Managing the Construction Process (2 of 2)

The Liberty Hudson team continues their discussion about the construction process. The conversation covers selecting finishes, communicating about timelines, and what to do when your construction project isn't going as planned.

The team also rehashes the importance of documentation throughout the process. (Hint: Document everything!)

 

(Transcript below.)

Ep. 9 - Managing the Construction Process (2 of 2)

Ben Shelley: [00:00:07] Welcome to the Brick x Brick Podcast where we take you from the ground up on all things real estate. I'm your host Ben Shelley. We are fortunate to have Ryan and John back with us today. Last episode we discussed general contractors, managing expectations, construction pricing, permits, licenses, and much, much more. Feel free to listen back. I would actually encourage it before diving in with us today for today's conversation. I want to start by talking about how you approach the construction process depending on your individual project goals. So we talked in previous episodes about flipping properties as an example where you may be looking to simply move on from your property rather quickly to gain equity so you can continue to invest in a neighborhood versus maybe buying something to rent and hold to create ancillary income on the side for you whether or not you are a primary investor in a real estate market or a part time investor. So I want to bring our experts in and have this conversation for me who is obviously just starting in the business when I'm curious to know and we'll start specifically. So let's look at for example a flip example. How would you guys approach the construction process holistically as well as your relationship with the general contractor with such a specific scope like like flipping a home in a real estate market in mind.

 

Ryan Goldfarb: [00:01:18] Well when it comes to a flip the first thing that I would baseline my my project goals against is what the neighborhood will bear. So if I'm in a in entry level neighborhood where you're mostly looking at starter homes and you know in our area this may be in the three four hundred thousand our price range I'm going to have a very different set of fixtures and finishes and fixtures in mind for a property like that versus in a higher end market around here when you get into the million plus price range. There's only so much that any market will bear and it doesn't make sense to over improve when it comes to the dynamic with the contractor that is going to in part depend on their level of expertise. So if you're bringing in a builder who has a lifetime of experience in the high end space and really has a good eye for design and that's part of what he's built the foundation of his business upon then it makes sense to leverage that and to hear his opinions and to take a little bit of guidance from him. However if you're working with somebody who is really just there to kind of take direction from you then it is incumbent on you to know which direction you want to go and where you want to draw the line as far as finishes and whatnot. And that's really where knowing the comps and knowing the market is going to come into play.

 

Ben Shelley: [00:02:33] So maybe John what what kind of finishes and what kind of things would you look for maybe. I think most people would look at a flip and say probably not going to do luxury finishes for something like that because you're looking to turn it over rather quickly and and probably bring it up to its highest possible ARV within a certain range given your your circumstance your financial circumstances. So maybe you could tell us a little bit about what you would seek for from pricing perspective and also a quality material perspective.

 

John Errico: [00:02:59] I think it really depends. As Ryan alluded to before with the market and where the market is. The overarching thing for me that is most important about a flip is time either time is important in any real estate project or for a flip time is really really money because you're carrying costs. If you're using hard money or you're loaning money whatever you're carrying cost with the property can be very high. So every day or week or whatever that goes by is like actual dollar amount it is like an actual amount that you can ascribe to. So whatever it is that you do I don't think that it's probably hard to say a general statement about like you should use this type of finishes this type or whatever but whatever you do I would say be very very cognizant about the time element and even if you can get a general contractor lined up before you start or have a general contractor come in with you when you're looking at the property you give a quote give an estimate even that could save you a week that we could be a thousand dollars in a flip and that's significant money.

 

John Errico: [00:03:52] So my takeaway for finishes or whatever it might be for Flip is focus on the time element.

 

Ben Shelley: [00:03:58] Because you know the way I think about it too is and Ryan mentioned this before about you know OK if you want something like a luxury finish whether it's a flip or not you want to find people who have expertise in whatever it is that you're looking for and also as to John's point to be cognizant of your own timeline what your cost basis is and what your financing situation is like said hard money you really got to get moving on that timeline. In terms of engaging again though with the GC in the context of your project goals for a rental for example I mean you guys have had experience both as general contractors yourselves and working with general contractors in both types of properties John maybe more so with rentals Ryan maybe more so with flips to maybe talking a little bit more I'd be interested to know at least a little bit more about some of your overarching experiences working with contractors given your different and varying project goals.

 

John Errico: [00:04:42] I mean a lot of times for rentals that depend on the property but I've tried really hard not to over improve rentals because I rent a lot of properties in lower income areas and the phrase that I always use my wife likes uses a lot to is cheap and cheerful. So the idea is that you want to make it look appealing and nice but you don't spend a lot of money on it and you want to be considered that they're going to be tenants living there and so in most neighborhoods I mean maybe the exception of very high end neighborhoods a tenant is not going to treat your apartment in the same way that you as the owner were treated. So you're looking for durable materials. You know one question is something I always ask myself in a rental as you say. Say I decide to put quartz countertops in a kitchen as opposed to granite or as opposed to you know a non stone countertop at all. The question I have is am I going to rent this apartment for more money because I put this thing in. And oftentimes the answer is No. There certainly are scenarios where you could say yeah having a quartz countertop will give me more rent or give me a different caliber of tenant but many times nobody cares and then I got to pay more money for it. That's particularly true in lower income areas like the finishes. You want to be functional nice but nobody's going to pay you more money. Have a nice refinish in it.

 

Ryan Goldfarb: [00:05:51] So the other question to ask yourself is is there are there going to be any other ancillary benefits to having that specific type of finish. So there are plenty of areas where you'll go and you know you may not even be common to have a kitchen backsplash but if you have a kitchen backsplash that wall is going to consist of tile as opposed to just being painted. And when you have grease splattering from a fireplace or water splashing from the sink that's going to be going up against your what your sheet rock as opposed to going up against tile.

 

John Errico: [00:06:25] So when it comes time is painted right on it. That is certainly true. And then there are way gentlemen.

 

Ryan Goldfarb: [00:06:32] I mean there are ways around it but really what it comes out it is not really not just the cost upfront but the ongoing cost both in time in terms of money and time.

 

Ben Shelley: [00:06:41] Well I think it's important to know too that when we talk about less expensive doesn't necessarily always mean less functional. Right. I think there's a difference between function and quality in that generally there's a wide spectrum of functional finishes you can use at lower cost ranges.

 

John Errico: [00:06:55] I think the word is value and it could value value add right, it's the name of the game.

 

Ryan Goldfarb: [00:06:59] It's no different than looking at a piece of property and saying what is the best bang for the buck on this project on this property how do I approach it. And I think you approach every renovation question the same way.

 

Ben Shelley: [00:07:09] So now I'm going to take this in a little bit different direction for four people again like me who maybe have already had some of these experiences just getting into the business with general contractors which is sometimes this feeling that regardless of what stage you are in your project and regardless of what kind of project you're doing it kind of feels like a general contractor almost abandoned you a time. I think obviously these guys are oftentimes working and gals are working on multiple projects at once but I guess I want to know from you guys who are general contractors. Take us behind the scenes and tell us maybe why that is why you felt that way. I mean for me I've actually been reaching out to a GC the last two days who we've done good work with and have not necessarily heard back from an always on a time schedule but I know that he's on it. So how do you fight that as an investor and know when to push and when to hold back.

 

Ryan Goldfarb: [00:07:52] Well the first thing is whether they're giving you a reason for their silence. If they are just not answering your questions for the sake of ducking you because they don't have answers then that's a red flag. If they are working behind the scenes and they have told you that plans are in with the city and they're ready for inspections they are just waiting to hear back on a date. That's one thing that's that's to a large extent out of their control. But if they are just ducking you entirely then then that's a big problem.

 

John Errico: [00:08:21] Yeah I think maybe we can. Don't if you're going to touch on this specifically Ben but talk about the process because that has a lot to do with timing. So there's a lot that goes on behind the scenes with a construction job that isn't obvious to an owner and a lot of that involves other components besides just like guys there with materials installing them in your house. So you know one component is the permitting process. So. And even to step back from that everything as a prerequisite right so you can say like well in order for me to redo my main sewer line what does that involve. Well it involves maybe getting the materials. So OK well what materials do I need. Well then you have to go and measure to see you know how how much of whatever material that you want well to measure you might need to rip down a wall or you might do to do something else and that might involve getting a permit or maybe even getting a architectural drawing if you're going to rearrange something or do something pretty substantial so or structural so every sort of prerequisite kind of lines up and all of those things take time. So if you're starting and saying hey I need to get architectural drawings that might itself take a week because you need to schedule somebody get out there they need to look at the property they need to make an assessment then get back to actually do the drawings find that I need to go and get permits. Well that could take just filing the permits itself could take a week because I need to quarter with a subcontractor I need to do whatever I need to coordinate all sorts of crap then besides getting the permits I need to actually maybe schedule time to do the work that could be another half week week because you know the guy's busy or I can't get the materials there on time whatever whatever. So it's very easy to see how these things can spiral into a month long project even if the actual construction work takes two days.

 

Ben Shelley: [00:09:57] And I guess it's worth noting too that a lot of a lot of things you do right. We talked about permanent and you're exactly right. We were going right to the timing for the construction process. It's so important to keep in mind that there are other factors also outside just the people who are working for you for example getting permits from the city can be an ongoing process where you could be left in the dark and usually are left in the dark up until the point they call you to tell you the things are accepted once things are finalized and put in. And I guess another part like you said John is pulling contractors pulling permits and putting them for you. I think investors often can do that on their own but you know as someone who maybe just investing in a home for themselves oftentimes they'll leave that responsibility to the GC.

 

Ryan Goldfarb: [00:10:34] Also during the process scheduling takes time oftentimes a task like that. That is rather specialized it's not going to be done by your general contractor more than likely it is going to be subbed out to a plumber and oftentimes someone with that specific expertise. So not everyone is available at the drop of a hat. Sometimes it takes a week or so before a guy has an open day in his schedule and that oftentimes needs to line up with the plans or with the excavator schedule or with whatever other pieces of the puzzle are required on that day. So if you miss one day or if the plans aren't ready for that day or the city inspector has to cancel then that may push things back a week. Not necessarily because that guy's not ready but because A, B, and C don't all line up on on another day for another year.

 

John Errico: [00:11:22] I'll give a real life example of we're working on several projects right now mostly for our own investing that we're also doing the construction work on and a lot of it is kind of like Ready Set wait because we'll go to a building will you know the first step for our projects is we'll demo it so with then when the building and then we're kind of to figure out what we want to do with it.

 

John Errico: [00:11:40] So we bring in an architect or a drafter to draft the whole thing. That alone could take I think in our case has taken what two weeks for that to happen. So we wait two weeks for that to happen then during that two weeks. Basically nothing can happen because we're waiting. Our subcontractors like our plumber an electrician our HVAC person is waiting for us to get the drawings. So we just have to wait. So we get the drawings and then we have to give them to the subcontractors. They have to look at it. They ask us questions we tell them what we want. That itself is a back and forth because they have to physically go to the property to do whatever else. So we're waiting for that. Then at some point we say OK we finalize this. No need to get permits. Well now we need to get everybody to get signatures on the permits get insurance information license information get that then submitted to the city. And you know technically we're supposed to wait until the permits are granted to begin actual work. And that could be three plus weeks for it to happen. So there's a lot of delays and say we then do the work right. I'm thinking of another project that's a little bit further on we have the permits we've done the work now we're waiting to get essentially our rough inspections. We can't do anything else until we've passed our rough inspections which are sort of like the first inspections that happen in the construction process.

 

John Errico: [00:12:45] We have walls that are open we have new plumbing new electrical in but we're just waiting for the city to come and look at it. And if they tell us that there's something wrong we have to go back fix it and then call them again. So there's lots of start and stop start and stop processes that go on and to be clear with that.

 

Ryan Goldfarb: [00:13:00] It's not that we don't want to be doing work. It's not the rough inspections require the walls and everything to be open. So anything that would be a logical next step whether it's sheetrock, flooring, painting, cabinets, any of that type of finished work is literally impossible for us to tackle right now because we can't do that until we've passed rough inspections and rough inspections require that all of that stuff still be undone.

 

John Errico: [00:13:25] Right I mean like I would say daily test this is one of your tests and is to call one of our contractors to say hey can we get a quote Can we get the number. Can you sign the permit. Can we submit the permit. That's every day.

 

Ryan Goldfarb: [00:13:36] I'm rescinding our department Yeah. Or are the crawl out of the program in the city right.

 

John Errico: [00:13:41] So it's like it's not like we're just sitting twiddling their thumbs it's like every day we're like Let's go go go go go. But we just can't. There's just no way to do it faster without massively violating the law or creating safety liabilities.

 

Ben Shelley: [00:13:53] And I guess it's important to note the wall you know it's going to sound like it's just a grand defensive of General Contractors. Obviously there's good and bad in every business that this conversation about timing is vitally important to remember for these reasons that that there are actual tangible outside forces that oftentimes cause the reality that you're experiencing of either perceived delays or real delays in these projects.

 

John Errico: [00:14:14] I mean we're we're the most incentivized because the projects that I'm talking about right now are our own investment projects we're also the contractor on it. But these are this is our own money so we couldn't be more incentivized to get it done and even we are waiting weeks for stuff to happen and the contractors won't get paid obviously.

 

John Errico: [00:14:31] No of course. But I mean even if you're cynical about it we have the most incentive to do it and we can't do it any faster than we're doing it. So you as a client if you're looking at it as a contractor just because something's happened doesn't mean you're sitting there.

 

Ben Shelley: [00:14:43] So what do what to what extent. I understand that. It's really the contractors trust responsibility for the most part but to what extent. For me as an investor should I be involved in quote unquote passing inspection as in obviously I'm not doing the actual work I shouldn't be the expert here but is maybe there a level that that we could advise or give advice to to the everyday investor for what they should or should I know or what questions to ask about passing inspections.

 

Ryan Goldfarb: [00:15:05] I don't think the investor or the homeowner should be involved really at all in that capacity that is ultimately on the on the contractor and on the subcontractors but the homeowner or investors should have certain levels of expectations based upon the scope of the work if if the contractor originally relayed that something would be a potential hindrance when it came to inspection time or on the other side of the spectrum if they said that something was going to be easy breezy no problem. That should be taken into account but it's not necessarily their responsibility to ensure that the inspections are passed. It is on the contractor shoulders. Having said that they should also keep in mind that there may be decisions that you as the investor make that will make inspections more difficult she passed down the line.

 

Ben Shelley: [00:15:53] And I think that's extremely helpful to keep that in mind.

 

Ben Shelley: [00:15:56] Again in terms of the overarching context of how you approach your project what you should and shouldn't know. I have here a note that is probably not the friendliest of topics but I think it is worth visiting. Maybe to give some brevity it's something that a lot of people go through which is the idea. Even though you're hiring a general contractor you also could be in situations where you feel the need to fire maybe these outstanding circumstances that we discuss maybe there is something in city is going on or for whatever reason they're just not meeting your expectations. It doesn't have to necessarily be a how do you fire a general contractor but what do you go what is the process and how do you remediate situations which he sees that you're unhappy with how have you guys done it.

 

John Errico: [00:16:33] It's a complicated issue. There are a lot of moving parts. There's the financial part. There's the actual construction part. There's the legality part. There's the city permitting part. I have had to fire contractors before and the one time I did I ended up losing a fair amount of money that I'm actively trying to get back. To be frank I had a contractor who came in this is before we started our contract and company who came in and wanted to we'd hired him to renovate an entire apartment and after maybe two or three months with him doing truly nothing. I mean this is not like him calling William permits we actually had the permits already when we hired him because we had used a previous contractor that we didn't pay any money but had long story. That's irrelevant to your question but we do want to hear the oil. So we had this guy you start doing work we paid him a large deposit that we paid maybe 14, 15 grand. And he did maybe nothing. I mean I would say maybe you did two or three thousand hours of work and so he said look it's not gonna work out. No hard feelings but can we have you know twelve thousand dollars back because we valued his work at that and he said no basically. And so our financial options. So you know at that point there's a decision tree it's like well I could continue using this guy because he's like giving me my money back. But at this point it probably burned every bridge because we said going to fire you. Probably not said I know how to lose. Right. Not very incentive to help us. The second is how can I get my money back then I can touch on. We can both touch on how that might be possible in the third is how do I actually get the work done. So we ended up hiring another contractor and you know from a from a logistical point of view the problem with a lot of subcontracts is that when you bring in a new a new contractor say new plumber and the plumbers the plumbing is like 20 percent done the new plumbers and to come in and say well I didn't do the 20 percent that I need to redo it because I can't put my name behind it. That's not uncommon because oftentimes licenses are at play liabilities a play for these guys and if there's something wrong they could be held at fault because it's their name on the on the job. So the reality is that even the 3000 hours of work this guy did I had to redo and frankly more costs because I had to bring in an electrician and a plumber who just told me that all of his work was crap which I frankly don't think is correct. But there's just no other option. I just had to go with them they had to redo it so I can go more in detail about how I'm trying to get money back from capturing how you could I do want to hear this.

 

Ben Shelley: [00:18:48] I'd love to hear first Ryan's perspective on many said on maybe a situation where you did the same I think you mentioned in previous episodes a very bad experience with some of the very first contractors and general contractor and subcontractors you worked with. And I do think it's an important thing to know which we'll discuss in a second that there's an opportunity cost associated with trying to get your money back when this process happens that's really important I think for people to understand that even if John ends up getting his money back there is also the time waste as well as the amount of money he's spending to proceed to to try to get the money back maybe through a legal legal means.

 

Ryan Goldfarb: [00:19:22] So the actual formalities of changing contractors as far as I've seen are pretty simple.

 

Ryan Goldfarb: [00:19:27] It's pretty straightforward for the instance that I will delve into in a moment. It was as simple as filling out a change of contract form with the building department and essentially transferring the permit or to the new.

 

John Errico: [00:19:38] You say that that simple but it's not that it cannot be that simple because sometimes you need to have decide off of the previous contractor.

 

Ryan Goldfarb: [00:19:46] That's something I was worried about and it was at least in this instance I had none.

 

John Errico: [00:19:50] I've had the opposite experience. Yeah all right.

 

Ryan Goldfarb: [00:19:52] Well caveat everything I just said.

 

Ben Shelley: [00:19:54] This is why we're in this game. Gentlemen I think this is help. I mean this is but it's important to realize it's amazing to two guys who are extremely experienced in the business and in different sectors of business have completely diametrically opposite experiences with this process of cha- what we want a fire of changing general contractors especially in this climate with a lot of people out of work.

 

Ben Shelley: [00:20:12] Hashtag furlough no politics. Ryan please continue. So you wrote off the change. Yeah. So the city and there is no problem the general contractor signed off on it.

 

Ryan Goldfarb: [00:20:22] Right. Well the previous one did not. But the new one did and that was all that was required from the city's point of view. The issue with it for me was more so the emotional toll of doing that. I mean that I remember the time I was I think twenty five or something like that and I was working on my first big project with a contractor who was twice my age whose life's work had been general construction and I had to get him on the phone and tell him Look you're done this isn't working out. And obviously I wanted to get it done. So obviously I wanted to approach it in a delicate manner because as John alluded to earlier there are logistical ramifications of doing this in a way that can be construed as hostile and then they can make your life a little bit more difficult. So I was trying to be cognizant of that and I was trying to approach it delicately so as to smooth over the process a little bit. I remember the toll being quite strong on me like weighing on me for a while before I actually pulled the trigger because at the end of the day I was still new and I didn't really have the right set of expectations and I don't really know what the baseline should be I didn't know how a good general contractor operated. So the fact that months had gone by with virtually no work with still no permits with virtually no updates and very little communication I didn't realize that that was so out of line and so off base especially for a guy who tried to profess his professionalism. But ultimately it was the only way I was going to get that project done and obviously there were costs to doing that. I actually I think just took the route of hey whatever whatever costs I've sunk into this I'm going to chalk up to a learning experience and not take the time and not take the headache to to try to recoup.

 

Ryan Goldfarb: [00:22:08] Also perhaps in part because I'm not an attorney.

 

John Errico: [00:22:12] It's a great point though about what is standard what is the baseline expectation. A lot of a lot of times you don't know that it takes a lot of learning and knowledge and also personal fortitude and confidence to say this is not acceptable to me even if this may be the standard I don't find this acceptable.

 

Ryan Goldfarb: [00:22:27] And from a tactical standpoint I also had spoken individually with both the plumber and the electrician and I had not really had any issues with them to that point. So at that time I confirmed that they would be willing to remain on board without the GC and they were. So that was one thing that I did to kind of mitigate the spillover effect that John alluded to earlier about having to bring in a new electrician a new plumber. There are plenty of other issues with these guys and ultimately there's a lot of to glean from who one associates associate themselves with.

 

Ryan Goldfarb: [00:23:01] And these guys were obviously associated with that general contractor but.

 

Ben Shelley: [00:23:05] It's important to remember again that there is tangible cost there right. Those were not reasonable waiting times given the process that where you already were.

 

Ben Shelley: [00:23:11] I think in the process and you have holding costs to think about so obviously.

 

John Errico: [00:23:15] That's why I like networking and knowing people in the industry it's important because if you literally know no one else that has ever done a gut renovation project with a general contractor you have no basis to say whether something is taking a long time or not. But if you can call up your friend and say hey I'm going to take you to do your whatever it is that you did. And he says oh it took me two weeks and you're know two months then. Obviously that's unreasonable.

 

Ryan Goldfarb: [00:23:35] So last thing I'll say is it's also it can be dangerous to work with someone who knows just enough that they can get by with these things. Most general contractors who operate in this capacity still have some level of experience and can still saying of things to kind of keep you at bay for a little while. So it's on you to be diligent. It's on you to be a little bit proactive and to at least know what's going on as close to the source as you can whether that's you know if the contractor says permits are in or permanent applications are in we're just waiting to hear back from the city. I want to say circumvent your contractor and make him look bad but do it and call the building department and see if the permits went in the day. He said they went in or if it's been or if he said they went in January 1st and it's February 15th. Then you call the billing department and find out that they weren't submitted until January 20. Then that's a red flag.

 

Ben Shelley: [00:24:30] Did that happen?

 

Ryan Goldfarb: [00:24:31] Maybe.

 

John Errico: [00:24:31] Like Ryan said talk to that it's specific talk to the subcontractor. Yeah and just say like How do I what's going on. All right so John do you want to quickly talk about on the bad side what what you're doing to try to to get your money back for this process. Well it would be helpful.

 

Ryan Goldfarb: [00:24:45] I'll leave this to John Errico, Esq.

 

John Errico: [00:24:47] He figures you know as I would say to anyone. And we I think touched on this in the previous episode when you have a register with a contractor you have a contract with your contractor and the contract should specify things like what happens when if things go sour. And also it should specify things like here are conditions that would justify me letting you go. For example if you're super super super late if we have deadlines that are not met for some reason that could be a justifiable reason for letting you go and then you know in some agreements there are specific clauses that say if we terminate at this point this is how much we will get paid or not get paid with the one contractor that I had in question we had essentially drafted it where he just gets a deposit upfront and then he had subsequent paymentsetc. But we had specific dates in the contract to say if you don't you haven't done anything by this date and we can let you go. And he hadn't met. Not only did I get that dated in like two months after it. So our remedy is to say I'm going to sue you for breach of contract because we had an agreement with you and that's a legal process but that's that's what we're doing.

 

Ryan Goldfarb: [00:25:48] What are the chances that you recoup any or all of that.

 

John Errico: [00:25:52] They're low they're low but it's the principle they're low and that's the problem is because a lot of times you know particularly when you're working for people that are gonna do work for less money they might not have a lot of assets or liquidity so you could kind of go down the rabbit hole and attempt to litigate and I'm not advocating that you should or shouldn't it depends on the money and your circumstances. But you know the reality is that there is a reason why contractors are priced differently. And one of the reasons is that a higher priced contractor might have things like sufficient insurance or might have things like solvency where if something goes wrong you can actually expect that you might be able get money out of them and you can think of it almost as an insurance payment. So like I'm I'm paying more money for somebody yeah. But in return I have at least the possibility that if something goes wrong I can.

 

John Errico: [00:26:37] I can be OK.

 

Ryan Goldfarb: [00:26:38] Is the reason that you don't think you will get anything out of this because there are no assets to seize or to get payment off of. Or is it because the the legal process by which you would obtain that is too cumbersome.

 

John Errico: [00:26:50] It's both. I think that there are few assets that are obtainable. I think that the way that this guy is structured his business many assets will not be reachable in a normal sort of lawsuit. And I think the the flip side is that the time and effort and frankly money because even though I'm a lawyer I'm not going to show up in court to sue this guy. Frankly it's not worth my effort even that the time and effort and all that to do it is gonna be too much.

 

Ben Shelley: [00:27:16] So and I think what's interesting too is is that again you see all the different ways that these these scenarios can play out.

 

Ben Shelley: [00:27:24] And I think it's it's important to note that if you are experiencing maybe delays in timing or perceived delays communicate manage your expectations make sure to understand your both your your recourse personally per your contract as well as your future legal means of recourse if you're unhappy with with a contractor and then fundamentally you know a lot of this stuff I think you just learn as you go through through the process itself. You got to try. You got to do it before you understand you're where you need to be in the business and you need to be networking with. I want to just take us through the end here where we let's say we were at the process part of the process where we've gotten through inspection. Take us through to the end all the way up to the point where we need to pay our contractor. Ryan wanted to take us through it.

 

Ryan Goldfarb: [00:28:05] So after the rough inspection everything that's done will be to get you to final inspection and ultimately to get you through the punch list. So again based on your payment schedule certain payment may be due at the conclusion of final inspections. And upon receipt of the CO and payment may also be due based upon completion of the punch list and CO being Certificate of Occupancy contracting fee or depending on the depending on the municipalities we talked about.

 

Ben Shelley: [00:28:34] I mean we just talked about some of the legal recourse you can take but just generically speaking to the end of the project is there maybe certain things are meant in the punch list and obviously as Ryan alluded to the more specific the better.

 

Ben Shelley: [00:28:44] But what can you do maybe both if some of the work is done and maybe there's a dispute or maybe more importantly if you don't like some of the work how do you approach that conversation in respect maybe to payment.

 

John Errico: [00:28:54] You know a lot of times contractors the way that payments are scheduled is that there is a there's a larger payment at the end for completion of work and a lot of times you know there's language or there's an understanding that the completion of work is based either on the original scope or on your satisfaction with the work. So if you're not satisfied with the work there is a perception that you can go in and say hey look I don't like this can you make it hold if it gets under way having a dispute or you think the contractor says hey I've done everything that I'm supposed to do the work is of sufficient quality where you can't be complaining anymore that that gets into too could get into some dicey territory. I mean there are things that contractors can do so. So the most powerful or damaging thing a contractor can do for say non-payment is to obtain a lean against your property like a mechanic's lean and that's a legal concept but the idea is that the contractor has an interest in your property can file an interest in your property that needs to be paid off by you upon sale of the property. Hypothetically could even be foreclosed on by the contractor for non-payment. So that's sort of the most I would say powerful tool in the arsenal of a contractor and I think the exact means that that happens or maybe beyond the scope of this conversation but if you have a dispute with your contractor realize that that could be a possibility.

 

Ryan Goldfarb: [00:30:14] This also comes back to the importance of documentation so you'll have a much stronger case for fighting with your contractor and getting whatever it is that you want done done. If you can go back to a specific contract or a specific point in the contract or to your original scope of work and say hey we specified that we were using twelve by 24 inch porcelain tile in the kitchens and in the bathrooms that we renovated you provided 12 by twelve ceramic and all I'm asking is that you make right by what our original agreement was or something that is clearly discernable by the scope of work.

 

John Errico: [00:30:52] Yeah I have a specific example that we're possibly going to be dealing with. We have a project where we're running we're switching the orientation of a shower so it used to be a shower that was kind of like in the middle of a bathroom. Now it's gonna be on an external wall of the bathroom and we were a little bit concerned that by running water lines through an exterior wall the bathroom the city might give us trouble because those lines are subject to freezing because they're literally on an exterior wall of the bathroom. So in anticipation of this we texted our subcontractor a plumber and said hey is it a problem that we're running water lines in an exterior wall. And he said no it shouldn't be a problem as long as it's insulated. So if it becomes a problem if the city says hey you can't do that then what we're gonna do is say Hey remember that text that we sent you and he said it wasn't a problem. So you need to fix it. If we didn't if we didn't have that text very easily. Not that I don't trust this guy but I'm not saying very easily he could have said well we'll fix it but it's gonna be five grand whether we run the water lines. So that's the importance of having you know we are lucky because we knew that going into it. But it's really important to have those conversations and have that set up because now we can look back at the documentation. I remember the text December 18th we talked about it. OK.

 

Ben Shelley: [00:31:58] Well and that's why it definitely is important to her back on that on this consistent theme that we've talked about. Again managing expectations and communication and why that can be so valuable as you come to the conclusion of your construction process in whatever project you may be dealing with.

 

Ben Shelley: [00:32:13] Two guys to end this conversation about not only the the ending of the construction process itself but payment of your contractors. I want to ask you guys about financing options. I think it's important for people to realize that there are different options and different ways to structure your payment scale and your payment structure with your individual contractors.

 

Ben Shelley: [00:32:31] So guys maybe you can talk about either scenarios where you do this yourself or just options that you know about for individual investors.

 

Ryan Goldfarb: [00:32:37] Well the financing side of this is somewhat broad. There are a few different ways to approach it. There is financing pertaining to the investment itself. There are also specific financing options that are available to owner occupants. Like the two or three car loan program through FHA and then there's also contractor specific financing which is I would say a little less prevalent particularly in this in this space and probably won't apply to a bigger full scale renovation but there are ways to finance where there are contractors who offer financing through a variety of other platforms that would allow you to finance a specific project.

 

Ben Shelley: [00:33:17] Guys I really appreciate your time and expertise as always for the folks listening at home.

 

Ben Shelley: [00:33:21] Make sure you subscribe to us wherever you get your podcast. Reach out to us on the Brick by Brick, that's Brick x Brick Facebook and make sure to listen to us and iTunes and Spotify. Thanks again, gentlemen.