you need every piece of filler every end panel every cabinet every piece of trim that you need, whether it's crown, light rail,
(32:43):
toe kick, whatever.
And wow, there's a step taken out. You don't actually have to figure out what cabinets you want.
You actually had somebody on your team who does it every day, making recommendations to make your life easier.
So you can do your job faster and more efficiently and make more money in scale.
(33:07):
What a concept. This is really hard stuff, isn't it?
No, it's not. It takes common sense and a little bit of foresight.
But if you're a business owner, you're an operator and you're not planning these things ahead, you're just showing up on day one, figuring out what you're going to do for a couple days or for that week and then going to the store and getting it,
(33:30):
you will never be able to scale.
You will constantly be chasing your tail.
And usually you're going to be stuck in the race to the bottom because you're not buying in bulk. So everything's costing you more.
You're not pre-planning. So you're pissing money down the drain in windshield time and mileage.
(33:51):
You're literally doing so many things wrong that you don't even see because you don't think it's possible.
Meanwhile, this is construction 101.
This is the dumbest, lowest level fruit that you can pluck from that tree to start making more money.
Anyway, thank you for listening. My rant is over for today.
(34:14):
Just did a great interview episode with Dan Lukawitz. Check it out. All about triple net investing.
How to make more money in real estate? Protect some of your cash.
If you're on YouTube, hit that bell, subscribe. If you're on Apple podcast, Spotify, I Heart Radio, Google Podcasts, or anywhere else you're listening to this, please like, subscribe, leave a comment if you can.
(34:43):
Every single review helps spread the word.
You can send us an email podcast@tcometha.com. And please have a great rest of your day.
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(35:06):
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