With a quick shoulder push I open the front door. Like an intruder, sunlight breaks into the dreary house, causing cockroaches to scatter across the dusty floorboards. I step inside, my eyes surveying the scene. Some may focus on crumbling walls, flying doves, or the time and resources demanded by renovation projects. But I envision a payday of $120,000.

Property renovation can be frustrating or rewarding, the difference is the preparation. To generate income renovating real estate, I created a system I call FREEhabbing, which allows me to renovate fast, easy, and with little to no down payment. Is that how it works:

“Looking” at the project

Crucial to your pre-contract negotiation with the seller is your ability to identify potential cash flow or equity. Look for value deficiencies: deficiencies in the property that create value for you, the buyer. On a legal-size yellow pad and a clipboard, list the items that need attention and their approximate cost. By doing so, you will better understand the scope of the project and gain leverage in the negotiation. Consider bringing in someone who knows renovation until you develop proficiency in cost estimating.

Controlling the Property

If you determine rehabilitation. earning potential, your next step is to control the property with a contract. The easiest way to do this is an outright cash purchase, but there are also creative alternatives such as negotiating an option lease, short-term annuity, partnership, and/or deferred settlement. With these methods, you can put off paying for the property until after the rehab is complete.

Project planning

Once your purchase or option agreement is ratified, you’re ready to start TALKING FOR FREE! Start by purchasing drawings and a “Spec Book” from a local architect. The drawings will give your contractor a guide to the design, and the spec book will tell you exactly what materials will be used, paint color, etc. For standardization, I use the same Specification Book for all my projects. (Buy it for $99.)

Select a contractor

Your spec book is an essential tool because it allows you to collect bids from apples-to-apples contractors. Make an appointment at the property to meet with three to five general contractors. Give each contractor a copy of your spec book and drawings, a project deadline, and two to three weeks to submit your bid.

As the offers come in, do your due diligence. Study each contractor carefully. Is your offer complete? Did you show up on time? Are they professional and polite? Do you have business cards and stationery? Visit your current project. Consider the condition of your clothing, truck, and tools. Call references and explore past relationships in detail. Check your license and complaint history with the licensing board and their liaison with your insurance company. Ask for a copy of your credit report. Have a detective run a criminal history search. You’ll be married to the contractor for 2-6 months, so be sure before you say “I do.”

In addition to the due diligence above, the best way to protect yourself from financial loss is to PAY ON FINISH. “Will someone do that?” People ask at my seminars, “How about a third up front?” In reality, payment on completion is standard in the realm of commercial contracting; the investor can simply refinance the property when the work is done to pay the contractor, with no money required. At most, I would consider paying upon completing the phases. Ignore this advice at your own risk!

One final note on selecting a contractor: Don’t be your own GC You may save a little money, but you’ll lose time that could be used to put together other deals.

project management

Once your contractor is on board, hold them accountable through diligent project management. Check exactly how the job will progress and make scheduled and unscheduled appearances at the job site.

Typically, the work schedule begins with the alarm and roof phases to secure the building. An alarm can be installed even without a telephone line. Board up ground level windows to keep out would-be thieves.

Then move on to the Demolition phase. Create a clean and efficient workplace by removing all waste at once. If there is a sizeable amount, the cost of a dumpster is usually cheaper than paying by truck. Some municipalities will even provide and remove a dumpster for the block at no cost. Once the walls are “open”, assess the structural condition of the sub-floors. If the floors are not level, the joists may need to be repaired or replaced to create a solid foundation to build on.

The Heating, Cooling, Ducts, Raw Plumbing and Electrical phases are performed together. As for heating, radiant heat is the most efficient, so if it’s fairly new, there’s no need to replace it. If you are adding central air conditioning, you will need to install ductwork and possibly upgrade the electrical. Be sure to size your AC unit correctly (1 ton effectively cools 600 square feet). Turn fuses into circuit breakers and test plumbing before closing the walls.

When the house can withstand a temperature of 65 degrees, the joint compound can cure, so start framing, drywall, doors and interior painting. By the time you get to the Floors, Stairs, Trim phase, you’re halfway there. Because I keep my projects for rent, I prefer hardwood and tile to carpet and vinyl; they look better, are more durable and add more value to the property.

The Kitchen, Bath, Fixtures, and Exterior phases can be completed simultaneously. Be sure to tell your architect to design the kitchen with standard-size pre-built cabinets in mind. You may also consider using tile on the countertop, which saves money and looks better than laminate. Unless you plan to landscape, Punchout is the last phase and involves tackling any elements that still need work.

Re-use

Whether you intend to lease or sell, consider signing an agreement and taking a deposit from your tenant or buyer before completion, so that when the job is done, you can benefit immediately.

They say renovation projects always take twice as long and cost twice as much as projected. If that were true, Mr. Trump, Mr. Rockefeller and Mr. Rouse would be really poor! But look at the tremendous failure of “The Big Dig” subway project in Boston: millions over budget and years behind schedule. The difference between the two is the preparation. So the next time you walk into a dilapidated building, what will you see?