One issue that many new investors, or people who aren’t in the fix & flip world at all, don’t even have a clue that we deal with is how to find a contractor!
Contractors are vitally important to making your deal happen; after all, they’re the ones doing the work of upgrading the house so that you can sell it!
And of course, they’re doing a big project for you, and there are lots of moving parts and lots of money involved. In other words, there are plenty of places for things to go wrong.
Unfortunately, with contractors, you can run into a host of problems, such as:
- They don’t show up
- They nickel and dime you for little projects
- Don’t care about your time frame (they work too slowly, and you miss your loan deadlines)
- Do shoddy work!
So having a good contractor in your back pocket is one of the most essential parts of being a successful fix & flipper! And since you’re probably not in this to do just one flip, you’re looking for someone who can help you with project after project after project.
And a quick note: I don’t mean to denigrate ALL contractors—many are fantastic people! But in the industry, you’re almost certainly going to run into a few here or there that doesn’t quite do the job to your expectations.
So let’s talk about how to find a great contractor!
GET A RECOMMENDATION
If you’re looking for a movie recommendation, which source do you trust: An interview with the main actor on a late-night show or your best friend?
You’re not going to trust the actor; it’s literally in their contract to market the movie! Not to mention the better the film does, the more likely they are to get hired for other roles and/or get paid more per movie.
But your friend? They have no conflict of interest. They’ll hedge towards being more brutally honest because you’re their friend, and they’ll either want to save you from a bad movie or ensure you get out to see a good one!
Do you see how that could be the same thing with a contractor?
Reading three reviews online (which could be friends of the contractor) and seeing what they have to say on their site might not always be trustworthy sources. However, if you have a friend or family member who built a house or did a major home renovation project, they’ll have worked with a contractor. Then they can recommend them or not.
Of course, I wouldn’t pick a contractor solely on what a friend says. After all, they might’ve been doing a much smaller project than what you’re looking to do, or they’re not used to working under a fix & flippers deadline, or a million other reasons they worked for your friend but not for you. But it’s a place to start!
Of course, there are a million different places that you can look online to find reviews for a contractor. Find one with dozens or even hundreds. As I mentioned in the previous section, you don’t want to rely on one with only a couple of reviews.
A few places to look would be:
- Angie’s List – Perhaps the premier site for finding professionals for your project. Their website boasts over 12 million reviews. Not bad.
- Craigslist – Well, not my favorite, but it’s another place to look to corroborate info you get somewhere else.
- Thumbtack – similar to Angie’s List
- HomeAdvisor – Another search site. You’re probably alright if you can find a contractor listed on Angie’s List, Thumbtack, and HomeAdvisor with positive reviews in each place.
I know, Facebook for a contractor? If you haven’t been on Marketplace, it’s grown into a pretty robust place to buy & sell used items (I do it all the time) and find professionals. Since Facebook is great for conversations and seeing what others post, it’s easy to join or start a conversation with people to find a good contractor.
REAL ESTATE GROUPS
This might be my favorite idea on this list!
What better way to find a good contractor than to talk to others who are doing exactly what you’re doing! They can know if the contractor is fast, reliable, trustworthy, and works well with fix & flippers.
This is just one of the million reasons I say that you need to always be networking. You’ll be surprised at the never-ending partnerships, strategies, and business opportunities that arise from knowing other people interested in fix & flips.
Did you know that Home Depot has what’s called Installation Service Providers? They have licensed, local contractors vetted by them to carry out projects!
Pros: you get the trusted brand name of Home Depot to be reasonably sure that you’ve got a contractor who knows their stuff. It’s a great way to find one.
Cons: more expensive. I probably wouldn’t go this route unless you’re having a tough time finding a contractor or have been burned by one before and aren’t willing to roll the dice. Although hiring a Home Depot contractor still isn’t a guaranteed win for you, it’s better than doing the research yourself and hoping you’ve found a good one.
GENERAL CONTRACTOR VS SUBCONTRACTOR
Before I dive into hiring your contractor, I want you to consider another option.
A general contractor is someone who manages every detail of the rehab. They have a team that does a lot of the work themselves, and if a specialist (or subcontractor) needs to come in to do a project—like plumbing, electric, or roofing—they manage that as well.
That’s option one: hiring a contractor.
The second option is that you hire subcontractors for each project. You would do this because you’re effectively cutting out the middleman, and you can save money that way. Another reason is that often a general contractor will have his team working on one or two projects at a time, while you can hire 3-4 subcontractors to come in at once and knock out a bunch of work at the same time. Theoretically, this strategy can save some time (and, therefore, money).
However, I don’t recommend this. Instead of figuring out a single person to hire, doing interviews, negotiating costs, and all that, you now have to manage a dozen. You have to coordinate how to pay them, what you want from each project, and how they will get into the property, and you have to do that with each one.
This is too hands-on, especially if you’re not an expert in rehab work. You’re much better leaving it to the expert. In fact, with our borrowers, we require they get multiple general contractor bids on the project. Only hiring subcontractors isn’t an option.
WHAT IF I’M A CONTRACTOR?
This is the third option—do the rehab work yourself!
It’s a viable option and not a bad one to consider. You may want to do a deal or two just to get a sense of how it works with a fix & flip (although you may have already rehabbed fix & flips, just for other people).
Certainly, you get to save money, have more control, and stick to your own timelines.
However, I usually recommend against people doing their own contractor work, even if they’re more than qualified to do it!
The reason is simple:
Do you want to be a general contractor or a fix & flip real estate investor? You’re now a real estate investor, and you can make a lot more money in the long run by outsourcing the rehab to someone else while you find more properties to flip. It’s that simple.
It’s like how I always hire real estate agents to sell my properties even though I spent a few highly successful years as a real estate agent. My wife is even a real estate agent, yet we don’t sell our own deals.
PICKING YOUR CONTRACTOR
Okay. You’ve done some preliminary research, and you think you’ve got a good contractor that you might like to hire. At this point, you still shouldn’t just hire the contractor because you’ve done a bit of research!
This project you’re doing is expensive. It’s a lot of work. If things go poorly, you could lose bundles of cash on the deal! You’re on the hook for a lot of money with your hard money lender or partner who gave you the money.
Plus, many people who have poor experiences with contractors—which is, unfortunately, a higher percentage than you’d hope—get turned off from doing fix & flips forever. Doing the rehab is a hassle, so having a general contractor to handle this process is like having the world’s best security blanket. It makes everything feel safer and more secure.
The Interview Process
First, you’re going to do an introductory interview with them. I recommend asking for a resume or a portfolio of examples of some work they’ve done, how many projects they do per year, and how long it usually takes them. Some contractors won’t be willing to do this, so don’t go with them. There are plenty of contractors out there.
Talk on the Phone
So the first thing you’re going to do is talk on the phone with them. Have you ever applied for a job, but they did a pre-interview first? One over the phone, usually by someone other than the person you’d be working for?
Those are mainly to make sure you sound like you can put a sentence together and that you’re not out of their price range.
Similar thing here. If the contractor isn’t friendly to you and barely answers your questions, you can know from the start that you may want to pass. You can also get a few tidbits from their answers at this stage, like if they tell you they’re so good that they’re swamped—it might be a red flag because you need someone who can get to your project on time.
But most of this is just common sense. When you talk to someone, you can feel it, right? You don’t have to be best friends, but you can tell right off (generally) if this is someone you like and think you can trust.
Meet for Lunch
Some of you investors might think this step is a tad overboard; not so! You’re looking for someone to take on a massive project for you that can result in tens of thousands in profit or tens of thousands of lost money. You need to be as sure as you can that you’ve got someone here that you can work with. This is a great time to mention what you do for a living and that you’re potentially looking for someone to partner with and bring lots of work to. More on this later.
Get a Bid
And then, of course, getting the bid!
In a minute, I will show you my process of getting an exact, iron-clad bid with my
contractors. If they’re not willing to play ball with your process, you can know they’re not for you right now. Also, I’d do this process with two contractors. Then you can decide about price vs. trust factor vs. just how much you like them. Often, price wins out, but perhaps it shouldn’t.
HOW TO WORK WITH YOUR CONTRACTOR
Let me start with a funny story (at least it’s funny now).
When I first got started in real estate investing, I didn’t know how to work with a contractor. That’s how it is with pretty much anyone starting out. I joke that I used to get a “napkin bid,” which was that I would show the contractor what I needed to be done on the property, and he’d pull out any scrap piece of paper and write down a single figure and hand it to me. No context, no promises, nothing. I’m being facetious about the napkin, but that’s basically what happened.
Of course, the real problems came later when it came time for me to check on the work. I’m not kidding you that I walked into “finished” bathrooms that didn’t have mirrors or toilet paper holders. When I asked him about those things, he said, “Oh, those are extra.”
Right. Because anyone with half a brain would think that those are standard features of a bathroom! So anyway, at that point, I’m stuck paying for these things.
This happened to me a few times with different parts of the house. Almost every time, the contractor would find a way to get hundreds or even a few extra thousand dollars out of me to complete work I thought was already completed!
I realized that I was the one making a mistake here. I needed a better system, and I needed to hold them accountable. So I started walking around with a tape recorder, a pen, and paper. When we’d walk through the property, I’d record the entire conversation.
I also tried to write down every project and price as we went. Then if I missed anything or the contractor disputed something, I could go back to the tape recorder.
WORKING WITH CONTRACTORS, A STEP BY STEP GUIDE:
Line Item Everything
I’ve since refined my process where I now use this nifty template that I just fill out when I go. In fact, this is what all my borrowers use nowadays.
The genius here is that everything’s in writing. There’s nothing that can change later because it’s here. You know everything that needs to be fixed, and there’s a price for each piece.
Keeping your contractor on target with this stuff is perhaps the most important step for working with a contractor effectively.
Draft the Scope of Work Yourself
If there’s one thing I’ve discovered working with contractors, they HATE paperwork. They’d rather be out there swinging a hammer and managing projects, so they get done on time and with high quality.
After you’ve gone through the property with the contractor, you’ll know just as well as the contractor what needs to be done. You’ll make his day if you draft the scope of work yourself and give it to him to sign. It gives you more control over the process, and you’re not waiting for him to create the bid himself.
Give Bonuses and Deduct Pay
So I love this strategy and have been using it forever, but it takes some guts to do it because you’re going to propose potentially cutting their pay.
Having your rehab work go over the allotted time gets expensive fast. For example, average holding costs on the property come out to around $50 per day. These are loan fees (especially the high interest charged with a hard money loan), utilities, insurance, and other costs associated with owning the property.
So I offer the contractor a bonus: Every day he finishes early, I give him a $25 bonus…But every day he finishes late, I deduct $50!
The contractors I’ve worked with have jumped at the idea. They all think that they’ll get the bonus. If they have multiple jobs, they know they can prioritize yours and make extra money. It may not seem like a lot, but if they’re done two weeks early, they’ve just made $350! That’s pretty sweet, considering they’re hoping to finish your job quickly anyway. And pretty much all my contractors have qualified for the bonus.
You end up saving money as well. If you can save $50 per day, you have no problem paying $25 to get that. Plus, there’s enormous value in getting out of your property faster to devote more time to your next deal.
Check on the Property Frequently
This might seem obvious, but it’s something that investors do less often than you think! It’s also something that investors intend to do more often but then don’t get around to it.
The more you check on the property, the more likely they will stay on task. Plus, you can make sure they’re not going off-script, changing the job on the fly, or adding new projects. I’ve seen this happen.
Help Pick Materials and Colors
This is just another step of the oversight process. While your contractor is the expert, you’re still the one who hired them, and you’re the property owner. You have every right to be annoying!
I want your contractor to feel you there, feel a little pressure to do a good job, and stay on task. Making the expectation clear that you’re going to be involved in certain steps of the process sets a precedent from the start, and they’ll give more attention to your process.
At Do Hard Money, all of our borrowers are assigned a project manager with construction project management experience. They essentially do this exact process—picking materials, vetting bids, checking in frequently—which is how we know this works!
Offer to Give Them More Business
Some contractors are reluctant to work with fix & flippers because we tend to be more demanding. We’re trying to hit specific deadlines and profit numbers, and we’re very protective. And because we’re going to line-item each cost and project, there’s less profit margin for the contractors.
Sometimes they’re reluctant, and understandably so.
Even if they’re not the biggest fans of working with fix & flippers, they are big fans of likely future work. They want to stay busy. One way to help that is to explain that you’re still trying to find a good contractor to partner up with on deals going forward and that you have others in the pipeline.
In the past, I’ve had contractors working full-time just on the properties that I’m flipping. You better believe they appreciated working with me! Furthermore, once they get into your world, they’ll sometimes even bring you potential deals or want to be a true partner with you on deals.
But Don’t Give Them Multiple Jobs at First.
If you’re experienced enough to try to take on two projects at once, be sure you’re not hiring a general contractor for both properties that you’ve never used before! It makes sense to spread your risk around if you’ve got a dud of a contractor working for you. I’ve used the same guy for multiple projects at once, but I had complete faith in his abilities. I’ve also been burned by using the same one for two projects.
Still, Check-in Even if You’ve Used the GC Before
In my experience (and I’m sorry if you or your best friend is a GC), most contractors move along slowly if they’re not given a little friendly pressure. Perhaps it’s just that they’re busy and would rather spread around their attention, or just that shorter days are easier; I’m not sure the reason. So even if I’ve used a general contractor successfully on ten other deals, I’m still going to check in frequently and make sure everything is going smoothly.
Get Help With Pricing
If they’re charging you a fortune, but they say the quality is good, just pass. You only want quality up to the level of the neighborhood so you can flip it. If it were your dream forever home, then maybe you’d hire them. If you know another investor or contractor, perhaps they can review pricing with you. This also goes with the multiple bids idea: you can know what prices are there.
Don’t be afraid to ask the important questions, whether in person (if you can) or over the phone (if you can’t get there). Ask things like “are we on time?” and “are we on budget?” This is just another way for you to show that you’ve taken an active interest, and they better be reporting to you about what’s going on.
Do a Final Walkthrough
Make sure that they’ll agree to a final walkthrough at the very beginning. You’re going to look at everything with the GC next to you. The key here is not to be afraid or intimidated to ask quality questions and to have them fix things. If they haven’t done quality work, that’s their fault, and they need to fix it ASAP. If they want to challenge you on anything they just outright didn’t finish, you have your line-item bid ready to show them what they agreed to.
Whew! That’s a lot, but it’s essential, in my opinion. The better you do this step, the more likely you will make a profit! And then, hopefully, you can find someone to who you can trust and can bring multiple deals.
Just remember the key: It’s okay to be annoying. It’s okay to check infrequently. You’re the one paying, and it’s your project!