Although many states are exempting building, utility, road, and bridge construction from “stay-at-home” work shutdowns carried out to prevent the spread of the coronavirus, some states are calling for a cessation of all residential construction because it is not defined as “life sustaining” work or “construction of essential infrastructure.” If you read the recent Dallas County Shelter in Place order, you will see that Dallas County has not shut down residential construction. However, some states and counties across the country have. A fix-n-flipper needs to pay attention to the exemptions and inclusions in the work-stoppages orders that are being issued by state or county governments because it may affect your schedule and costs in ways you cannot predict.
Dallas county residents are being ordered to stay in their homes except for crucial work and errands, beginning 11:59P.M. Monday. All businesses that aren’t deemed essential also must stop operating.
Dallas Morning News, Updated 3/22/2020
Your construction loan has or will have terms and limits, usually 24 months for a fix-n-flip loan that will pay 100% of your estimated rehab costs. In an epidemic, you may find that you cannot finish construction in 24 months or within the costs you estimated months ago. If you are faced with a situation like the coronavirus pandemic, something you could neither foresee or prevent, you need to review your contracts for “Force Majeure” and price escalation clauses to understand who bears the risk in the case of work stoppages or rising material costs and shortages that are due to situations that cannot be predicted or avoided.
Be proactive. Start working this out with the organization or lender that lent you the money. Be sure to understand that if the project needs to be stopped and the contract rewritten who calls the stoppage and who and how everyone involved must be informed.
Delays often ripple through a project and can cause you to miss the deadline for your loan to be paid back, increasing your interest and penalties. Perhaps you can’t get a plumbing fixture delivered or a critical subcontractor is quarantined, and the next trades scheduled to work cannot proceed. Jump in and be aggressive about finding local alternative materials and even workers.
Louisiana becomes the ninth state to announce a statewide shelter-in-place order since California did so on Thursday night. Residents in Connecticut, Illinois, New Jersey, New York, Ohio, Oregon and Pennsylvania have begun or are about to begin staying at home for at least two weeks.
The Advocate, March 22, 2020
Below is a list of ways the coronavirus pandemic might affect your fix-n-flip project:
- Sick workers who must quarantine for 14 days
- Exposed workers who must quarantine for 14 days
- Workers required to take off work to care for children when schools close
- You have to take off work to care for your children when schools close
- Subcontractors or specialty contractors who do not show up
- Government permitting offices shutdown
- Material shortages caused by epidemic in China or elsewhere
- Shipping delays due to port-of-entry quarantines
- Construction work stoppages in your area ordered by government to slow the spread of disease.
- Material shortages cause prices to rise
- Shipping costs rise owing to transportation shutdowns
- Order cancellations
If you are in the process of negotiating your loan and calculating your expenses, you need to be very careful in estimating your materials. Right now, in the middle of this epidemic, it is for me, or might be for you, impossible to tell how long impacts to business will last. Review your contracts to include appropriate “Force Majeure” and price acceleration provision clauses in your contracts. Look for local alternative suppliers.
We wish health and safety to you and yours.
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