Hidden Construction Costs That Can Destroy a Real Estate Flip

Abdul Suberu (00:00)
I would say not necessarily the mechanical or the electrical systems. I would say it’s typically more the foundation. I so I tell all these investors and all that stuff, said, when you look at a building, said the most important thing before anything else is the foundation. Because if you have to make repairs to the foundation, depending on how crucial it is, it could be maybe a patch, but sometimes patches are only temporary, right? Or sometimes it depends on if you’re tearing down the entire

building all the way down the studs and all that stuff, you may have to replace sections of that foundation. And that’s typically where I see a lot of the hidden costs come in.

Scott Bursey (02:08)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host Scott Bursey. And today we’re joined by an absolute powerhouse in the industry. Abdul Suberu of eXp Realty. Abdul is bringing some serious high octane fuel to the show. Uniquely bridging the gap between the structural architecture side of the business and the sharp financial strategies needed to dominate in the real estate space. Whether you’re looking to master new construction,

or refine your fix and flip game. This is the episode that’s going to move the needle for you. Buckle up and put on your helmet. This one’s gonna be epic. Abdul, welcome to the show.

Abdul Suberu (02:47)
Hi, thank you, Scott, and thank you for having me on here.

Scott Bursey (02:49)
It is just an honor to have you on here and to help our listeners get up to speed. Please give us the front row seat and how your career ignited and where you’re pouring your fuel now.

Abdul Suberu (02:59)
So my career, would say college-wise ignited, I went to college for architecture. After I graduated, I kind of got a bit more into the MEP side, more specifically electrical design. But being in that specific concentration, it’s allowed me to see a lot more of not just the electrical side, but all the MEP as well. So that being fire protection, fire alarm, mechanical, plumbing.

telecommunications. So with that, it’s allowed me to see things on a broader scale, see how they’re designed, what’s involved and how to do all that stuff. And coupled with that, I soon eventually got into the real estate market. So I started using and getting into that. Initially, I was doing this residential and then eventually I found myself getting a bit more involved in new construction. And I realized that my experience and background is what’s actually

aided me to help not just other investors but builders as well. ⁓

Scott Bursey (04:02)
That

is awesome, Abdul. And you know what really caught my attention about you was the way that you’ve been able to combine a bachelor of science in architecture and over 15 years in the commercial MEP industry with your hands-on experience in single-family residential investing. That’s not easy. That dual perspective on both the structural integrity and the financial performance of the property is a total game changer.

Abdul Suberu (04:28)
Oh yeah, definitely. I mean, to be honest, initially going through the route that I went through, I did not envision it in the way I did, but eventually I started to realize that it’s all building related and it all comes together. And it started to make me realize that I had a deeper understanding in terms of a lot of stuff that I guess other peers of mine don’t. So I find them a lot coming and asking me a bunch of questions now.

Scott Bursey (04:53)
And it really sets the stage perfectly for us to pull back the curtain on your internal engine. Let’s dive in and showcase your strategies that have allowed you to dominate your space. Abdul, with your deep background in commercial MEP and architecture, how do you spot potential construction pitfalls in a fix and flip property that most other investors completely miss?

Abdul Suberu (06:01)
Well, so the thing about with the commercial side is because I’ve ⁓ done a lot of designs from build up. So I’ve seen pipe layouts. I see conduit layouts. I’ve seen ductwork layouts. kind of can sometimes what I can do is I can look up at a ceiling, see a kitchen and kind of start to have an idea in terms of where the pipes are running generally. So it kind of starts to make sense. say, okay, I know my pipes are going up the wall here. Maybe they’re going over this wall.

maybe we should look in these areas, find wet spots, see if there’s any potential damages and things like that. Because there’s some areas where you can’t get behind walls and you can’t get above ceilings to be able to see things right away. So that kind of starts to help a little bit. Of course, there’s always unforeseen things, but if you can catch some of those unforeseen things early, you can put a price tag on it.

Scott Bursey (06:50)
And that’s really the key, detecting those things early.

Abdul Suberu (06:54)
yeah, absolutely. Because that right there is what sells it for the, not necessarily the builder, but the investor. The builder is going to make what they’re going to make. It’s the investor that is looking to walk away with as much money as possible. So when they know that you have a keen eye to be able to notice those things, they will right away say, okay, well, we’re looking to maybe save ourselves a hundred thousand dollars and walk away with a hundred thousand dollars. But based off of what you just told us,

let’s deduct X amount and say, okay, well, is this a really good investment property to look into an actually approach?

Scott Bursey (07:30)
Thank you for highlighting that Abdul. And let’s switch tracks and explore in your transition from commercial projects to residential investing. What was the biggest structural hurdle you had to overcome in your own business operations?

Abdul Suberu (07:44)
I would say probably the biggest one I would say is,

Dealing with a property that had a septic tank. So the part of the issue with that one too is the investor initially wasn’t fully aware and understood how septic tanks and stuff work. Now this wasn’t my own project, but I was more consulting. And what happens is when you don’t do your homework well enough, you find out that there’s no city water. And then the other thing is you find out even sometimes, even if there is city water, you can’t connect to the city water and get a line to it.

So now you have a septic system. And then when you have the septic system, now you have to think about, you have to make repairs and all that stuff for the existing septic system that’s there. Some of the things that a lot of buyers nowadays and stuff, if they can avoid it, would like to avoid that kind of stuff. I prefer to, if it’s a project or something we’re working with, great, but I prefer to kind of…

avoid those because in an investor’s situation, it means you have less buyers looking at this particular property.

Scott Bursey (08:49)
And once again, it all boils down to preparation, doesn’t it?

Abdul Suberu (08:53)
yeah. ⁓ definitely. Definitely. I mean, there’s so many stories. mean, when an investor comes and looks at an existing building, I mean, there’s always all sorts of ratings, stuff like that. Especially when it’s existing conditions. Sometimes the investors don’t know if it’s a flip and fix that they may have to bring certain things up to code.

Scott Bursey (09:15)
Spot on. Now let’s rev up the engines here a little bit and see what we have underneath the hood here today. Abdul, you’re currently doing one to five deals per month. What specific market shifts are you seeing right now that make new construction more attractive than traditional flipping?

Abdul Suberu (09:30)
The thing with new construction is that, especially with how the price points are for homes in general, it gives the new construction a little bit of a more competitive edge, but it also allows for buyers because sometimes these new constructions go on the market before they’re complete. So sometimes it allows the buyers to discuss with the builder and say, okay, would you be able to make altercations to fit the needs that I want for my home?

And with that, then the buyer can come back and say, sure, we can do that. It’s either it’s not going to be a change or sometimes it may be an additional change. And the buyer may say, okay, well, because it’s going to be this amount, maybe we’ll still like to move over with the deal, but we’d like something writing, you know, just as a contingency and all that stuff. And then once in a blooming, very rarely does a buyer say, want this change instead.

and the builder says, okay, well, this is gonna cost us a little more. We can give you a credit back.

Scott Bursey (10:27)
Abdul, that is pure investor fuel. Now let’s, let’s shift gears here. Given your expertise in mechanical, electronical and plumbing systems, what is the biggest hidden cost threat you see rookie flippers ignoring today?

Abdul Suberu (10:44)
I would say not necessarily the mechanical or the electrical systems. I would say it’s typically more the foundation. I so I tell all these investors and all that stuff, said, when you look at a building, said the most important thing before anything else is the foundation. Because if you have to make repairs to the foundation, depending on how crucial it is, it could be maybe a patch, but sometimes patches are only temporary, right? Or sometimes it depends on if you’re tearing down the entire

building all the way down the studs and all that stuff, you may have to replace sections of that foundation. And that’s typically where I see a lot of the hidden costs come in.

Scott Bursey (11:20)
I appreciate you highlighting that turtle. know, navigating those risks with a clear strategy is how you keep making those big moves.

Abdul Suberu (11:20)
⁓ The other thing is yes.

yeah, definitely. just to add on to the foundation thing, though, too, this was many years ago. In certain areas, it’s no longer used, it’s outlawed, but they used to have this type of, it’s a mix of these material and stone. It’s called, I think, pyrotech. So what happens is this material, they used to use it for the foundation, but over time, not everywhere does this occur, but a lot of homes have had this where it starts to crumble. So typically now when you have that kind of situation,

whoever the homeowner is or the builder, you have to come over, you gotta raise the house. So it means you pretty much gotta lift it up just so that you can replace and repair the entire foundation. And depending on the square footage of the home and stuff, that right there can cost you over $100,000 easily.

Scott Bursey (12:13)
That is precision.

And quite frankly, Avdol, you built your career on technical precision. How are you leveraging that discipline to scale your real estate team at eXp Realty?

Abdul Suberu (12:24)
So some of the things that I do and I do help them too is whenever a building or a home I should say is done, usually we have something called a punch list. So typically we would walk through the home, we would look and say, okay, was this done correctly? Was that done correctly? You know, with my MEP firm that I work with, we have a construction administration group. They typically will go out and do that. Or sometimes they’ll talk to us and we will go out and look at it for our specific trades.

But understanding, okay, was this done correctly? Was that done correctly? Was this cleaned up correctly? Was this drilled in? Is there an issue with the door frame? Is it squeaking? Like all those things make a huge difference, especially when you have a buyer walk through the home for the first time. Something as little as a door frame not on could, and it’s unfortunately, chase a buyer away.

Scott Bursey (13:13)
That’s some excellent words for our pros. Now, if you were starting your real estate career from scratch today with no portfolio, but all the technical knowledge you have today, what is your first move you would make to ensure financial longevity in this market?

Abdul Suberu (13:29)
First thing I would do is get in connection with every builder out there for two reasons. One is you want to soak up as much knowledge from them as possible. Not necessarily what you’re doing right, what they’re doing right, I call it is, but you want to know what they have gone through and done wrong. Cause it’s the things that go wrong that cost you money. That and also keeping those long-term relationship with those builders because they’re the ones that ultimately going to bring you the business. You bring the product to them as the real estate end, but they’re going to build it for you and then

you’re going to sell it with them. So I say those are probably the two biggest thing. And then the other third one is, especially from the investor side too, is knowing the costs and knowing what the potential hidden costs are. That that’s big. The hidden cost is what hurts.

Scott Bursey (14:15)
Let’s hit home on the relationship aspect of things. When it comes to relationships and networking, what’s made the biggest difference for you, Abdul?

Abdul Suberu (15:05)
I would say not necessarily the first thing is the technical side always comes, but before you even get into the technical side, you’ve just got to least generally talk with them, build rapport. Because even if sometimes you get business with an investor or a builder, it sometimes can be difficult and stressful. And even though you may be making money on it, in the back of your head, you’re still thinking to yourself, it’s like, is this someone I want to work?

So building rapport, building a relationship is the very first thing. And then of course your insight.

Scott Bursey (15:39)
Absolutely. Folks do business with people that they know, they like, and they trust. You hit home on the trifecta right there. Abdul, what is some of your short-term strategy? Let’s say the next 12 to 18 months.

Abdul Suberu (15:55)
I would say a short-term strategy. Could you elaborate a little more? What do you mean by short-term strategy in terms of like how I pursue a new project or how I pursue?

Scott Bursey (16:06)
Yes, yes, as far

as your strategy that you’re employing for new projects, for scaling, for things of that nature.

Abdul Suberu (16:13)
Okay, so one of the things I look at too is I’ll look at distressed properties. And when I look at those distressed properties, I’m not just looking at the distressed property itself. I’m looking at the area and all the other homes within that area. Like I’ve got one client right now working with, and we looked at their property, it’s distressed, they’re looking at potentially selling it. And you look at all the neighboring homes and all that stuff over there, and you see some homes, maybe they’re priced at the five, 600,000.

but then you see some of the newer homes that are priced over a million. So you know that this is just stressed home. You know that you’re going to redo the entire home. But now the question is, what is the price point that you’re going to potentially get once you get it on the market? Even though there isn’t a significant amount of comps for new construction because most of them are still existing, but at some point, you know that once that home sells, it’s going to be what it’s worth.

Scott Bursey (17:08)
Absolutely. That’s some great advice there. And Abdul, if somebody’s listening and they’re thinking, hey, this is somebody that I really like and would like to learn from. What would you like them to know first about your business?

Abdul Suberu (17:19)
So I would say the first thing you need, there’s a lot that you gotta know, but I would say the first thing you’ve got to know is the skills, the finance, right? So you’ve got to understand in terms of if you go purchase an existing or distressed property, right? What are you purchasing it at and what do you wanna sell it at? Those are the first two things. After you’ve determined those two things, then you can start to look at, what is the cost gonna be that I need to actually repair and fix it?

And then another thing that a lot of people, I’ll say majority of people when they first start up and they don’t understand this is what’s referred to as holding costs. Okay. So during when you’re doing a new construction, you have what’s called holding costs and the holding costs is like, because you own the property, you have property taxes. got to hold onto. You need electricity temporarily for during construction. You probably keeping your water running.

All those things are considered holding costs. Those are things that you’re gonna pay either quarterly or on a month to month basis. Now some people don’t think about it. Usually you wanna hold and do your renovations and all that stuff for your flipping fixes between four to, I would say four to six months. So within those four to six months, understanding what those holding costs are, then you can apply that to what you’re expecting to profit on and see where you stand.

Scott Bursey (18:39)
Abdul, this has been an absolute master class. Thank you for that. And we can’t let you go quite yet though. Is there any additional golden nuggets or words of wisdom that you’d like to leave with our pros here today?

Abdul Suberu (18:49)
Thank

⁓

I would say understanding what the contractor can deliver and understanding what the investor is looking to put in. I would say those are the two biggest things because you always want to make sure that first off, whatever the investors putting in that you’re protecting the investor and their assets and their finances. But the Build-A-2 is very

big thing because you’re meeting with the builder for the first time. So you don’t know what the builder knows and doesn’t know and has done or has not done. So some of the biggest things is especially building a rapport with a great builder, seeing what the builder has done before, and then understanding what some of their projects are, what their pitfalls, what they ran into before. Of course, I would expect that they’ve learned from the past one and the past ones and the past ones, but sometimes, yeah, those are some of the stuff that can be headaches.

Scott Bursey (19:50)
Wow, that was a blueprint of great advice. Thank you for highlighting that, Abdul. And for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you. What’s the best way for them to plug into your pipeline and to reach you?

Abdul Suberu (20:04)
I mean, you can reach me on Facebook, Abdul, A-B-D-U-L, last name S-U-B-E-R-U, or I’m on Instagram as well. So it’s BostonReel, R-E-E-L, Tour, T-O-U-R. So BostonReelTour, I’m on there as well. And you can look me up too, I’m on Google and I’m on all sorts of things.

Scott Bursey (20:23)
Awesome, awesome. Abdul, thank you for being on this show today.

Abdul Suberu (20:26)
Alright, thank you and thank you for having me too, Scott. This was amazing and this is definitely fun.

Scott Bursey (20:30)
And to our listeners, we appreciate you. If you got value from today’s episode, please subscribe. We’ll be fueling your tanks with a lineup of elite guests, just like Abdul, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.