Locating and managing the best contractors to streamline your rehabs and keep your sanity!
A good contractor – someone who can take your house from unlivable to “ready to sell” – will be an essential part of your house flipping business.
Unfortunately horror stories about the “wrong” contractor causing headaches and expensive delays abound! So, today I’m going to give you my method for finding and managing contractors to keep your house flipping business running smoothly!
First, where can you find your contractor? Here are a few options that have been known to work:
REIC ReferralsOnce again, I recommend starting at your trusty local REIC (Real Estate Investment Club). The investors attending these meetings will most likely have some referrals for you to pursue. And since you can bet they have probably worked with them before, you know that the contractors will have a proven track record. These sorts of connections can prove invaluable!
Another method is to drive around your “farm area” and look for contractors working nearby. Pull over and strike up a conversation. It gives you a chance to see how they run their projects and what type of work they do in a real-life setting.
You can also find contractors at your local Home Depot or similar hardware store. I recommend showing up early so you know you are working with someone who has a good work ethic! You can usually spot them because they are the ones buying a substantial amount of house-rehabbing supplies!
I don’t want to over-simplify this, but sometimes you can just do a search for local contractors online. Feel them out over the phone and see what you think. Ask them for references which you can contact and ask to see projects they have completed. And remember – just because you are calling them, doesn’t mean you have to hire them for the job. 🙂
The Rule of 3
If you are new to this business the Rule of 3 is a great tool to help you whenever you are looking to hire a service person or contractor.
When starting out with contractors, aim to get three different contractors to provide you bids. By the time you have met with all of them and gotten their perspectives you will be amazed at how much you have learned! When I first started out this is actually the method I used to learn how much it costs to fix up a house.
Back then no one told me about the fancy $20 per sq. ft. formulas, or showed me videos on appraising properties. I just had 3 contractors show up to bid on the first couple houses I did and, after hearing from each of them, I had a really good idea what it would cost. I could tell who was overcharging and who might not be as qualified. It was a real eye-opener!
A Quick TipOnce you are familiar with the costs for rehabs, you can ask questions to potential contractors about their fee structure. Here is a quick tip that we use whenever we are looking for a contractor to work with:
We simply ask them how much would they charge to paint the inside of a 1,500 sq ft house in 2 tone paint, including the ceilings.
If they are giving you “good” prices they should be able to do it for right around $1 per sq ft. So, if they quote you something around $3,000 (or $2 per sq. ft.) then you know they probably aren’t the right contractor for you because they just don’t understand the value in working with real estate investors and getting repeat business.
Which is great! You just saved a bunch of time for both of you. Time to move on to the next call! 🙂
To Sub or Not To Sub?
There are different schools of thought on whether or not to hire out and manage sub-contractors yourself. Personally, I prefer working with general contractors. The reason for this is that, since I tend to take a more “hands off” approach to my house flipping projects, I don’t really see the value in saving a few bucks to manage all of the sub-contractors myself.
If you hire a good general contractor they will know how to work with and manage their guys, so you will only be working with, talking to, and paying just one contractor! And If you get the right general contractor, not only will they be able to manage your entire project, but they can also manage several projects at once! There is nothing worse than trying to manage and pay several contractors at the same time!Even if your project does require you to bring on sub-contractors, have your general contractor manage their work and projects. It saves you a ton of time to only have one point of contact!
Systems and Materials
It might take some time, but after the first one or two rehabs you should put together a list of all the colors, fixtures and SKU numbers for the various rehab materials you typically use. This is going to be your price sheet. From time to time you can swap an item out with something that works better, but for the most part you should have a list of items that your contractor will use on just about every project you rehab.
There might be times when a house doesn’t need new countertops, hard flooring or something else, so just take those off the list for that job. But for the most part it saves a lot of time and energy when approaching a new rehab project.
Like any negotiation, when discussing a project with a contractor your goals should be to create a win-win scenario.
After all, you are trying to create a house flipping business. You need to be able to buy houses at a discount, rehab them at a cost effective price, and sell them for a profit. It’s important to understand that contractors (or any service professional) probably spend about ½ of their time marketing themselves to find work. They spend many hours finding jobs to bid on, bidding on those jobs and not getting a lot of their bids!
So our goal is to help them understand that you are not a “retail” client and your intention is to work with a contractor with whom you can move from project to project, so they will no longer have to spend time looking for jobs on which to bid. If you can provide them some peace of mind knowing they will always have work and don’t need to waste their time searching for and bidding on jobs, do you think they would be willing to do the labor at a discount? Absolutely!
In the end they will make up making more because they will have consistent work, and you will be even more competitive in your house buying so you can make larger profits which will allow you to give them even more work! That is definitely win-win. 🙂
A Friendly ReminderBe sure you work with a contractor who is licensed and insured. And, I know I mentioned this before, but I highly recommend you come up with a price sheet – a document that outlines the rates you will pay, typically on a sq. ft. basis – including things like paint, carpet, hardwood floors, etc. It should also have prices for one-off items such as replacing doors, fixtures, blinds, installing appliances or slabs of granite.
Having these “pre-agreed” standard items will save you tons of time in negotiation and hassle! In fact, we no longer negotiate with our contractors, except a little bit when it comes to higher-end projects. But we are even getting to the point where we have done enough of those that we have a pretty good idea what to pay on them.
Contractors may come and go, but the cream always rises to the top. Let them know exactly what to expect and you will both end up happier at the end of the day.
A Project Management Tip
When you have a project in the works, it is a great idea to utilize your agent!
If you have a real estate agent that brought you the deal, and/or you are planning on having an agent help you sell the house, let them help you check in on the house from time to time. They are going to want to know how it looks anyway, so you might as well have them snap a few pics for you while they are there and give you updates on the progress. 😉
Paying for materialsIf you spend your days going to Home Depot or hardware stores to pick up and deliver materials yourself you are wasting a ton of time! You need to focus on your business and not on enjoying the ambiance at your local Lowes! Have your contractor get these materials for you!
You can go about this in two ways:
Either you can set up an account at the hardware store of your choice and they call you when the contractor is at the check-out register so you can approve the payment. Then they send you a receipt for your review.
Or, you can take it to a completely different level and just have them pay for the materials themselves! You might need to shell out a little more money up front, but if you have a level of trust with your contractor it is definitely worth it. You can start out with paying them smaller installments up-front, and then increasing the amount over time.
I can’t tell you how many times this has saved me the headache of having to answer a call while in the middle of dinner or during a meeting!
Some investors pay their contractors weekly but for the most part I think it is best to pay them based on what they have completed. The last thing you want is to pay your contractor all the money and not have the job completed! Good luck getting it done! 😉
Bids and agreements
You want to make sure to get bids from all of your contractors. In fact, at first you will want to get this before they ever begin any work, and make sure you have a written agreement of how much and when they will be paid.
We are at the point with our contractors where they can actually get started on a project and get us the bid within a few days. Since we already know what we will be paying them thanks to our price sheet and pre-arrangement agreement, this is not a problem. However, we still require them to provide a bid within a few days just to make sure we are all on the same page and cover any potential “unique” circumstances that might not be covered in the terms of our standard agreement.
Keep in mind that developing this level of trust, communication and understanding with our contractors didn’t happen over night. So, take your time and get to know your contractors. Eventually those that you trust and can communicate effectively with will be clear.
Setting up Systems
We are currently working with about 3 general contractors for all of our projects. We have one who usually manages one to two projects at a time, one who can handle several at a time, and one who we just use on an occasional, as-needed basis.For the most part we (*cough* my assistant *cough*) only communicates with two or three people in regards to any of these projects. The systems we have in place allows a minimal amount of time to be spent communicating with our contractors.
I very rarely even speak to our contractors, let alone manage the projects. In fact 2 of them I have only met once, and I don’t think I have talked to any of them in several months! And when I did it was only because they came to paint my own house! 🙂
Now, I’m not telling you this to brag, and don’t feel like this is the situation you need to be in right away, but I want to give you an idea of what is possible with the right system and structures in place. Don’t believe me? Check out these awesome real estate tips from some other pros.
Our goal here at House Flipping HQ is to get you to the point where you are not only able to flip a house or two, but to help you put together the systems which will allow you to run a successful house flipping business without completely losing your mind! Here is a great article that you will find useful: 4 Steps to Evaluating House Flipping Deals.
Once again I’m not saying it is easy (at all), but if you put in the hard work of creating your business, eventually your business will be doing most of the work, and you can enjoy the fruits of what you have created 🙂
If you have any questions about finding, hiring or working with contractors, put them in the comments below and I will be more than happy to answer them for you!