A clear project plan that defines all of the work needed to flip a house including details and milestones is called the scope of work. The scope of work will have all of the tasks and their specifics as well as the person or contractor completing it, their pay schedule, milestones to accomplish and review and the financials committed. This is the to do list for the project.
When preparing to request a hard money loan for the first time the scope of work is the primary method where you can show that you are organized and you have a team behind you ready to complete the project. This should be create for every project you begin, not just the first flipped house. There are many benefits to having this information worked out before hand with details, schedules, pay schedules and requirements for each part of the project.
I found multiple versions and examples of the statement of work so there is no standard template. Most of the documents contained the same information just presented in a different format. The best formats were very readable and understandable, I think this is key to a successful project.
Scope of Work Benefits
- More accurate contractor bids
- Used for hard money loans
- Contains contractor instructions and rates
- State any regulations or standards to be considered
- Helps to clear up project or task disputes
- Reduces change orders
The scope of work requires breaking down the project to a task level and defining the budget, costs, all work and how things will get done. During the project this document will be the go to source of information. Be sure to go slow and focus on accuracy instead of speed.\
One warning I noticed is that the contractor or inspector will sometimes create or provide the statement of work for you. This is not recommended as they are not house flippers and cannot advise you as to how to fix and flip your house. Understand the work to be done and be very specific with the contractor.
Preparation & Walk-through
The walk-through is exactly what it sounds like, you will walk through the property and document everything that needs to be address as well as note things that do not. Use a notepad or tablet to take note on everything, be specific and detailed on where and what needs to be repaired or replaced.
Take plenty of photos and videos to be reviewed later so you do not have to keep coming back to the property. A tablet might be best to use here as the tablet can take photos and record video on the spot. You can use a software notepad, spreadsheet or there are web based “estimators” where you enter the info into their software.
Take measurements of every room and any materials you might be replacing. In the kitchen measurements are key because cabinets and appliances between house are almost never the same. Measure doorways and door widths too. I’ve seen inner doorways made smaller in older house and I’m not sure why.
Create some freehand sketches of the layout and each room. This is where some creativity may surface and you can sketch some ideas for each room. For example the open concept is popular and knocking down a short wall may make all the difference in the room layout. Sketch this as an option and review it later with the photos and video.
Project Overview
The first section clearly define the objective for the project and contact information. It has been recommended to include your company letter head at the top to emit a professional look. Place at the top a clear statement on to whom and how you want bids submitted. Be sure to include phone and email as they may have questions but then they submit their bids via email.
You should also provide a section that describes what the contractor responsibilities are at the job site. For example…
Contractors responsibilities:
- Will supply all tools, equipment and materials unless specified
- Responsible for all licensing for all regulations related to their work
- Responsible for building permits, inspections and licenses related to their work
- Provide general liability insurance and the certificates to prove
- Cleanup of all areas where work was performed daily
Contractor Deliverables
This is where the details of work and each task needs to be clearly defined. After the walk through, research, bids and budget decisions you will have a list of the work to be done, where and by whom. I though a couple of examples would clarify what this might look like.
Bathroom Example
1st floor master bathroom demolition
- Remove vanity and all plumbing fixtures
- Remove wall tiles and flooring
- Remove exhaust fan and all light fixtures
- Leave toilet & shower pan
- Demolition Cost___________________
1st floor master bathroom Scope of Work
- Patch or replace floor plywood as needed
- Install new drywall per layout provided
- Install new vanity and cabinets
- Install new shower surround
- Install floor tile on bathroom floor
- Installation Cost____________________
Budget & Costs
Keeping track of the budget and categorizing the costs is important to understanding where the money is spent and what portion of the project has the highest cost. With future projects you will be able to review the costs and plan the next flip more efficiently. When applying for a hard money loan it is critical that the lender understands the budget and how their money will be spent.
In the example above I added an installation cost for each section. This is similar to what I found when researching this subject where they recommended keeping the costs categorized under broader topics. One example used categories such as “Demolition”, “Roofing” and “Drywall” costs. Another site specified the cost “per room” and then consolidated it at the end with categories like “Rooms”, “Utilities”, “Outside” and “Landscaping”.
Calculating costs and bids is challenging for the first time flipper but there are some resources found online that can help with estimation. The commentary I found for these sites seemed to be mixed. Most of the comments say that the numbers are low and may only reflect the labor involved without materials or other costs like a dumpster rental to throw old roof tiles in. I provide them here for an easy reference when your working out the costs and looking at bids from contractors.
Online Cost Calculators:
Schedule
As a first time flipper it may be a challenge to attempt to manage a project and scheduling work at this level. Some work needs to be completed before others such as any demolition before installations or hanging drywall before painting and installing that ceiling fan. Jumping in without scheduling the work can cause delays and issues with contractors who have their own schedules.
What is the order that work needs to be done?
What is the most efficient method?
Example Pre-work List
- Review all building permits and licensing and plan for inspections when work is done
- Obtain builder’s & liability insurance
- Security: install a key-box and/or alarm system
- Dumpster: rent a haul-away to be delivered after closing
- Portable toilets: rent if a bathroom will not be available (due to demolition)
- Locksmith: schedule to change the locks after closing
- Materials: vendor delivery of cabinets, flooring, roofing, windows etc.
- Address any foundation issues or flood damage before people begin working on the property
- Look for mold, termites, asbestos and similar issues to be fixed before people can work
The scheduling really starts after the last item on the list. At this point we know when the dumpster can be delivered and the cabinets or roofing will be there. Demolition will begin and may reveal new issues to address or the real extent of the project.
Example Work List
- Order materials: windows and doors can have 2-3 week lead times
- Order materials: custom wood, flooring or tiles that cannot be bought today at home depot or lowes
- Concrete work such as sidewalks, garage floors or driveways should be started
- Carpentry: Framing walls, moving windows, floor beams and supports
- Roof: replacing the roof tiles, repairing missing tiles or plugging leaks
- New additions: add house wrap to control moisture
- Install windows and doors
- Install siding and trim
- Begin landscaping while work is competed inside
Electrical, HVAC and Plumbing
The HVAC, electrical and plumbing areas require some special attention as they each have dependencies on one another. Extreme temperatures can affect contractors work not to mention paint drying. If the timing is in winter, it may be better to schedule the electrical and HVAC earlier so the house can be heated during rehab.
The electrical requirements can also hold things up if major work needs to be done to the wiring or a new electrical box needs to be installed. This means the HVAC work will need to wait until the electrician is done.
The plumber will need to work around the same areas as the HVAC so this might cause a scheduling issue with installing or replacing a water heater and new pipes.
Appliances
The appliances should be installed last as they have the tendency of being damaged or stolen during the rehab. The vendor should be able to provide a delivery date for new appliances and you can schedule contractors to perform the installation if necessary.