Dealing with supply chain issues and rising labor costs continues to be necessary as we near the end of the first quarter, and there seems to be no end in sight. Real estate investors who are also rehabbers by trade are a combination of general contractors and investors. You need to hone the necessary skills to see the future of what the market may bring and run your day-to-day operations like a fined tuned machine.
Supply Chain Issues
Inflation and supply chain issues are two huge current roadblocks real estate investors need to navigate. However, I’m not sure if we have ever seen rising costs and shrinking supplies to the market’s current levels. So how does the individual investor deal with these macro forces?
Ten years ago, I turned a two-car garage at my office into a mini-warehouse. I always keep it stocked with unreturnable leftover items from jobs and things we use daily or might be in short supply, or we earn a considerable discount when buying in bulk.
I stay away from bulky supplies that are damaged easily or have a short shelf life. For instance, when Costco runs a special on faucets or garbage disposals, I buy them 10 or 20 at a time. They never go bad, and I use at least one of them on each house. I buy cabinet and door hardware from Home Depot in bulk, 100 at a time to get a discount, opposed to buying them for each job. Lastly, each year, I purchase 50 microwaves, dishwashers, and gas stoves (with gas lines and water lines), all in stainless steel at the Black Friday Sale from Lowes.
Buying ahead of time and in bulk allows me to control items that I use on every house and not worry if they are in stock or have an extended lead time. It also allows me to lock in my prices of my appliances for the next 12 months. In addition, I’ve bought carpet, tile, paint, and lights, all in bulk. If it saves a trip to the store, locks in at a lower price, and keeps my guys working the property, I buy and store it. Of course, you need to keep your warehouse or storage unit clean and organized and make sure you charge the costs of the goods removed to a specific house, but it’s a straightforward process and makes gathering material easy.
Labor Costs
As real estate investors, buying materials in bulk can help steam some of the inflationary forces in the market. But how do you deal with labor? Everyone expects to be paid more for what they do these days, and you can’t blame them. These few steps help me be more productive and keep my labor prices as low as possible in any market.
- Have a plan: You should have a plan on each project of what you are doing and who needs to come to the job site any specific day based on the sequencing of your rehab. Planning allows your contractors to get in and out, saving you money.
- Supply Materials: We stock our homes twice during our rehab projects to ensure our contractors don’t need to go to the store a few times a day. We want to ensure they have the material they need to work and be more productive, not running to Home Depot and burning time to buy three square feet of tile because they didn’t have enough to complete the bathroom floor.
- Ensure the job is ready: Nothing is worse when a contractor arrives if the job is not prepared. Ensure there is a dumpster on the job, allowing each contractor to clean up after themselves and, when possible, complete their prep work before they show up. Lastly, they should have the space needed to work and be productive.
- Pay Contractors Fast: We write checks every Friday. If a contractor requires payment before that, we will make the accommodation. Our guys know we will always pay them and pay them quickly.
People get to choose with whom they work. Therefore, treat people with respect, have a plan, supply the material they need, make sure the job is ready when they arrive, and pay them quickly. As a result, your contractors will be more productive, saving you money no matter the market condition.
Be prepared for any market with an asset-based loan. Contact me by clicking here or call 248-385-3750.