Scope of Work (SOW) is essentially a flipper’s blueprint for every renovation.
It is a core driver to the success of a deal.
It’s a comprehensive document that details the following:
- the work to be done
- how it will be completed
- the materials required
- the estimated cost of the project
It plays such a pivotal role in each and every project because lenders rely on it to assess risk and determine draw access.
Here is a deeper dive on the finer points of Scope of Work.
It’s something every budding flipper should understand and a worthy discipline check for those more experienced in the business.
What a strong Scope of Work looks like
A strong Scope of Work details an entire project from start to finish to ensure profitability, maintain adherence to budgets and timelines and minimize costly delays.
It is used by lenders, contractors and investors to ensure everyone’s expectations are aligned.
It will help keep contractors accountable, ensure accurate bidding and protect investors from costly change orders and disputes.
Critically, it should also provide evidence to a potential lender that a project is viable.
A Scope of Work should include:
Property overview – the address, present condition and resale price target
Room-by-room breakdown – what needs repairing, replacing or upgrading in every space
Materials and finishes – specific choices such as flooring type, paint colors, fixtures and appliances
Timelines – a start date, completion target and important milestones along the way
Labor details – nominating the responsibilities of each contractor
Sequencing of work – a logical order of work to be followed for the project
Budget – detailed, itemized costs per line item e.g. flooring, plumbing, drywall, electrical etc. including accurate costings of labor and all materials. Don’t forget to include a contingency allowance of 10-15%!
Permits & inspections – what is required and who will handle it
Common mistakes made when compiling Scope of Work
You can be sure a mistake or oversight in your Scope of Work will cost you dollars.
The most common mistakes are:
Overlay vague scopes – When it comes to Scope of Work, the more detail, the better. That means ‘kitchen remodel’ simply won’t do. You’ll need to break down exactly what is being replaced and how much everything will cost – the cupboards, bench tops, fittings, white goods, labor costs – everything!
Underestimating costs – It’s an all too common mistake to make that helps balance budgets on paper but creates havoc when put into action. Remember, California’s labor market is one of the most expensive in the country. It’s always better to overestimate costs than underestimate them.
Overlooking permit-related work – California also has the most highly regulated real-estate and building requirements in the US. Ensure you know what is required before purchasing a property to avoid any nasty and expensive surprises down the track.
Not aligning scope with ARV – It’s important to match your material and budget with the ARV. Failure to do so can either leave you with an over-improved property for the neighborhood. Or it can result in one that fails to reach the standards required to meet the desired sale price.
Consequences of an inaccurate Scope of Work
The most likely consequence is that your loan application will be rejected and this is actually the best possible result.
That’s because if your loan is approved and you have miscalculated your costings, you stand to lose a lot of money.
- Incomplete scopes can lead to delayed draws setting timelines back
- Projects may come to a complete standstill mid-renovation, potentially forcing flippers to wholesale their properties
- Budget overruns can quickly chew up margins leaving nothing in your kitty upon completion
Get finance and support today
A detailed Scope of Work is vitally important in securing and managing funding for your project.
But there’s a lot to preparing and producing one, especially if you are new to the game.
And mistakes can be very costly in the long run.
Wouldn’t it be great to not only have access to capital, but also have an experienced mentor to cast a fresh set of eyes over your scope before you put it into action?
Equidy has an intimate and personal history with all aspects of property development in California and has done so for well over 40 years.
They will help you think clearly about your numbers, compiling a Scope of Work that will see your project funded and set up for success.
That’s because their sole focus is to help you maximize the return on your investment without putting yourself at unnecessary financial risk.
Equidy is a hard money lender that can finance flippers and developers in as little as 48 hours.
They stand by their core belief that anything is possible and they strive to prove it every single day.
Even in tough economies, they are focused on rewarding entrepreneurship and resolve to help their clients crystallize their wealth creation dreams.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimize the risk to all parties.
Contact Equidy today to book your free strategy call.
