Preparation: The Key to a Successful Renovation


Dave Ould

Sarah: I'm going to introduce our first presenter tonight is Dave Ould and actually Dave and I originally started talking on Instagram. I want to say, I don't know, nine months ago. And currently, he is working as the project consultant for Black Jack Contracting, and he's got 14 years of combined real estate investing and acquisition experience from BC spanning all the way to Ontario.

And he's touched a lot of the different aspects of real estate buying, selling, investing, landlording all of those and of course renovation and property conversion. I'm really excited to be introducing Dave. We're really going focus on the key to successful renovation and how to best prepare.

Cause I'll tell you whether you're doing a flip, a BRRRR or any of that stuff, it is very important to understand the rental process, how to do the right renos at the right time for the right properties and everything that comes with that. Welcome Dave.

Dave: Thanks Sarah. It's really an honor to be here and get to present with you.

And yeah, as you said, we've known each other for, it seems like such a long time. It's probably not as long as normally when I would take in terms of the integration of combined interests and our passion for real estate. So it's really great to be with like-minded people. And it's an honor to be here.

Sarah: Amazing. All right. So, you know what I want to get right into it. And I know that everything has been affected in terms of materials and costs, like with things going up and down throughout the pandemic. Before we really dig deeper, can you just give us a little bit of an overview of where we are right now?

In terms of pricing, contractor timelines, like what you're seeing in the industry, material availability and all that good stuff in September of 2020.

Dave: It's definitely been a point of contention. No question about it. I think unlike any normal year pre COVID, if you will, everything's been literally the opposite of what we thought it would be. So, in terms of supply and demand, inflation, everything from lumber prices, skyrocketing to materials not being available and supply chain issues really. If it was March of last year, you wouldn't have been able to predict that. There's been a lot of impact there, but at the same time, the biggest surprise.

And as we all know, is the boom which has been real estate and especially for the investor driven real estate market. We haven't slowed down one bit. And as I was saying to a colleague of mine today, I don't have time to go get leads because it continued to come to my desk and I can't keep up with them.

So it's really it's quite a boon. There's pros and there's cons, but we continue to push forward.

Sarah: I am finding that it's hard to book contractors and they've just seemed like they're very busy. So it was just important that if you're buying something, I would just say, ahead of time before closing line, all of that stuff up, what are you seeing with would pricing, have you checked it lately and what that's been doing?

Dave: It's like Bitcoin, I keep watching Bitcoin. I keep watching lumber, to go hand in hand, but. Fortunately lumber prices have definitively deflated and normalized if you will. They're basically almost half of what the peak was. So we're starting to see a bit of a normalization there.

And I think from different articles you read here and there it's the lumber companies are starting to come to the realization that maybe they got a little bit greedy. And the reality is they had to come back down because there was no more. Can't always use COVID as an excuse sort of thing.

Considering I have a friend who works in British Columbia in the lumber mill, and he said, we're stockpiled, we have no room for all the lumber where we're producing. So it wasn't that there was a shortage that's for sure. But we're definitely at a better place than we were just even three months ago.

Sarah: And I'm glad that you mentioned it. Cause it, it was one of the things that we were thinking as we were building our development stuff that shall we pre-buy materials and lock the prices in. And thankfully we actually didn't cause it ended up coming down. But that was a question mark, right?

Like even just six months ago do you potentially pre-buy. At a certain price. So then if things go up you're saved from that. And if things go down, unfortunately that's a downside too. That's definitely, the real thing I think today things are becoming a little bit more affordable.

Here's the big question, especially after the election. There is an inflation problem. So, we've got to just always look out for that. Next question though, for you, Dave obviously an investor needs to prepare and work with a contractor once they hire the contractor.

Are you able to, obviously because. This is what you do. This is your bread and butter. How does somebody prepare, in this market or another market, just like their funds and understanding, like how they're going to work with the contractor or the timelines. Are you able to share a little bit about that?

Yeah, absolutely. And that's a great question. It's one we get often, especially when there's first time investors not understanding the process, there's a general lack of information out there in terms of what things should cost. How to pay for these tasks such as renovating a property.

What we like to do is, we see ourselves personally at Black Jack Contracting is more of educators and partners, if you will, to help guide everybody at their different levels. So depending if you bought 10 houses and renovated 10 houses or this your first one, it's going to be a different journey.

The financial part definitely is obviously paramount, understanding what it costs to renovate whether you're doing a BRRRR or you're doing a flip or you're a duplex conversion on a single family home. There can be a lot of misinformation and I think that's one thing that we've found, and I know I've found particularly it's my daily battle, trying to have the discussion around money at the outset so that we can predetermined expectations. What are you hoping to do with this property? What are your plans? What is your vision? So let's help match that vision and that goal with what the budget allows. But it also goes a bit further than that and it parlays into, okay, if this is your budget, Tell me, why is that your set budget?

Where are those funds coming from? And then obviously exercising our ability at Black Jack as we're all investors, ourselves, understanding our partners who are also private investors, private lenders where the private money is the general lenders, the B or A lenders who are easier to work with.

And even educating around things like mortgage plus improvements, these types of products that are available in the market. And it surprises me that a lot of people are not familiar with these options. So once we get into that, it helps us really realign and our goal isn't to try to be the lowest bidding contractor is to align what their purpose is and understand what that means to them. And that comes down to the term value. We're not price driven ourselves. And we try to take our customer's mind off just the price driven direction. That's our approach.

Sarah: Yeah, that's cool. So like for somebody not necessarily for you guys, but just in general, like how should somebody work with a contractor in terms of payment schedule what do you recommend that, whether it's you or somebody else, because obviously, there's people across Canada here cause you hear those horror stories about people paying contractors and then all of a sudden they're out and what are some of the things that we should do is it assigning a contract is it ensuring that there's a certain payment schedule? Can you walk us through that kind of stuff?

Dave: Yeah, excellent there's actually a history of the contracting business kind of a negative connotation with that with construction companies bailing on people and leaving them hanging or held hostage.

And I know for personal experience, I've been in that situation and. It's not nice. It's a terrible feeling, but what we see as really the proper way to do things is lay that out in terms of whatever the cost of the job is into segments of progress. So obviously, within our company anyway, I can't speak for other contract companies, but what's reasonable and expected is, a 10% deposit upon the total sum of the project. And then going farther, you go 10% at every phase until you get into the specialty phases. So, such as electrical and plumbing. And then we begin to exercise 20%, 20% up until completion.

And then we hold back another 10% until the satisfaction of the customer has been met. And any deficiencies have been rectified. And then at that time, then there's a full payment and that way there's skin in the game for both parties. No one's being held hostage. The work is getting done. And it just makes both sides feel more comfortable.

And that's the key, at least from our perspective, we want to make, maintain that our clients, despite their experience or years of experience or net worth, they need to be comfortable at all times.

Sarah: Yeah, absolutely. Don't pay your contractor too much ahead of time, make sure that you vet them.

And I will say just to go back, you guys, I'm sure there's other ones out there. But Black Jack in general, you work with investors. So when you were mentioning specifically that you find out what the rentals are like, what their budgets are and why? Just to add to that, I think it's also if you're renovating to sell or you're renovating to buy, it might be a bit of a different type of renovation and you guys don't really work with homeowners, but the after repair value is going to be critical.

So, if you're in Welland, you're going to renovate so different than you might. If you're doing maybe a midterm in Burlington as an example,

Dave: Excellent point. And to that point, that's a sign of a good contractor. So the contractor would ask those questions.

Are you BRRRRing? Are you buying and holding? Where are you buying? Where's the said property? What kind of property is it? These are key elements. And, part of actual, my function is to go out and see the properties that you know of interest, whether they've even be purchased or not to help guide these future customers on sound buying decisions, but absolutely. If it's something like in Burlington, obviously the price per square foot, if you will, is going to be far different than it would be in Welland. Despite the rent roll rates that you get is quite surprising, even in a city and now, but again, it's, every scenario is a little bit different and the key to feeling that warm and fuzzy feeling and knowing.

The safe place is when those questions are continually asked from that contractor to the client. Because if they're not being us it's leaving things open for interpretation. And to me, that's a red flag.

Sarah: Yeah, absolutely awesome. Thanks for sharing. And one of the things too there's mistakes made all the time, right?

From a reno standpoint are you able to share maybe some of the most common mistakes that you see investors make out there when they're renovating and maybe just some things that they could do to try to avoid those mistakes.

Dave: Yeah. So a common mistakes are one. It goes around understanding what they can afford to not having your, as we say, our ducks in the row.

Do you have funding in place? Is your accountant aware of what you're doing? Do you have a lawyer ready to go? Is your real estate agent aware of the type of purchase that you're trying to do and are they educated in the investment market? So are they showing you the right properties?

Are they guiding you on information that's accurate such as what the cost of renovating a home will be, is that property in the right zoning? That's a big one that we've come across numerous times now. There someone has purchased a property and perhaps they were misled or misguided, if you will, that they couldn't do what they expected to do in that particular area or that town.

Then they have to get variances and so forth. So it's not going to be such a smooth ride. A few other missteps is, trying to do a renovation with a permit. That's a big one. We hang our hats on permits all day long because there are our safety net. There are our clients safety net.

It gives you your blueprint. And that's really what the term blueprint is right. Comes from it's, you know what you're going to end up at , when everything's all said and done. And I think a lot of people try to forego that, or guilty as charged. When I first started in my endeavors in Vancouver, I used to try to find somebody who could do it for a case of beer or cash on the side or things of that nature.

And, it always came back to really cost me more in the long run, whether it was emotionally, financially or otherwise. This is something that we, we really try to again, educate our clients, but if you're new and you're searching for a contractor, we endorse people to get three quotes, talk to three different parties, see if the message aligns that can't be understated because this is a lot of money you're taking a risk and, you want to mitigate that risk as much as possible.

So with that in mind, align yourself and prepare yourself with a plan that emphasizes mitigation. That's our stance and that's my stance.

Sarah: Yeah, absolutely. I think you said a couple of things that were interesting there and just in terms of zoning and can that property actually be converted as an example, right?

Could you take a single family property and turn it into 2, 3, 4 units or whatnot? It is definitely important to have a BCI and designer on your team. I think they're under four grand. They put the drawings together, they submitted to the city, they communicated back and forth with the city and your contractors.

That's like the stuff I hate doing, I love delegating it for the price. It is well worth it. And they're like speaking that language and likely are going to be able to do it much faster than you and yourself. So that's one of the things I took from what you said there and you talked about permits, right?

And so if we're doing conversions, of course we need permits. There might be some things that you don't need permits for. What are some of the things that you could do without requiring permits? And what are some things that we need to do with an absolute must that we can't skip the permits.

Dave: Oh that's actually a great question. So of course some of the obvious ones that require permits are, such things, as, if you're rezoning your property or repurposing your property, obviously the safe bet is to get a permit to do that's going to expose a lot of things such as your zoning. What the city allows in terms of square footage or bedrooms or fire separation, and these types of things, a permit will help facilitate that.

If you're opening a wall, obviously low bearing walls, big no-no. You want to make sure you have a permit there. Anything electrical, obviously, if you're redesigning your electrical system, not plugs or switches, things of that nature, changing light bulbs or fixtures, but if you're changing your panel from a 100 amp panel to 200 amp panel, you're going to need to get a permit.

You're going to your ESA on that. To ensure that everything's done correctly and to code, it's really important because the cost of not doing that is far greater than the cost of getting your permit in the process to get that. I think that's really key messaging there.

Plumbing, in some instances you're going to need, if you're rerouting plumbing anything that's being dug underground under foundation, that's a permit job, but if you're changing out a toilet or a sink or something to that effect, That's a non-permitted job. You won't need a permit for that type of thing.

Now all encompassing in a whole scope of work. You're going to have your permit regardless. I think the big one I like to really touch on is having a permit is your tool. And ensure that everything's going to be done to code it protects you. And moreover, as we talked about the financial aspect of things, it adds value to your property.

So, when the appraiser comes in, after you've done your said renovation and you're going to have your home, reappraised. I see what your lift is. They're going to look okay. Was this work all done to code? Do you have your permits so forth? This really is very impactful in terms of your investment strategy.

Permit is worth its weight in gold. And if you're ever in doubt, ask a contractor.

Sarah: Yeah, absolutely. And I will say too, cause you mentioned electrical, like electrical is ESA. It's actually a difference. It's not like you're going through the city. So I always like, regardless of what I do, if I like, I shouldn't say this because I'm recording it, but sometimes like I get my father-in-law like do some plumbing and stuff like that.

But from an ESA standpoint, like electrical, they don't even necessarily go through the city. It is the easiest thing to do. Always do ESA for electrical. And if you're doing conversions, always do permits, don't cut corners. At the end of the day especially from a refi perspective, a tenant landlord perspective, you definitely want somebody in legal units as much as possible.

Dave: Sarah, I'd like to add just one thing too. If for example a set application or process was supposed to be permanent and it wasn't, and the job has stopped and halted. Now, you're going to face months of delays. So when you think about getting to your end goal, your end game, where you're trying to get renters in, for example, on a buy and hold now you're delayed and then it's rent money lost.

And also you have to then reissue your paperwork for permits and drawings and so on and so forth. So you're talking four to six weeks for each process. The smart move is, again, if you're in doubt, ask your contractor. But moreover likely get a permit and it'll save you a lot of time and hassle and money.

Sarah: Absolutely. One question is when you're hiring the contractor or you're hiring your trades, is it important or would you say it's something that you would always recommend, or maybe not to ask if they have insurance, what kind of insurance is, or a check that you would want to make sure that they actually have the proper designation or insurance?

Like what, what are we needing to be aware of for that piece?

Dave: So in terms of the contractors?

Sarah: Contractors and trades.

Dave: Absolutely. You know what? We were ourselves carry, I think it's $5 million of liability insurance. All our trades are all legal trades. They're insured themselves individually very important, but also for the homeowner. It was the person who owns the property also has to have insurance on their property. And that insurance has to have a rider that explains that the home is in a resident or renovation phase, if you will. So that's really important actually, because if something does go wrong, we know how it goes.

If you don't have the right insurance they find every reason to walk away from you and leave you stranded. So another very wise investment.

Sarah: Amazing Dave, that was really insightful. Thank you so much. Where can people catch you? They wanted to ask you questions. There we go, we've got Black Jack Contracting Amazing. Thank you so much Dave. It was excellent. I really liked your insights and thank you.

Dave: Thank you so much.