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Posted about 9 years ago

Lessons learned from contractors

First things to know as a industry a lot of the industry has operated using accrued accounting. Accrued accounting is the system where a bid is selected a portion goes for materials and initial expenses that occur in the beginning. And usually another draw occurs upon completion and depending on length of project. The very nature of the accrued accounting system has a significant flaw and that is of budget and cashflow. It can also create issues of over promising if the contractor lowered his price to win the project. It also creates a issue for the contractor where he must continually get additional work to cashflow the middle or end of projects with the beginning of other projects. This can often create the grass is always greener on the next project.

Learning and understanding the standard method most contractors operate with. These practices helped me create a standard of practice for my business in working with contractors. It can create more work for myself or my project manager, but the value that comes from using a cash method of accounting for my contractors. I purchase all materials and and create a work plan that clearly states expectation and timeline. It is also how I pay the contractors based on projects complete and I will release checks weekly or bi-weekly. I do the demolition or bring in a demolition team to setup my projects for my contractors, so they only build/rebuild the properties. I take additional to make the life of my contractors easy. I will often buy lunches and give gas money if needed out of the contract price, so they show up and complete work on the timeline and if extras occur I address them as they come up and will pay on them quickly.

This has created a loyalty with my contractors that though they go and do other jobs when I don't have work for them they always call looking to see if I have work for them. They also try to bring additional contractors to work with me.

Another issue that i have seen in working with contractors is some are terrible at finishing projects. They can get 90-95% of the job complete but that last little portion becomes a big challenge for some reason. I will try out new contractors and their ability to finish is one of my test to see if i will work with them again. If they do not i let them know the reason for which i did not select them. I start the search for another contractor again. The inability to finish is a big pet peeve for me that is why for me it is something that i just can not work with a contractor if they do not finish. It is also why if the project is not complete in my contract they don’t receive the final payment for the rest of the services. It protects me so that i can bring in another to finish without ruining the budget and the timeline.

It allows me to create value for my contractors but also creates value for me to complete projects in a desired timeline and at a fair price. My goal in real estate investing is to help others benefit as i benefit. 


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