You could be an excellent networker with the ability to uncover and put under contract incredible real estate deals. Still, without solid project management competencies, you are bound to blow much of your potential returns. As a private lender working with real estate investors, we see a consistent number of clients having a hard time maintaining control over their renovation process. You can avoid numerous concerns by developing a roadmap for your fix-and-flip project early on. Such a roadmap is called a scope of work. A well-written scope of work is the foundation of your success as a real estate investor.
Scope of work (SOW) is a document utilized in construction management to detail the work to be performed. It focuses on what needs to be done, costs, duties of the parties involved, and a timeline of the deliverables. The scope of work is not necessarily a contract between a client and a contractor but can serve as such.
There are four reasons you need to spend time establishing an in-depth and clear scope of work.
Scope of work could be required– particularly if a private lender is involved
“Private lenders base their loans on the after-repair value (ARV) of the homes and not on their existing price tag,” – says Kyle Sennott, Managing Partner of New Funding Resources, a private lender in the Washington, DC area. “To assess that after-repair value, we need to know what renovations you are planning to do. Once you provide us with a scope of work, a licensed appraiser will determine the future value of your home.”
A well-written scope of work may aid in qualifying for a private loan.
When dealing with private lenders, the scope of work can make or break your deal. Private lenders often come across applicants who are right on the borderline of their risk tolerance and have to look at the factors that might not be a part of their typical underwriting criteria. The quality of the scope of work is an exceptional predictor of the candidate’s proficiency as a real estate investor.
Working together on the scope of work could help identify the contractor who is right for the job.
Working on the scope of work with your prospective contractor could offer the sense of their work style, attention to detail, and overall responsiveness. Most contractors flourish on ambiguity. Your job, in contrast, to make that scope as clear and as transparent as possible. Watch your contractor’s reaction to the changes you propose. If they resist adding details and clarifications, consider whether they have what it takes to finish the job on time and as agreed.
Well-crafted scope of work might minimize issues ms with your contractor and your private lender.
The more time you invest in your initial scope of work, the fewer problems you encounter later in the process. Why? Because the scope of work is the foundation for other important documents. Draw schedule is a good example of such a document. A draw schedule details under which situations your contractor earns money. It also has another purpose. If you are working with a private lender, a draw schedule specifies how much money your private lender releases back to you and when. Usually, a private lender maintains your construction funds in an escrow account and releases them in installments as you finish various phases of renovations. A well-crafted draw-schedule helps avoid misunderstanding between the parties by clearly connecting payments and renovation milestones.
New Funding Resources is a private lender that funds promising real estate investment opportunities in Maryland, Virginia, and Washington, DC. In business since 2006, it helped hundreds of real estate investors grow their wealth by fixing-and-flipping homes.