Managing the Construction Process (1 of 2)

In the debut of our new longer format, the guys discuss the construction process through the eyes of a real estate investor and landlord:

• What is a general contractor?
• What is a subcontractor?
• How do I interact with my GC?
• Where should I spend my money?
• Who is on my construction team?
• Who will be working on my project?
• What is everyone's responsibility?
• Why is my project taking so long?!?!
• And much more...

 

(Transcript below.)

 

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. The focus of this episode will be managing the construction process. While we've discussed investing in real estate at length in this podcast, today we want to focus on the backbone of every real estate investment: construction. If you're like me just getting started in your real estate career I know the construction aspect of the business can cause a lot of stress. So we're gonna take today's episode to try to address some of the most vital aspects of succeeding in the construction business. So guys I'm gonna start as basic as I can possibly get. Tell me what a general contractor is.

 

John Errico: [00:00:49] That's a great question. It's actually not a basic question. I think there's a big misunderstanding about what a general contractor is and what a general contractor does. In my book a general contractor is a project manager. So they're the person overseeing the entire start to finish off a construction project. They may not be actually out there personally swinging a hammer. They might not even have people that work for them directly like employees of theirs swinging a hammer but they're keeping the whole construction process in line. So they're working with subcontractors -- and we can discuss what a subcontractor is later on -- they're working with subcontractors permits licenses all the nitty gritty stuff making sure that that gets done and in an ideal world. Hypothetically you could go to a general contractor and say here's my plan here's my money get it done in this time period and they'll get it done. That's not what happens almost ever in reality. But that is generally how I would think.

 

Ben Shelley: [00:01:46] Maybe you're ever in reality maybe. No I don't. Ryan?

 

Ryan Goldfarb: [00:01:49] I think oftentimes there's another misconception is you'll be at home depot and you'll bump into somebody and start talking to them and asking them where you can find a new switch for your kitchen light and they'll tell you they're a general contractor and they can help you with whatever problems that that you have. And you think oh great this GC is gonna solve all my problems and you know I've got this whole huge project for them to tackle and now I've got my guy.

 

John Errico: [00:02:15] I prefer Lowe's for what it's worth.

 

[00:02:18] Should I start singing jingles. Actually I love Home Depot. I actually heard him say wow that's a great point. Very true sorry right.

 

Ryan Goldfarb: [00:02:27] Anyhow the point to distinguish there is there are general contractors in the sense that they do general construction and they are in a lot of respects handymen. And then there are the class of quote unquote general contractors in the true like capital G capital C way that John described before which is in more of the project management type role where they oversee the project at a very high level. And they're in charge of coordinating all of the moving parts particularly on a larger project. When it comes to the subcontractors and all of the different trades and the timeline and the plans and the permitting, etc.

 

John Errico: [00:03:09] Yeah. And a capital G capital C general contractor usually is licensed it has insurance. So a lot of the guys that you run into at Lowe's or Home Depot will not have a license or insurance or whatever else. Nor will your general handyman and we can get into to when that would be required later. But a general contractor is normally going to have a license and insurance and you can look up their license in the state registries et cetera et cetera.

 

Ben Shelley: [00:03:34] Of course I do think it's also important to note especially for early investors just doing their first project or some of their first few projects that that not to be in this is sort of intimated from from Ryan's point as well not to be intimidated by that G and that C in front of the name of somebody to understand that this is your project that these people work for you if you don't know ask questions make sure you know you're going to be a little self-conscious undoubtedly about what you do and don't know. I know I have been in starting with you guys and in tackling our first projects but I think that it's important to also recognize sort of what you know and what you don't know but also what your contractor knows and doesn't know and I know we have some funny stories about some of those first experiences. But before we go to those I also have this question right. You're going in you're looking around at the sort of construction landscape we're talking about running into GCs at like stores.

 

Ben Shelley: [00:04:22] So begs the question how do I find a general contractor?

 

Ryan Goldfarb: [00:04:27] The two places I would start are in your network and in your backyard. So the first I would approach anyone who you know who is active in the construction space or who has done a project of their own recently and I would ask them what the nature of the project was how they felt the project when who they used and obviously what their what their thoughts were on that contractor. The second thing I would recommend is to look around your neighborhood and find projects that are similar in nature to your own. Particularly when you're talking about a whole house renovation or something larger I would look for structures that are similar because housing stock can vary a lot and renovating an old Victorian is a very different beast from renovating a Frank Lloyd Wright inspired mid century modern house. Shout out shout out Frank Lloyd Wright. So I would I would approach the two I would I would first go down both of those rabbit holes before resorting to something like Yelp or Home Advisor or something like that where I think there's a little bit of gamesmanship going on.

 

Ben Shelley: [00:05:34] John?

 

John Errico: [00:05:35] Well if you happen to be in the northern New Jersey area I have a...

 

Ben Shelley: [00:05:38] You know what I was thinking about making the plot you son of. I mean really this guy I mean you know. But I love your instincts. I know I agree with Ryan.

 

John Errico: [00:05:51] I think I found contractors what so too. We did a episode of networking and that's it. If you go to meetup groups and networking groups for real estate investors you will invariably find contractors. And if you're one distinction that I draw I think is a there are obviously general contractors that do both these types of jobs and we are one of them. But there certainly are contractors that do more work for investors as opposed to primary home owners residents and working. If you're an investor and you want to work in that space working with a general contractor who has experience working with investors who therefore understands budgets timelines the types of finishes that you need as is important. So if you talk to a general contractor say hey what type of work do you generally do is it for homeowners for investors single family multifamily whatever.

 

Ben Shelley: [00:06:42] I think that's true. And I think what's interesting is from our own experiences I know having fielded just a few of these calls to date a lot of times people will say the first things they'll ask on the phone aren't necessarily can you do this work? They'll say where do you work? I think that's a really important thing so does a contract can you find a contractor that has experience in your area and that relates a little bit to what Ryan was talking about about looking in your surrounding area and then what what what are your capabilities in terms of scope.

 

Ben Shelley: [00:07:08] And then obviously those those methods combined can help you hopefully locate the right person for your job.

 

Ryan Goldfarb: [00:07:13] Another just part of the job. Another critical point particularly in this area regarding finding someone local is the fact that all these building departments are very different. Each municipality at least in New Jersey every municipality for the most part has its own building department. And so if you happen to find the one contractor or one of the few contractors who does a lot of work in your specific town particularly with a bigger project their relationships with the building department and with the inspectors and their knowledge of what cities and building departments specific requirements are will go a long way.

 

Ben Shelley: [00:07:51] Yeah I mean it's so funny you mention that too because from my own experience coming into these different building departments has been on almost wild I mean just the different the difference in the people who work there the different expertise the different looks not just in terms looks the building but in all honesty in the demographic because different municipalities also have varying demographics and these have this is this has cultural history too to its socio economic history to it but that's a very vital point because I think maybe the main goal of the GC just in summation is to guide you through this process so that you can build your home to code and pass inspections and you know get your certificate of occupancy. So I want to sort of pivot here once you've hired the GC. Is there a particular way you would go about addressing or talking with your general contractor maybe from the beginning as it pertains to the scope of work. What have you. Or is it more generic across the board.

 

John Errico: [00:08:51] Yeah. Every project is certainly unique and I mean that the types of project that you might hire a general contractor for would range from redoing a bathroom or kitchen to get renovating a house Doing an addition to house or ground up construction of a house Even so one of the most important things to know or to think about when approaching a general contractor is what exactly is the scope of what I'm doing. And if you don't have the knowledge base to to even do that that I would say think about it and search online and watch some youtube videos about it. I mean we work both mostly with investors and investors often know what they want out of a property but it's very frustrating both for the contracting side and also from I think the client side or the investor side. We're going to say for someone to say oh I want my house to look better. So what exactly what are you What do you want.

 

Ben Shelley: [00:09:44] I don't know John better.

 

John Errico: [00:09:46] It's like I want to know that no one will say that that's insane but like you know what I want to redo the kitchen and it's like I don't know.

 

Ryan Goldfarb: [00:09:53] Show you pictures from Houzz or from HGTV and those I just wanted to look like that.

 

John Errico: [00:09:57] And so it's like when you say redo do you mean make it bigger. Same size do you want different materials new materials you wanna replace the cap you know. And people have crazy in the layout.

 

Ryan Goldfarb: [00:10:06] I think that's right. That's something in particular that goes overlooked. That's that's a big difference between just upgrading the cosmetics with the existing footprint versus change like turning it around it's turning it on its head and essentially starting from scratch.

 

John Errico: [00:10:22] Oh absolutely. And they're in their big cost differences too. So you know something that happens a lot is there's a sticker shock with general contractors. So you'll say I want to redo the kitchen and then the price will be forty thousand dollars and be oh my gosh it's way more than I would spend ten thousand dollars. And the reason is because you wanted to instead of keeping the sink where it was you want to move it on to an island and you wanted to instead of moving instead of keeping the Stover was going to move it to the opposite side of the kitchen which are presuming all new plumbing and whatever else. So if if you're not knowledgeable enough to think oh well if I move the sink or if I move the stove that's gonna be a tremendously large cost then it would be helpful to either gain that knowledge or to find a general contractor that's gonna explain that to you and say look we can redo the kitchen like this it's gonna cost that we can do this it's going to cost that whatever else so some general contractors are great at that some are not great at that just depends on what you're doing.

 

Ben Shelley: [00:11:17] You and we are great at that. Ryan who are the best there's no one better to me.

 

Ryan Goldfarb: [00:11:23] The two foundational components of this are communication and expectation.

 

Ryan Goldfarb: [00:11:28] I think John alluded to the expectation front quite quite a bit and quite well just now. But to expound upon that the expectation really sets the precedent.

 

Ryan Goldfarb: [00:11:40] And that in to to a large extent is context driven. So a an investor who's buying a property that's going to be a rental property or an investor who's buying a property for the sake of flipping it is going to have a very different set of expectations than somebody who just bought a piece of land for a million dollars and is building their 3 million dollar dream dream home and he wants every single last detail to be carefully thought about carefully curated and carefully addressed.

 

Ben Shelley: [00:12:14] So so I don't mean to cut you off but I guess it just kind of getting into the weeds a little bit more here. What are the kinds of things that go into creating you know a quote unquote good scope of work. We talked about communication and expectation but obviously I think creating your scope of work is vital for a lot of reasons one of which being also financing because you're going to probably borrow a certain amount of money to do that construction work so maybe talking a little bit about 4 for a new investor how do I go about creating a scope of work that is appropriate for my project and how do I work with the GC in doing that.

 

John Errico: [00:12:44] I think ideally it's a collaborative process between the investor in the GC I think and the architect right. So there it's important to consider that there are other components to putting together a project. So in northern New Jersey I think it's true everywhere but particularly where we operate northern New Jersey. There are a lot of. There are lot of requirements that the city will impose on you to do work. And one of them oftentimes is having an architect to do architectural drawings or whatever it is that you're doing.

 

John Errico: [00:13:13] So sometimes a general contractor will have an architect or draft person kind of on staff or on file and you can say hey just use this person to do the drafting work. Other times it will be the expectation that you will have to go to that architect or drafts person to figure it out. So that would be step one is saying well if I want to do something pretty major I might want to go to an architect or a general contractor that I really trust and say hey here's what I want to do. What do you think I need to get in place to start with. I think it harkens back to my point before. If you don't have the knowledge base to even say here's what I conceivably want then it's gonna be. To use a specific example. I'm thinking about one we had a project where we had someone come in. Someone called us in in Jersey City. They wanted to totally renovate their rowhouse basically and they wanted to expand it make it larger. So they wanted to push out the first floor push out the second floor create a rooftop deck finish the basement this stuff and pretty immediately it became apparent that they knew a little bit about real estate and maybe a little bit about construction because they knew kind of what they wanted it to look like but had no conception of the cost of what it would be. So there or the largest or the logistics so that it's a rowhouse so there's no way to get machinery back to the rear of the property step. That's the first problem. So they wanted to expand the building by a significant amount like I don't know 20 feet or something like that and also dig out the dig at a full basement below that expansion and make their existing basement deeper. So immediately my thought was Well we can't get a backhoe here because there's no way to get stuff to the back of the property anywhere to suffocate to the front the proper base there's no access to the rear of the property from the front. So all that's what have you done with shovels by hand essentially so that that itself enormously increases the cost of everything else that he wanted to. Like rearranging every single wall in the building the rooftop deck ultra stuff. I mean we're looking at a scope that was like probably maybe it would have been cheaper to rip down the whole building industry do the whole thing to begin with. And it was pretty obvious that he had no conception of what that was I think he thought that we were going to charge like 50 grand for this work when like probably we needed to charge like three or four hundred thousand dollars it was so crazy and the other.

 

Ryan Goldfarb: [00:15:32] The other issue with that instance was the lack of communication and the again the the poor expectations so he anytime we kind of broached the topic and to an extent this is on us as well for not understanding that this information is as vital as it really is to avoid us wasting our time. But he was very hesitant to divulge any type of information like what is your budget. And he was doing that from I think from a negotiating standpoint I think he wanted to see where we would come in and then negotiate based off of that rather than saying oh my budgets 250000 dollars and then have us just kind of work backwards into his budget which we wouldn't have done anyway.

 

John Errico: [00:16:11] Yeah I don't want to go crazy tangent here but that's a great topic. Talking about budgets and pricing is that really going to go bad.

 

Ben Shelley: [00:16:17] Well we'll get over but we'll get there. Hold your horses so let's talk about money. He's jumping through the microphone as we speak.

 

Ben Shelley: [00:16:23] I was gonna say you know again I think a lot of these topics want to talk about the relationship which he sees does come back to communication expectation the emphasis there but I think maybe it's helpful for for both new and experience investors to hear this conversation at least it is for me because you begin to have an appreciation. I think it's sort of like brokers to an extent as some of the perception around brokers in the tristate area with GCs I think everyone is always on the lookout for someone trying to do one over on them. And I think it's important to realize that this kind of confusion happens on both sides that there's nervousness and and sometimes miscommunication and lack of clear expectations set on both sides of the aisle and so it is so important especially I think if you have a lower knowledge base or if you're nervous about pricing to be communicative to go out and say hey here are my expectations. Regardless of whether or not you're an investor or you're building your dream home in Livingston New Jersey. Yeah right.

 

John Errico: [00:17:14] I would I would super appreciate it if we could do a project and it's a big project. If the person I'm going to work for says hey look my budget is this amount. Like I mean that doesn't necessarily mean to me that I will. That will be exactly my quote to you. It just means that I have an understanding of what it is that you want to do and then if you say hey I want to my budget is 50 grand but I want to you know put another floor on my house and redo everything on the third floor doing a. Well look that's impossible. That can't be done for 50 grand. So let's talk about a way that we can work together that would be more helpful for you. More helpful for me. You know it just it's very frustrating to waste time because it waste time for us to as a contractor trying to come up with a number if it's like oh what the but we think our number is a hundred eighty five thousand dollars and then he's like well my budget 30 grand.

 

John Errico: [00:18:01] It's like well we just wasted a couple hours come on no because there was no.

 

Ben Shelley: [00:18:04] I think construction is in some ways uniquely difficult in that in that way because it is such a mystery to most people that the pricing is just that there's no.

 

Ryan Goldfarb: [00:18:15] There's no menu there's no mention of price which in some cases isn't necessarily true it's just not always communicated as such and so people just think that the contractor is taking advantage of them when in reality the the breakdown there is just the gap in understanding of what renovating a bathroom truly takes. So yeah I'm sorry the other. The other point I want to just circle back on is when it comes to creating a scope of work notwithstanding the obstacles that John and I just discussed are the three of us just discussed. Once you do get to the point where you are moving forward to the project and you're in the ballpark when it comes to budgeting and you're creating your ironclad scope of work the most important thing to focus on is documenting every single detail that you possibly can and that includes both high level things and as specific as how many recessed light fixtures are going in bedroom number three and potentially even what layout they're going to be or where the light switches right things like that. And this also ties into the value of having an ironclad set of drawings of architectural plans because that is going to have an electrical plan embedded in it which should specify all of these things. And if you're at that point in the process where you're where you have electrical plans then chances are you're moving forward with the project. So spend some time and look through those plans review them in gory detail and if there are some things that you're not quite certain on. Go back to the property and walk through and maybe Mark things out and try to put yourself in the space as it will be when it's finished which I understand can be tough when some people just don't think super visually but some one track that can be really helpful is just taping out the layout on the on the ground so if you have unfinished plywood flooring or something like that just take like blue masking tape and just mark out where the walls are gonna be where the doorways are gonna be where the cabinets are gonna be where the toilet's going to be you'll get a sense of like how much clearance there is between the counter and the refrigerator you'll get a sense of of where the the toilet is in relation to the vanity or the refrigerator depending I look atetc.

 

Ben Shelley: [00:20:37] So maybe on the theme of keeping track of everything of writing everything down documenting everything.

 

Ben Shelley: [00:20:42] One of the things I think that also helps with is if you're in the middle of your either renovation or tear down or reconstruction what have you and you want to change something as you're going through the process now. A lot of people have heard the term change order maybe we can talk a little bit about what that means and how that is priced in the course of construction.

 

John Errico: [00:21:00] Yeah I think inevitably there will be things that come up during even the most well thought out projects that are unexpected. It's kind of a joke or a lot of times people are hesitant to even begin renovation projects because it is that when I open up a wall opening up a wall I mean like when I take off the drywall over the wall and look behind it I'm just gonna discover a lot of things that need to fix. That happens to me every single time that I've ever done that. So you open up a wall and you're like oh gosh like I didn't realize that you know there was this crazy electrical issue hiding behind this wall or that everything is rotten or that there's a plumbing problem or whatever. So I mean once you do that you have the option to not fix it for certain but it's almost insane to not fix it because the effort that it takes to put up a wall and finish it is in a bathroom so you have tile on the wall. The effort to do that is going to be a lot so when the wall is open you might as well take care of it. So that's a pretty common type of change order where it's like oh we open up the wall we found that the main sewer line of your entire house is cracked that we have to replace it.

 

John Errico: [00:22:00] That could be five grand. The other flipside of it is you yourself as the owner might say oh well now that we've gone through the process and now that I've seen what's going on I myself want to make a change to the scope of the work. And that's totally fine to Ryan's initial point knowing that initially is way easier both for probably your pocketbook and also for the project itself but the change order is when a general contractor will say OK now that we've changed the scope of the work you do because you've deserted or because I have strongly recommended it or because there's something way unanticipated we discovered during the process we need to go back and change the scope of what we're doing. And they have a reputation for being expensive because it might be the case that that was just not originally factored in and therefore requires a lot more time maybe another permit maybe another license maybe another even subcontracting trade to come in and do something. I would say bad general contractors will sometimes use change orders as a way to make money. So they'll say Oh I didn't charge enough at the beginning or this project is taking longer than I thought. And I'm not going to make any money in it. So now I need to make a phony change order in order to put in you know a different type of sink than what you said it's gonna be three thousand dollars even though the sink itself is only a hundred hours more or something like that that happens it's happened to me it's probably happened to you Ryan. But that that would be I would say telltale sign of a bad general contractor on the scale of good to bad.

 

Ben Shelley: [00:23:30] And so that brings me also to this is this fundamental question which John you were jumping out of your seat earlier to talk about which is very both very broad and specific at the same time which is pricing. And Ryan what you can continue maybe the conversation a little bit about change orders and expectations of pricing there but just generally I mean standard construction right this great mystery maybe we can try to unravel this for people like me and people listening but can you talk to us a little bit about what are just some standard construction costs that you can run through that vary from project to project.

 

Ryan Goldfarb: [00:24:00] I'll be honest with you I hate this question. It's hard it's hard and it's loaded and it's I'm glad I'm asking you the question.

 

Ryan Goldfarb: [00:24:08] It's really hard to give an answer without having context and without caveat adding it like crazy. But let's say let's take a bathroom renovation as an example. On the surface if you break it down to the components of a bathroom you're looking at generally a vanity a bath or shower. And a toilet. Then you have things like flooring which is usually tile. Oftentimes you have tile on the walls as well. You have cement board as an underlayment for the flooring which sometimes is also which generally goes on top of plywood top floor as well or sometimes goes on top of high whatever as well. You have green board which is the moisture moisture resistant the sheet rock that typically is is used in a bathroom. You have certain light fixtures. You have bath accessories and then you have paint. I'm sure I'm missing some details that maybe I usually can exhaust fan of some sort.

 

John Errico: [00:25:14] Well you have all plumbing and all electric right.

 

Ryan Goldfarb: [00:25:16] So that that is I guess what you would see for the most part that's what you will see on the surface. But the reason why this is such a difficult question to answer is that doesn't get into that doesn't even really touch on all of the components that make the bathroom what it is which is the nuts and bolts of the plumbing and the electrical. So you can have the nicest toilet the nicest vanity and the nicest shower in the world. But if the plumbing behind the wall doesn't work or clogs every other time you use it then your bathroom is going to drive you absolutely crazy. And to John's point earlier while you're doing this project if you look behind the walls and you realize that you're working with like a corroded cast iron stack from 100 years ago that. Is leaking or clogged or just as has seen better days. You'd be foolish not to go in and replace it now when the vast majority of the work has already been done. So that's going to cost more but it's going to in the long run cost way less than when your stack starts to leak like crazy or doesn't flush or everything you know nothing gets through the line and backs up into your brand new bathroom and then you throw everything out and start from scratch again.

 

John Errico: [00:26:30] Yeah I I want to approach the topic from a different maybe a different thinking which is just to just to say everyone should understand that contractors are not necessarily good at figuring out how much things cost. They're just not. So we're not that good at it. I mean I think that we're getting better at it. I've met so many contractors that are really bad at it and there are a bunch of different ways the contractors can figure out how much stuff is supposed to cost. And I'll describe in two. The first is that a lot of contractors literally I shouldn't say a lot. Some contractors were literally pick a number out of thin air. I guarantee you this happens and had 20000 sounds right.

 

John Errico: [00:27:14] Absolutely. I mean like it sounds funny but I mean I don't honey until you experience. Well I don't say that is a bad thing. It's not necessarily that they're like it's super crazy wrong but they'll just say well based on my experience and based on my general thought process I just think that it's going to be about this and though there usually give you you know kind of an estimate or something that says like services and we'll have a number and then we'll just be the number that came up with. I mean this happens more often than you might think. And so people get cynical about the industry because of this doesn't mean that the number is wrong. They might have just just thought of it randomly and that actually might be actually how much they're going to charge but that does happen. The second way is that you'll have an estimator. An estimator is like its own class of person who has usually a lot of construction experience and is familiar with how a construction project will go and an estimated will say Well I think that the materials cost for this particular scope of work will be this number because it's this many square feet of flooring in this many square feet of drywall and whatever else the estimate will also say well I think it's gonna be this many man hours of work.

 

John Errico: [00:28:22] And I think that each laborer or each person's working is gonna be paid about this much money and we're gonna bake in a margin there and the margin is going to be that our cost. The general contractors cost and margins can vary a lot. They can be anywhere between I would say single digit percentages up to 20 percent 25 percent it depends on the work. And that is normally the compensation for the general contractor in an ideal world and assuming will say that your costs your labor costs and your materials costs are this and you will charge a 15 percent margin. And that's what I take home as the general contractor for my effort in arranging everything getting permits getting licenses project managing the whole thing for you.

 

John Errico: [00:29:05] That's my fee. If I'm if I'm wrong if the the materials cost or the labor costs is too high then that just cuts into my margin or it could be wrong the other way. I actually overestimated therefore I get to keep you know the difference between what I thought I was gonna pay out then you know what I actually paid out. So then the third way that contractors will estimate stuff is they'll just look at what the market is or could be for this job and just say well everybody's charging whatever five thousand dollars for a bathroom so I'm gonna charge $5,000 for for a bathroom. I don't really know how to estimate it. I didn't really pull the number out of nowhere because I at least have some sense of what people charge. But that's what I'm gonna charge for.

 

Ben Shelley: [00:29:43] So to what extent am I as the investor or as the person who is building the home hiring the contractor. Am I allowed to push back on the pricing. Now now now you know it's like if you're listening to this podcast right now you're saying wow that John Errico is teaching me a thing or two I need to go back to my general contractor and make sure that everything that I'm being charged is right. So where is that balance. How do you approach that process and what is sort of the right and wrong way to go about it.

 

Ben Shelley: [00:30:08] If you feel that a pricing is off?

 

Ryan Goldfarb: [00:30:10] This Is going to depend on who you're dealing with. If you're talking about the contractor who just pulls a number out of his backside and that number is fifteen thousand and he truly just made it up out of thin air you may go back to him and say hey that seems a little high and then he'll come back to you and say All right thirteen five let's make this happen. When you're dealing with somebody who really knows what they're talking about generally there's a methodology to how they came up with their number. So if they come back to you and say this bath innovation is gonna be fifteen thousand dollars and you say hey that sounds a little high can you do any better. Oftentimes they will say no my pricing is my pricing and oftentimes that is rooted in something substantive but they may say if you're budget like What's your budget this is another reason why communication and transparency and expectation are so important. Because if that person comes back and says Look I really cannot spend more than $13,500 on this bathroom renovation then that contractor can go back and say OK.

 

Ryan Goldfarb: [00:31:12] Well that is reasonable like where we're in the ballpark here. Let's see what we can do to break you know to to get down to your number and to shave some costs down here and there.

 

Ryan Goldfarb: [00:31:23] So maybe you go and you spec a little lower and tile you don't go some custom imported high end marble and you go with a more cost effective porcelain tile or you don't you don't tile all of the all of the walls from the floor to the ceiling maybe you end to 48 48 inches high or maybe you don't go with a custom shower you go with some kind of prefabricated base and you kind of like tile it in and create like a hybrid custom work that way.

 

John Errico: [00:31:54] Yeah materials costs are a big thing too. So sometimes contractors will mark up the cost of materials and sometimes I'll itemize them even on the estimate. So they'll say this door is whatever hundred fifty dollars and you look at it like well how could that possibly be because I could go to Home Depot and buy the same door for 90 bucks. And if you can then you could negotiate the contractor and say I will just buy these particular materials. So there's an estimate there will be something called allowances. And those are often the cost of like finished materials. So usually an estimate will if someone says hey I want to redo my bathroom. The costs will include things like drywall and plumbing material whatever but some certain higher end finishes like the tile the bathtub maybe the vanity will be included as an allowance for the contractor to to buy like a budget number. And you could say look I think that's like way too much or I just want to buy the materials or I don't want you to charge a markup on the materials costs which happens. And another thing too is that particularly in higher end stuff the margin that your contractor is charging is a known thing. It's not a secret thing. I've seen it in contracts all the time where it's negotiated. So it's like look I know we're doing a million dollar project but I don't want you to take a 12 percent margin I want to take an 11 percent margin or a 13 percent margin. And in many cases the general contractor is not really as I said at the very beginning of this episode. He's not he or she is not out there swinging the hammer. They're not necessarily the person that's out there putting in the physical labor so they're subbing out as in they're hiring someone to do a lot of the work for them like a plumber electrician maybe a finish guy maybe an HVAC guy or whatever it might be. So their costs that are might be known. So for example it might be that you know they're plumbers don't charge them 30 grand and they're going to take a margin on 30 grand and pass it along to you. You could say look I don't want you to take a 15 percent margin. I mean to reduce it. So that's another way to negotiate as to saying what is your margin like what are your actual costs.

 

John Errico: [00:33:51] Can I can you talk to me about it and they might want to ...

 

Ryan Goldfarb: [00:33:54] On on the materials front the allowances point is it is worthwhile to make. And I think in reality oftentimes it's generally broken up between a rough rough materials costs and finished materials costs. So the stuff that John alluded to before like the sheet rock or the lumber behind the wall. That stuff is considered rough materials and those are generally embedded in the scope and embedded in the contractors cost basis. But the finish stuff is often where you can see significant variance in the allowance because as I said earlier it could be a super high end marble or could be a more run of the mill ceramic or porcelain tile for instance.

 

[00:34:37] Oh sorry. The others too excited today.

 

Ryan Goldfarb: [00:34:41] The other thing is the other thing I would note about the topic of allowances and who's providing the materials. Is there a lot of contractors who point blank will not allow the homeowner to buy materials and I think there's good reason behind it. It may seem like they're just being a hard ass on the on the front end but from their perspective if it's on the homeowner to buy the materials and the homeowner doesn't know what they're doing or only has like a rough idea of what they're doing they're going to screw up at some point they're going to buy the wrong sized door or they're going to buy the wrong type of vanity or they're going to buy a wall hung vanity instead of a freestanding one and the contractor is going to say Hey well it's more time intensive and more expensive for me to install this. You already have this here where they're going to lose time on the project because you're gonna have to go return this and get a new one or I'm going to have to charge you with a charge you are in slap you with a change order. So. So there are a number of reasons why a contractor may not want you to do that and it's not. It may not just be to extract more cash out of you.

 

Ben Shelley: [00:35:49] And I want to put in an important side note to the pricing conversation before we finish it up because I realized we didn't talk specifically about quote unquote what subcontractors are. Just to clarify here I mean he's a football analogy the GC I guess is kind of acting like the quarterback here he's running the offense and the subcontractors sort of act like the offensive line. And for those who really know football you know you can't really have play good offense without a good offensive line and so he's sort of orchestrate he or she sees me as sort of orchestrating the people up front to try to make sure that the project is moving smoothly and that's where the. When we talk about margins and allowances and pricing more generally it is important. I mean even today we were talking with a guy I was talking earlier with a GC that we're working with but needed to call the electrician to get a different quote. So the GC was giving us you know a number for you know h vac and plumbing and the subcontractor was giving us a quote on a project that he's also GC in for for electric. So it's just it's it's I think it's a careful dance here.

 

John Errico: [00:36:43] Well I would say that I think the GC is more like the coach.

 

John Errico: [00:36:46] I would even say that the quarterback playing the game and I mean he's playing the game he's overseeing. You're right he's not the hammer. He's not touching the ball but he is very much richer and it's I'm getting this analogy right.

 

John Errico: [00:36:57] It's a really important point I'm glad you brought it up I really wanna talk about it. So there is there are.

 

John Errico: [00:37:04] I have a relative who's building a house right now and he's hired a builder to build his house. And some people out there might think oh you've hired a builder so the builder is going to come up you know call it John's building company the builder is going to come up with John's guys and John is gonna come and he's going to have his guys putting up the framing and supporting the foundation and putting up the drywall. And you as a client might say like oh wait a second. Like when I pull up to the house nothing's as John's in it that says you know Bob's like Bob's plumbing company. Like who the hell's Bob. I didn't hire Bob. The reality is that you know in my specific example my relative was building a house. His builder is two people. It's one guy and a secretary. That's the whole company. He's the general contractor. But what he is doing is subbing out all of the work to other people in how construction can get really expensive is the more people you sub about work to the more margins there are for people to collect money on. So I had a project recently where I worked with a general contractor who actually subbed out the entire thing to a different general contractor who then subbed that out to the trades trades being like electricians plumbers whatever. So you know what what a what a subcontractor is is. Those are the people that are actually doing the work. They actually have employees that are out there putting pipes together putting up drywall swinging the hammers doing that stuff. And you as the owner or the investor might not ever know exactly who these people are because you have no your interface with them is through your general contractor. You might not have any idea who's doing the plumbing or the electrical work. Even in projects that right and I've been very involved in where we've used a general contractor we haven't had any clue about who some of these people are. But if you think about it in my case before where I had a general contractor who himself hired a general contractor who then hired subs think about how much margin there is in that you know say that the say that the subcontractors said Oh look it's $10,000 for me for it for my guys to do the labor materials and I'm going to charge you twelve thousand dollars cause I need to take a 20 percent margin. Then the general contractor says well it's $12,000 to me I need to take a margin on that so I'm gonna charge 20 percent on that. And then my general contractor I'm talking about says well I need to charge 20 percent on that. So at the end of the day I'm spending you know maybe six thousand dollars more just because these guys wanted to say about all of the work to other people what we do and what very large construction companies do is they have almost everything in-house so they'll have guys that actually work for them that swing hammers that go out to the job site and actually do labor. So in our company in one of the reasons why our costs I think generally are pretty low why we're very efficient in why we started the company is because we have guys out there that go and actually do construction work they do framing finishing put up walls tile whatever it is we don't we don't sub that out. We do so about things like plumbing and electrical work and that's usually for both experience issues and for licensing and permitting issues. But it is worthwhile to ask your general contractor Look what do you do any work in house do sub it all out. It's not a bad thing if they don't do any work in house but it's important to know that that has a really significant difference on your cost basis.

 

Ben Shelley: [00:40:19] If you're doing work in-house versus having it and I think that's a unique question. And Ryan I want to jump to you on this it's just a unique thing to hear specifically for new investors but really everybody in the business because I think a lot of people would feel uncomfortable asking a question like that because it's almost like asking someone well do you actually do anything that I'm paying you for. But the realities are if you understand the ins and outs of the business and understand the dynamics of what a GC really does as the coach of the team sort of organizing the players then it's actually absolutely vital for you to do that and to think about it when you're negotiating margins on a job.

 

Ryan Goldfarb: [00:40:50] Ryan to counter John's example I think that that illustrates what can be seen as like the dark side of the construction industry where it's just essentially daisy chaining work with somebody taking a little bit of profit every step of the way. There are there are instances where that structure works quite well. There are companies that are as John alluded to earlier like a one or two man shop where all they do is construction management and they have a subcontractor or a tradesman for every specific trade that goes into the project. So everything is highly specialized and that in and of itself can create certain efficiencies. If you think about a company like ours with with employees that do a varying degree or a varying assortment of work everything from tile to sheet rock to framing these guys are quite skilled and quite capable and I think we've been on the whole quite pleased with their work. But if you compare that to a company that does exclusively hanging of drywall or exclusively tiling or exclusively foot flooring relatively speaking those companies are going to be faster and more efficient which in certain cases can create certain cost efficiencies of they're paying

 

Ryan Goldfarb: [00:42:13] If they're paying roughly the same amount for their for their labor and their guys are working on that one thing and they can do it in half the time then that's roughly half the cost basis on the Labor side. So even if you factor in that subcontractors margin in a vacuum and in this kind of like perfect scenario when general contracting and quote unquote construction management is done well it can create a lot of efficiencies and it can create a lot of cost savings. But the caveat is really in the logistics and scheduling because you don't have control over those.

 

John Errico: [00:42:46] And the caveat to me is done well because that's you know if you want to find a general contractor it's important to consider that they have their own contacts in the industry they have their own subcontractors. We just set an example we were working with the general contractor and that general contractor subbed out the flooring work even though we had. We were sort of working it our on our own but we've been working with a general contractor in the past and the general contractor said we'll do the flooring work and they indicated that the flooring guys that they had were going to come in.

 

John Errico: [00:43:18] You got a rock and roll so they said I'm going to get quote unquote quote unquote. They said they're in a get well like 3000 square foot twenty two thousand twenty five hundred square feet. Twenty seven square feet of flooring done in like a day and a half. They kept telling us this right. And we were like great because that's what's what I was talking about. Got Yeah we're gonna pay more for them and subcontracted out there can be margins whatever whatever but it gets done in a day and a half. Great for our guys it might take a week because it's a lot of flooring to lay and so it was determined like Friday's the day they took they're going to come in on Friday. So we're excited we're like oh my gosh these guys these guys must be amazing right. They're gonna come in they're gonna go crazy. They're bringing like 10 guys into that thing and they're with hair like you know I think they're like eight thirty because we were there for something else. We're like there's nobody here is we're here they're finally like one or two guys kind of like rolling around like eleven eleven thirty but it's kind of like okay. Like I guess you're here now so you're gonna go crazy. And like you know it took them probably what like four days or five days like the first day.

 

Ryan Goldfarb: [00:44:11] They I think in the entire day completed two rooms out of eight or so they came in with an attitude.

 

Ryan Goldfarb: [00:44:19] They were very very angry and contrite with me listening to the loudest like how dare you make them come in in 11 Joe listen to the loudest music I've ever heard.

 

John Errico: [00:44:31] Human beings actually listened to like for enjoyment.

 

Ryan Goldfarb: [00:44:34] And on top of that they say they specifically asked me to have our guys move all of the boxes of flooring volume up to the third floor. And I think put all of the boxes in their respective rooms so that they could focus on quote unquote their task of laying a living all of their garbage.

 

John Errico: [00:44:53] Like all of their garbage like all of the boxes all of the scraps everything like that.

 

Ben Shelley: [00:44:58] But I think I think the answer is because we've got we've gone from the bad side to the good side and then instinctually sort of back to the bad side because we always remember. I think those things that go wrong is that there's there's good and bad in both and there are good GCs and bad GCs and you need to do your homework as best as you possibly can to find that person who's right for you. So briefly I just want to recap what we've done so far because we've covered a lot in layman's terms I would say communication and expectation making those things clear is vitally important. That knowledge is power knowing as much as you possibly can about what you're going to be going to do for your project can only help both you and the contractor you work with and understanding and defining your scope as clearly as possible. I know that's very difficult for non investors and people without construction backgrounds but as much research as you can do for your specific area can only help you and we've gone into already pricing and we're always open to questions comments and concerns so reach out to us if you want us to revisit this topic in future episodes. But for now I want to pivot to another portion of the business still working with General Contractors which is permitting and licensing. So as we touched on this very briefly at the beginning the episode but first and foremost maybe the difference between a licensed contractor and a non licensed contractor Gents, maybe you can talk to us a little bit about what is the difference in working with these guys and gals and when is it appropriate to use one versus the other. Or is there a difference.

 

Ryan Goldfarb: [00:46:21] The correct answer I think is to use a licensed and insured contractor for anything you're going to do. I would say that the reality is a little bit different if you're talking about you know you have a little you had a little leak or you had like some kind of like stain on your wall in your living room and you just want to paint a little bit like a small 5 by 5 patch. You're not going to call in a license or you don't need to call in a licensed and insured general contractor to come in and paint that and do that little bit of like handyman work. That is classic handyman work and and it's over. Frankly I think it's overkill to bring in a licensed insured general contractor who's used to working on $300,000 projects to come in and attack a job like that.

 

John Errico: [00:47:11] Yeah it's actually it's a little bit sad that the industry is in such a way but it is expensive to get a license and it is expensive to have insurance that is commensurate with the amount of work that you're doing. So it is the case that being a licensed and insured contractor is just more expensive than hiring someone without a license or insurance. And I think that's actually a shame because I agree with Ryan that the the work the right way to do it and not so much concerned about the license but insurance is a big issue. If you're inviting somebody in your house to do work and they get hurt and they don't have insurance that's a problem. You have a problem from the perspective of a homeowner. Having said that have I had people in my houses that don't have licenses or specifically don't have insurance do work that might be considered hazardous or possible injury capability like yes I've absolutely done that because that's the reality that doesn't make sense for me to pay. As Ryan said someone with a license or insurance to do that type of work.

 

Ben Shelley: [00:48:09] So can you guys talk a little bit about what kind of work requires a permit. Because we're sort of I think beating around the bush and saying well you know there's certain work we just know as handyman work but a lot of people listening may not know the difference. So what might be just a few examples of just handyman work versus work that really would require a permit maybe even from a licensed contractor.

 

John Errico: [00:48:27] It's hard to say because it's going to depend a lot on where you are. Even so where we are in New Jersey I would think is one of the most regulatory heavy environments for this type of thing and maybe the whole country. So you know the joke in New Jersey is that like you you drive a nail into a piece of wood or screw into a wall and you need a permit and that's not entirely untrue. I mean not that literally but that type of attitude is not entirely untrue. There are some obvious things that I don't think require permits any anywhere like painting does not require a permit. Generally in this area laying flooring doesn't require permitting although I think taking up existing flooring possibly might I'm not entirely sure. Very bizarrely putting in a new roof doesn't require a permit in New Jersey and I believe that is a recent chance of recent change.

 

John Errico: [00:49:12] Why is that. I have no idea.

 

John Errico: [00:49:14] I guess the effect of lobbying their roofing lobby has either failed or succeeded depending on if it's good or bad for them. So but obvious things that require permits will be extensive renovations like a new kitchen a new bathroom almost anything that you do with plumbing that is beyond like repairing a very small leak will require a permit. Major additions extensionsetc. Again it's the general contractors job and license to no job and. Purpose To know what permits are required how to get the permits how to work with the city. That's really a lot of times the expertise that you're paying when you're going with a good general contractor beyond all the things that we said before knowing the permitting process is very opaque. Even we who do this all the time there are still things that come up regarding permitting and working with the city that are hard to anticipate and they're different cities city to cities. So that's frustrating.

 

Ryan Goldfarb: [00:50:09] Tight end tight end with the permitting issue is the licensing issue on a bigger jobs in particular. There are often you're often not just looking at one trade or one permit there are usually going to be multiple sub codes that are applicable there. So you may if you're doing a kitchen renovation you may be looking at the building sub code and you're also going to be subject to the electrical sub code plumbing sub code potentially fire sub code. And each of those is overseen a little bit differently and that is the reason why you need all of these different subcontractors because they will each carry their relevant licenses so a home improvement contractor which is the type of license that we have that only that only really applies to the building sub code aspect of the job the your electrician will carry an electric or will have an electrical license and we'll also have insurance that specifically covers the nature of work that the electrician electrician performs. Likewise likewise with the plumber likewise with an H contractor. Likewise.

 

Ryan Goldfarb: [00:51:24] Maybe not from a licensing standpoint but from an insurance standpoint with something like a roofing contractor.

 

Ben Shelley: [00:51:32] You know Ryan and I think it's good that you actually bring up some of these subdivided sections and requirements for building because one of the things we want to jump into when we talk about licenses and permitting is also inspections. I think one of the biggest if not the biggest job of a GC is to get you through all the way. One of the biggest responsibilities of a GC is to get you all the way through the inspection process with the various municipalities that you're building in. So maybe you guys can I mean ask this as simply as I can which is sort of a theme of this episode. You know when it comes to inspections how do I pass my inspection.

 

John Errico: [00:52:04] Well normally that is not something that you as the owner of a project would really have to worry about. So if you have a good general contractor they will take care of the inspections and the permitting and working with the city and whatever else. Sometimes you are aware of them occurring because payment can be tied to that. And so a lot of general contractors will say you know you owe me a deposit at this point and then you owe some more money after the rough inspections are done. So what normally will happen is that a contractor will pull permits and at some point in the process they will begin doing work. And the city will mandate that once a certain bit of work is done an inspection has to occur. Oftentimes the rough process is say a plumber has put in new plumbing but the walls haven't been closed. So all the plumbing is exposed that would be the point of time in which a rough plumbing inspection would occur analogous for electrical HVAC etc etc cetera. So you as a homeowner don't really have to worry so much about passing that or doing anything with it. If the contractor has messed up and is unable to pass the inspections. Messing up is maybe not even the right concept. It could be just the case that the contractor and the city have a disagreement about what is required but if whatever is in the inspection isn't passed it is important to generally know that it's normally not on you as the owner to care about that or to pay more about it. Some unscrupulous general contractors might say what I didn't pass inspections and now I have to do a bunch more work so they're going to pay me more money. That's usually not how most arrangements occur. Maybe it's the case that because of the additional work required the scope will change in a change order will be required because something really unexpected has happened. Based on what the city has said. But if that's a possibility I would really prefer both as a client and also as a contractor to have communicated that there will be no that originally if that was a possibility.

 

Ryan Goldfarb: [00:54:01] All right John hit the nail on the head with that.

 

Ryan Goldfarb: [00:54:05] This is going to be your ability to pass inspections and the speed with which you pass inspections is going to be determined largely by your team and that's why it's critically important to have a general contractor with experience in that municipality and who has a network of trades a plumbers electricians HVAC contractors who have the same degree of experience in that municipality because if they've done it before they can do it again and a lot of those disagreements are barriers of barriers to communication when it comes to expectations for the plumber. The sub code inspector should be avoided by their prior experiences.

 

Ben Shelley: [00:54:48] And that's where maybe relationships that your GC has with the city can also come into play. I think a lot of GC is like too to sort of talk up maybe what cities or what areas they have better relationships and because they feel it does and probably does make a little bit of a difference at times where inspections are concerned. And while it is somewhat of a footnote because it's not your responsibility I think both points should be well taken particularly for for newer investors that if something goes wrong it is really not on you. So in this theme of pricing be aware of that because if a contractor comes back to you and says well I need to charge you more you should be aware of of what's going on and why they're coming to you and saying that.

 

Ben Shelley: [00:55:23] So I want to sort of as a book here I still want to talk a little bit about some questions about finishes but first most of what we've been talking about really falls under the category of something that's called capital expenditures cap ex and obviously there are different ways that investors look at and treat their properties if you're coming in investing in flip then cap ex is probably more of a concern than repairs and maintenance which has more relevance to people who are maybe holding their property long term or currently managing their properties under their umbrella. So guys maybe we can talk a little bit about the difference here and just distinguishing them and defining the terms of again repairs and maintenance versus CapEx.

 

Ryan Goldfarb: [00:56:04] These are really

 

Ryan Goldfarb: [00:56:06] Accounting distinctions. So a capital expenditure is something that is going to go into your basis in the property. So oftentimes capital expenditure expenditures are. Akin to fixed improvements that are going to improve the capital asset or improve the asset on the books. So if you have a house and you spend fifteen thousand dollars to install a new HVAC system that wasn't previously there that would be considered a capital improvement and thus goes on the books as a capital expenditure. The repairs and maintenance classification is just as it says it is repairs and it is maintenance in nature. So if you already have that HVAC system and if you already have that HVAC system and you need to replace an air filter or you need to replace a broken component of your furnace that is generally classified as repairs and maintenance because you are repairing or maintaining an existing component of your system. So when it comes when it comes to tax time the main distinction is your repairs and maintenance are taken as an expense whereas capital expenditures or capital improvements may go onto the books a little bit differently and maybe they may go into your basis in the property which.

 

Ryan Goldfarb: [00:57:44] In a round about way can ultimately be taken as an expense but is generally done so in the form of depreciation and this is a whole other topic for a tax expert or for a tax expert or a CPA to come in and opine on.

 

Ryan Goldfarb: [00:57:59] But high level that's that's the distinction.

 

Ben Shelley: [00:58:02] So for for a final topic here to bookend the segment I do want to talk about the types of finishes that people look for want to ask or ask for scuse me from their general contractors. This is gonna fold in nicely I think with the pricing conversation and how to approach and the dynamic between your GC but maybe if you guys can talk from your bank of expertise about the kinds of finishes you might want for different types of projects and what are some of the cost differences implications, etc. from being you know maybe more specific and wanting something like a luxury finish to something more basic when you're working this out with your GC either one of the.

 

John Errico: [00:58:40] This is more of a general investing question than necessarily a general contractor specific question.

 

John Errico: [00:58:45] But it's really important to consider the end goal of any project that you're working on as an investor or even as a homeowner. So as Ryan alluded to a while ago homeowners the expectation could be that a homeowner might want higher end or maybe more particular finishes to their particular needs or tastes whereas from an investment perspective more than likely you're going to be tailoring the project to the end goal of either a flip or a rental. So if it's a flip you need to take into consideration the neighborhood. What other flips are in the neighborhood. What pricing is sort of like for the property that you have in is a rental. You need into consideration the fact that there might be people living in the property they're not going to treat your property as well as you might assume that a you know a primary occupant were treated at someone as their own home. So it's something that I really wish from a general contracting side that more clients would ask us about. Many we have experience both as general contractors but I would say primarily we are real estate investors and we know a lot about certain neighborhoods certain areas where things are priced at a lot of times people come in with a project and they say hey I want to put quartz countertops here and my response is that well that's nice but it's doesn't make any sense at all to put quartz countertops in a rental in a very low income area. That's crazy.

 

Ryan Goldfarb: [01:00:07] The question you should always ask yourself when you're looking at an investment property or a rental property is when will this finish in some way result in either higher rent or lower expenses over the long. Exactly. That's not to say that you as an investor you should skimp on finishes. I think it's important to consider both the quality of the finish in terms of aesthetics but also the longevity of that finish. So I've actually had this conversation in the past with other investors who do work and who owns a property in some lower end markets and they will often go with laminate countertops in their kitchens.

 

Ryan Goldfarb: [01:00:44] And while I think there are clearly two schools of thought on this but I tend to fall in the side of the argument that I would rather over improve a little bit and put in something like granite countertops as opposed to laminate countertop because while it may not have all that much of an impact when it comes to the rents that counters that granite countertop should last far longer than a laminate countertop would. And if it saves me both the cost and the headache of having to replace it you know five years or 10 years down the line then that's worth something to me and whether whether it can be qualified in the form of rent or qualified in the way of not being an expense in year five or year 10 but rather in year 15 or 20 then there's value to that.

 

John Errico: [01:01:33] Yeah I mean it it's it's important to consider though even if it's a rental How long are you going to keep the property. I mean sometimes investors will talk about ahead this guy in Connecticut actually who managed a bunch of properties and also invested in stuff and he was trying to sell us a building and he kept saying yeah you know I juice it, I juice the building and I so sort of like what does that mean. He's like why. Well he also admitted that he'd owned the building for about 10 years and he had done a lot of renovation work when he bought it. And after 10 years it just so happens that a lot of consumer components start to break. So like hot water heaters generally have like a 10 15 year lifespan sometimes a roof might have a 10 year lifespanetc. So he's trying to say is that he did all the work and now 10 years later he has to put in a lot of money to get it back up to a normal standard there there's gonna be a lot of expenditures that are about to happen. So he wants to offload he doesn't want to pay for those anymore and that's okay. I mean alternatively he could have put in a roof that would last 40 years he could have been in a maybe higher quality high water heater that would have lasted 20 years but he didn't. And that was his investing strategy and that's OK.

 

Ben Shelley: [01:02:33] So these are the decisions as an investor as well as a homeowner that you need to make as as you go forward and I think you have to think of the opportunity cost of investing today maybe in higher quality materials and finishes versus this individual who in 10 years a long time. But now that he's ready to sell he maybe is regretting not quote juicing his property a little bit more is extracted all his ashes from all of the juice and then honestly what it tells you know we mentioned I want to talk more about this but we're going to do this in the next episode about some of those invariable factors which we already things like sorry Ryan now because I want.

 

Ryan Goldfarb: [01:03:05] One of those invariable factors also is while your rent may be what your rent is going to be and that may not change depending on the finishes you may you may attract five or 10 applicants to a listing.

 

Ryan Goldfarb: [01:03:16] If you put in like one upgrade like granite countertops stainless steel kitchen appliance right now you may. Whereas if you don't your rent may may be the same but you maybe only get two or three applicants and having that larger pool to choose from will allow you to pick the most qualified candidate.

 

Ben Shelley: [01:03:35] And that my friends is all the time we have for this episode we are going to continue with a part 2 to managing the construction process where we take you through the ending period. The payment schedules how to address any issues or any successes at the end of your construction project. So make sure you tune in next week to our episode 9 managing the construction process 2. Also feel free to reach out to us on Facebook at Brick x Brick. That's Brick x Brick. Subscribe to us wherever you get your podcasts and of course if you need any construction work in the northern New Jersey area make sure you're going to Liberty.Hudson.com. Gentlemen thank you so much for your time and your expertise as always.