You may be a fantastic networker skilled in spotting unbelievable real estate bargains. Still, without solid project management skills, you may waste much of your possible profits. It’s an unfortunate fact of life that many rehabbers struggle to maintain control over their renovation process. You can prevent numerous problems by developing a roadmap for your renovation early in the process. Such a roadmap is called a scope of work. A well-written scope of work is the bedrock of your success as a real estate investor.
Scope of work (SOW) is a document utilized in construction management to capture in writing everything that needs to be done in the property. It includes the responsibilities of the parties involved, costs for materials and labor, and a timeline of the deliverables. Normally, the scope of work is composed by a client financing the renovation or a contractor accountable for the job.
There are several factors why you must invest time in developing a thorough and precise scope of work.
It helps choose the contractor that is right for your job.
Working on the scope of work with your contractor can be a dress rehearsal for the actual rehab process. It would inevitably provide you with a better understanding of their work style, attention to detail, and general responsiveness. Managing your contractors well is essential to your ability to finish the project on time and within the budget. Contractors thrive on uncertainty, yet it’s your job to make your scope of work clear and transparent. If the contractor resists your efforts and is evasive about the details, it may be an indicator that he would be difficult to manage down the line.
If you’re relying on private funds to finance your transaction, the scope of work is required.
Private lenders base their loans on the after-repair value (ARV) of your investment property and not on its current price. To come up with that after-repair value, they need to know what kinds of improvements you have in mind. For example, if your scope of work states that you are planning to finish the basement, your lender will look at the similar properties in the same neighborhood that have a finished basement. If your SOW is saying that you are adding another bedroom, they will look at the sold prices of homes with the same number of bedrooms that you would have after finishing your renovations.
Well-crafted scope of work is the foundation for a harmonious (and profitable) relationship with all parties involved.
The more time you put in creating your scope of work, the fewer problems you will have. “The majority of problems between the parties are centered around getting paid,” – says Kyle Sennott, the Managing Partner of New Funding Resources, a private lender in Washington, DC, Maryland, and Virginia. Well-written scope of work minimizes potential conflict by clearly defining what needs to be accomplished for the next installment of funds to be infused into the project.
With the scope of work, you reap what you saw. A though-out, detailed scope of work helps you think strategically, avoids conflicts and delays, makes you money, and brings you good karma.