It was almost 5 years ago when I stood in front of my first project and put together a collection of contractors to walk my property. Most of them tried to intimidate me, and they did to some degree, but I prevailed and was able to get 4 bids on my first property. I didn’t know the mistakes I had made yet, but I learned them as I went through the process. In the end I had a great project and my company pockets just of $65,000 on the project, crushing projections. I was very happy to say the lest, but when the dust settled and I got more deals under my belt I realized how much I left on the table, and how much more I could have made- over $25K more! This article is designed to help YOU not make those mistakes in your projects.
There are several steps to the process in working with contractors, but they can be summarized into 3 major steps;
- Estimate Repairs/ Prep Scope of Work
- Schedule Walk Thrus with Contractors
- Compare Bids (Apples to Apples)
Lets review these steps
1. ESTIMATE REPAIRS/ PREP SCOPE OF WORK
Estimate of repairs is a huge portions of the process in getting setup for success in your project. It gives you a solid baseline for cost and preps you for the scope of work you will put together for your contractors to walk the house. If you don’t have a repair estimator get your FREE copy here, with my entire book on flipping. The scope of work needs to take into account the comps and the style of home that you rehabbing. You can determine this from the Executive Summary you put together when comping out the neighborhood. It is crucial that you account for those items when you complete your scope. A home in Beverly Hills has a nicer kitchen than a home in Compton, plan accordingly.
2. SCHEDULE WALK THRUS WITH CONTRACTORS
It is important that you “shop” your rehab work when you go into your rehab. The reason this is important is similar to when you buy something online or in a store. If you know what you are looking for before you go shopping you can look at multiple locations for the same or similar item. Some stores sell the item for $10 others for $30 but you get to make the decision based on your knowledge on the quality and style and of the item you are buying. If this is how you shop for small items it should remain the same for a full rehab of a property as well. Here is how you can get to the bottom of pricing a get some contractor to walk your property.
- Go to local REI meeting and introduce yourself to contractors and exchange information
- Craiglist- Craigslist is a great place to post ads for work needed on a property. I general post under “Community”>”General Community”
- Thumbtack.com- Thumbtack is a resource for finding contractors in your local area.
Once you have your list of prospects and you have gone through the process of vetting them, Read “Contractor’s Suck…” in my Free Book, schedule a minimum of 3 to walk the property with you and your Scope of Work. Now I always make sure that my contractors will overlap when they are on the property. This is to ensure that they know I am shopping the job and make decisions based on the best possible number for the project, not a number that is heavily padded with profits for them. Request they send you a line itme bid with each item from your scope of work defined with a cost.
3. Compare Bids (Apples to Apples)
It is very important that you review all bids with a fine tooth comb when you are ready to hire a contractor for your job. Often times contractors will make changes to your bid based on items they have noticed that you either missed, or did not wish to adjust. Sometimes changes come from a lack of building knowledge, an example might be you putting the price for a toilet down but not including a wax ring for installation. You have to change the toilet but at the same time you must do a wax ring, which you may not know and increase your cost.
Often times contractors will also have items that will come with an allowance, an example might be $2.50 sq ft for tile for a bathroom. Another example might be $500 for a bathroom vanity. There are a few things that are important to clarify in these situations.
- Does the tile include labor cost, installation material and waste from tile installation?
- If it includes labor, what is the associated cost per square foot for labor?
- Does the vanity include labor and installation?
- Does it include the plumbing for the vanity and the installation?
- If not what is the allowance for these items?
These are a few of the ways that you can have issues with contract. Another issue that can arise is an items being left out of the bid that needs to be completed or the contractor needing more information to bid. Sometimes you can not avoid this on an item, an example might be doing an electrical upgrade and not knowing how much it will taken because the walls aren’t open yet. In these situations I like to run through what could happen and what my best case and worst case scenario are and how I get there. This will help you determine where you want to set your risk meter at.
I hope you have found this information to be useful in your search for a contractor and if you need to expand your knowledge here is a FREE copy of “Flipping your thoughts on Flipping,” written by myself for new and seasoned investors to grow their knowledge.
Andrew T Greer
CEO Better Tomorrow Group
Andrew is an active investor, speaker, Realtor, serial entrepreneur, and educator in all that is Residential Real Estate. If you would like a FREE copy of his book follow this LINK. If you would like to follow him on Social media you can find him on Instagram @beastmoderealestate and @bettertomorrowgroup on Twitter/Periscope @TheBTGRoup and Facebook at Better Tomorrow Group.