House Flipping Construction Management Tips to Avoid Cost Overruns

Dustin Raiford (00:00)
You know, they’re from a first time investor to a long term investor that’s been doing this for a while. The one thing I speak about the most and I see it in both categories and I can’t say enough is taking the emotions out of the project.

I run into it all the time and I promise you that keeping the emotions in it is going to cost you money. It’s going to cost you time. Nothing good comes of it. This is a business and you have to keep that in mind that this is your business.

Scott Bursey (02:07)
Welcome back to the Real Estate Pros podcast. I’m your host Scott Bursey. And today we’re talking about the critical and often most challenging part of any profitable flip or build. Construction management. Every successful investor needs a contracting partner. They can trust to keep their projects on time and on budget to help us master that process and secure those margins. I’m thrilled to welcome a true expert to the show.

Please join me in giving a warm welcome to Dustin Raiford of Grace Contracting. Dustin, welcome to the show. It is just awesome having you here. For our listeners who may not be familiar with your world, I guess, Dustin, fill us in. How did you start your career and where are you now?

Dustin Raiford (02:40)
Thank you. Thank you, Scott.

been looking forward to it myself.

So, you know, kind of a long story short of it. I started off years ago in real estate as a real estate agent and then a broker as economy and things changed. Wife was laid off while pregnant. I kind of looked at other avenues and something that the family background had done.

was construction and investment, multifamily investment on my dad’s side. And I started at the bottom. I started cutting home, cutting grasses and cleaning houses, went into, you know, painting, touching up, getting things ready. We had a contract with Fannie Mae and Freddie Mac at the time for a company I worked for. And that’s kind of where I got the start and moved up to estimating and a project manager. And then over the years,

decided some of the places I worked, felt like just wasn’t doing the client justice, wasn’t doing them the right way. And our family values, our faith, things like that kept me from moving forward with that type of work. So we started Grace Contracting and we’ve market ourselves exclusively to investors, mainly single family properties.

We probably do more rentals than we do flips at the moment, that always, know, year to year changes. But I’m going on 19 years now doing this and my dad’s been in it.

He’ll hate me saying this, but 40 years, mainly on the multifamily side. And as he semi-retired, he came into my market, moved here, and has joined with me. And then I have the next generation up and coming under me, my daughter, my son. So it’s been a thrill. It’s nice to bring the values onto another generation and help us stand out from the crowd.

Scott Bursey (04:44)
And that’s

a true testament to doing it the right way. Longevity. That’s playing the long game. That’s awesome. Dustin, cost overruns are the bane of every real estate investor’s existence. What is the single biggest factor that contributes to unexpected budget blowouts and a typical residential flip, I guess?

Dustin Raiford (05:54)
Here we’re in the Houston market in Texas. We cover a lot of areas without our surrounding. I know different markets have different challenges. Ours is sewage lines. That’s something that comes up because

You know, 75 % of the homes have foundation problems here, and sometimes there’s a light adjustment. Sometimes it’s more and you get a lot of cracked sewage lines. And that’s something I can’t tell you when I go to do an estimate. I can guess I can budget, but we, you know, we can’t put a number on it until something happens, until you scope the lines. And then, you know, it’s it’s kind of too late at that point. So budgeting for it is always a plus. But that’s one of the

biggest surprises we see. The next as far as you know we consider change orders. For us it really comes down to the clients. keeping it’s kind of keeping them in a matter of let’s not over rehab, let’s not alter from where we originally were.

People will come with ideas after the fact. Maybe the color shade they chose is not exactly what they wanted and trying to keep them from redoing it and wasting money because they’re not going to profit off changing that. So ⁓ it’s not it’s not like in a color that’s offensive or something like that. We didn’t paint a pink wall, but maybe they just didn’t like the shade of the white wall or the gray wall. So that’s a challenge for us.

Scott Bursey (07:21)
Sure, and Dustin, on that note, when a real estate pro is deciding between two projects, let’s say updating a kitchen versus adding a primary bathroom, which of those upgrades offers the most reliable dollar for dollar return on investment in today’s market?

Dustin Raiford (07:44)
You know, that’s a hard question because.

when I when I meet with investors, those are the two main areas I talk about. You want to spend money in the kitchen and you want to spend it in the bathroom, especially primary bathroom. So choosing between them is hard. But if you’re missing that bathroom, then it needs to be the bathroom because the bathroom is going to bring you more ARV. It’s going to, you know, open you up to more clients, even if if you’re keeping it and it’s a long term rental, you’re still going to have more people interested in that extra bathroom.

And

the kitchen is something that if two or three years down the road, you decide, know what, want to want to revamp the kitchen a little. You can do it going a few years down the road and trying to add a bathroom. Maybe why you still have tenants in there or in between tenants is a larger project. So I would definitely go with adding that bathroom.

Scott Bursey (08:35)
That makes a lot of sense and that’s the spreadsheet saver right there. And this has been on my mind since we booked you. Dustin, what is the one non-negotiable item, service, or clause that every real estate investor should insist on from their contractor to protect their timeline and capital?

Dustin Raiford (08:39)
⁓ Yes.

Yeah, so…

When working with the GC, it has to be someone that you trust. So, mean, getting the proper references, really researching them, seeing what they’re about, seeing if you can see examples of their work, seeing what kind of information is out there about them. If Google them, I mean, it’s the simplest thing. ⁓ You know, we come up against contractors that we’ll see an estimate for and we’ll Google them. And there’s nothing. There’s no Facebook. There’s no website.

nothing and I know something like that could be put together but it just shows longevity of the contractor but something to keep in mind you know so we provide an estimate which turns into a scope of work which turns into the contract for the job we quote a thousand dollars a day worth of work being done sixty thousand dollar rehab sixty working days we don’t count Sundays or holidays

Now, a few things goes back, you natural disaster. We’ve had Harvey hit, you know, in our area and destroyed any timeline you could think of. So natural disasters, nonpayment of draws from clients, things like that could alter that. But you really want. A locked in schedule, some clients want a penalty phase in there for the GC. I don’t have a problem signing that something that’s a fee per day if you go over

over

that timeframe. And I’ll be honest with you, over the years, I think twice we’ve paid out on that. you know, one…

Out of our hands. Other one. Yeah, we were a few days late and you know it was acceptable. So but for the most part, once you have a working relationship with a GC with your team, those things become a little less of an issue. No one mind signing it. No one minds agreeing the terms and but that is something that you should have to protect, especially when you’re starting a relationship. You got to protect everything that you’re doing on that property. The scope of work.

is another area that you really got to make sure that you understand the scope of work, that GC and you are on the same page.

It’s a very important, I think, for investors to have mentors, not just friends that are in real estate, not just friends that have watched the TLC show of how to flip a house. needs to be someone that really specializes in this and can make sure that they also agree that you all look like you all are on the same page.

Scott Bursey (12:03)
Absolutely,

those relationships are so critical. So, so very critical. And I gotta ask you, supply chain issues have been relentless. For investors planning their next build or renovation, what simple material substitution or design choice can they make right now to drastically mitigate timeline delays?

Dustin Raiford (12:26)
You know, making sure you have all your choices up front. So a lot of our clients, because of our reputation, allow us to kind of proceed as we would like. we call it, when we get an estimate out, you can do it the grace way or you can choose or you can kind of meet in the middle.

The more you choose, the more expensive is going to be because you’re going to you could see two different tiles for that shower. And even though there are very few differences in it, one could be two thousand dollars more for this and you’re going to choose that. So I try to take some of those choices out of it. And I’ve done this in classrooms before where I show two showers and say, which one would you prefer? Most people do choose that one that looks a little different. And I say, OK, that one’s two thousand dollars more. Which one do you choose?

everyone chooses the cheaper one. And that’s because you’re not going to see them next to each other. So to answer that, that question is really to make sure you have your selections all chosen before the job starts. And then if there’s any thing that is not available or looks like it will be delayed, we can look at alternatives to it at that point. Right now, we’re not seeing a huge shortage of anything in particular, except maybe a

certain color, certain style or brand that you prefer. And part of this is you need to be flexible and to keep in mind that it’s a business and business decisions need to be made, not emotional decisions when you’re flipping home or renting one out. It needs to all come from a business standpoint and treated like that.

Scott Bursey (14:06)
Sure. Hey,

that was an excellent breakdown. Flexibility is the new foundation.

Dustin Raiford (14:13)
Yes. Yes.

Scott Bursey (14:14)
And looking ahead,

what emerging construction technology or sustainable building practice should real estate pros be tracking for future proof their properties and gain a competitive edge, guess, Dustin.

Dustin Raiford (15:11)
You know, the…

Everything’s evolving, of course, every day. AI technology, things like that. I’m seeing so many people send me AI images of what they want the home to look like at this point instead of sending comps and things like that. So that’s a huge advantage. Getting getting involved with, you know, an AI platform to help you choose what you would like to do to the home, what the home would look like, colors like that would be a huge advantage for investors. And then as far as actually

products going in the home.

You know, trends come and go. Colors change over time, but just making sure that you’re not putting something too outdated in it. So that kind of goes back to comps. It goes to your mentorship, your a GC you can trust. You know, I still see properties that have an older style dome light that a GC is just put in and we’re LED can lights in. It’s a huge difference. Same pricing. Falsets, things like that. There’s no need to go.

still with the basic stuff when you can you know if the GC plans it out correctly buys them in bulk shops for that discount it can still provide a quality higher-end looking product for the same price as that lower-end builder grade

That’s really the moves you want to you want to look towards is making sure you’re putting a nice product in the home that meets the demand that’s out there now. Technology wise, you know, some of these as you’re getting into a more higher end flip, these automated systems that they can put in a little above what we do. But we do have people we can call in for that. But all those things are are really changing the game.

Scott Bursey (16:56)
Yes, I can see that what golden nugget or takeaway would you like to present to our audience today?

Dustin Raiford (17:05)
You know, they’re from a first time investor to a long term investor that’s been doing this for a while. The one thing I speak about the most and I see it in both categories and I can’t say enough is taking the emotions out of the project.

I run into it all the time and I promise you that keeping the emotions in it is going to cost you money. It’s going to cost you time. Nothing good comes of it. This is a business and you have to keep that in mind that this is your business.

It might not be your full time business at this point, but this is your full time retirement at this point. If you want to get to that point, then you need to treat it like a business. Now you don’t. If you put your we’re putting your money in a for

one K, you don’t sit there and pick the colors of the logos of the companies you’re investing in. You don’t go through all these details. You trust someone that you’re you’re using to manage your money. And the same thing in the investment game. You need a team that you can trust to manage your money. And even if it’s a ceiling fan at a time, that’s trusting someone with your your money and your future. And you need to find someone that doesn’t take that lightly. You know, we understand that

What we do affects your future, your kids and future, your grandkids future. It also affects ours. So we’re putting in we’re in the same boat on that. And we want to make sure that we’re providing a service that not only exceeds expectations, but keeping you from making a mistake of over rehabbing, under rehabbing. Our goal is for you to maximize your profits, shorten your time frame so that you’re doing this for years. We’ve seen so many come and go one time.

and they’ve had a horror experience with someone else or even they’ve had a good experience maybe with us but they had a bad experience with the loan or they couldn’t get the home rented or sold as quick as they thought and they give up. So sticking with it and I can’t stress enough of surrounding yourself with the right people, the right team. So a team can bring you down or a team can make you.

Scott Bursey (19:20)
That is excellent advice. And Dustin, we’ve covered a lot of ground here today, and I know a of people are going to want to tap into your brain, so to speak, for the listeners who want to build with you or just follow the play-by-play of your journey. What’s the best way for them to reach you?

Dustin Raiford (19:40)
So all of our social media is at Grace Contracting TX. Our website is gracecontractingtx.com. My personal email address is Dustin, D-U-S-T-I-N at Grace Contracting TX. And if you put in the subject line, ask Dustin, then we’ll be happy to answer any questions on email, on social media. We sometimes talk about the question if we feel like it’s something that’s a

Maybe a lot of people have the same question and we’ll answer it there too. But yeah, that’s a big part of what we do is educating clients, investors, even ones that aren’t working with us. We’re we’re called out a lot of times when someone is maybe they want a second pair of eyes on their project. Probably 70 percent of our clients we’ve never met in person. You know, they’re out of state investors investing in this market. And for us to do that, you know.

Our software that gives updates and keeps track of everything, our knowledge, our trust is what we’ve branded ourself on to get that type of business. So we’re definitely here to help.

Scott Bursey (20:48)
You certainly have, and that’s why

you’ve been in the business for 40 strong illustrious years. Dustin, thank you for joining us today.

Dustin Raiford (20:54)
Yeah.

Thank you very much for having us. I’ve been super excited about getting this chance to work with you on this. And I hope we’ve really lightened some ideas up for the group here.

Scott Bursey (21:09)
Your insights have been very valuable. And for our listeners, we appreciate you. If you caught a vibe or found some gems in this episode, do us a favor, hit that subscribe button. We’ve got a heavy hitting lineup of guests just like Dustin coming your way soon. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.