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How to Flip Real Estate Without Killing Your Contractor

by Michael LaCava on March 24, 2013 · 10 comments

  
House

Sometimes, I feel like I want to kill my contractor.

Although I love the guy, he just infuriates me. Sometimes he just does things that drive absolutely crazy. And although he has his faults (as do I), the funny thing is he’s one of the best I’ve ever worked with…and I’ve worked with a lot of them.

If you’ve ever done any kid of real estate investing, haven’t you felt this way sometimes?

It’s true that there are a few different ways to flip real estate – whether its flipping contracts through wholesaling, buying and flipping with no rehab or buying, fixing and then flipping. I do the last kind.

And if you do the last one like I do, there are multiple ways to do the rehab part of the flip too. You can do it all yourself (uhg), general contract it yourself and do some of the work (better), some hire a project manager who manages it all (much better) or just hire a contractor and have everyone else do all the work while you look for more deals (best).

I do the last one, although I’ve done all four in various stages of my house flip career.

Hands down one of the best ways to flip real estate is to work with a contractor. But I guarantee that if you do, you will want to strangle them at least a dozen times on every real estate flip….

So, how do you manage contractors without wanting to kill them?

How to Flip Real Estate – No Violence Necessary

Unfortunately, contractors have a general reputation of being difficult to deal with. And this reputation is fairly accurate.

My contractors are some of the more interesting characters I know – and I know some real characters. They can be volatile, irrational, pugnacious and irritable. Although they are all extremely good at what they do, some of them have a real hard time taking orders from the boss.

But some of them are extremely creative, thoughtful and add a dimension to my house flipping teams that I simply couldn’t do without.

But at the same time, they drive me crazy.

Yet, there are a few things you can do to best deal with this. And when you figure how to best deal with this unwieldy bunch, you’ll have taken a big step towards long-term house flipping success.

And no unnecessary killing required….

The Must Know 4 Step Formula to Success and Profit with your Contractor

So before you enter into this sometimes volatile partnership, there are a few things you can do to ensure that your relationship with your contractor is a profitable one for the both of you.

The four-step formula below should help you greatly in your house flipping career:

1. Set A Definite Timeline

Whether you are first learning how to flip real estate or have been flipping houses for decades, the importance of setting a definite timeline for the sequence of events in a flip  cannot be over-emphasized. Develop a definitive timeline for completion. Period.

In today’s market, my contractors are becoming extremely busy. A definitive timeline for completion is a must, no matter how busy your contractors may be. They have a lot going on and they need structure. A timeline helps create this structure.

If you fail to hold your contractors accountable, your house flipping projects will drag on, and on and on.

If you miss an established target or if a particular aspect of the house flip drags on for a day longer than expected – try to not get stressed out. Odds are that you will have delays, miss a deadline or two and have to push something back. This is 100% expected and as long as it’s not the norm, it’s OK.

However, If you don’t set dates then you have nothing to benchmark against, the house flip will go longer than expected. You will hear all sorts of excuses, so be sure to stick to the deadlines as much as possible.

2. Don’t Let Firing People Scare You

I really do not enjoy firing contractors…yet sometimes firing them is absolutely necessary.

If your contractor makes mistakes, misses deadlines and sets tour project back because of poor workmanship, address the concern first. If it continues to happen, warn them again. If it happens the last time, fire them.

Your situation will vary on this but I employ the “three strikes and you’re out” policy in most cases. If after multiple warnings a contractor is still missing deadlines, performing shoddy work etc. then it is time to cut him loose. Find another one fast.

If you don’t address it and take action, its simple: your house flipping career will never take off. And it’s not your contractors fault…it’s YOUR fault for not taking corrective action.

Your team of contractors can float or sink your house flipping career, so view your contractors as an extension of yourself. And if one part of that team is not functioning properly, then you need to take action.

Try to not let firing someone affect you on an emotional level. If you’re doing it right, you will run through plenty of members of your house flipping team in your pursuit of success. This process is often times ongoing. However if you stick with it, you will eventually form a successful and uber-efficient house flipping team.

3. Pay Your Contractors On Time

Paying good contractors on time is necessary in order to keep them with you in the long-term.

Remember, your contractor has to pay his guys on time. The entire house flipping process will run much smoother if you pay your GC in a timely manner. He gets paid, the subs get paid – everyone is happy.

Don’t pay them too soon, but pay them on time. Dont pay them all up front either.

If you can work out a payment schedule with a third upfront, a third in the middle and a third on completion, that’s a good system. Work this out with your contractor ahead of time so everyone is on the same page.

Not paying your contractor on time is a sure-fire way of ruining the relationship. And that is YOUR  fault. Whatever you do, don’t do that.

For most of my general contractors, they pay all their subs on Friday afternoons, which means I pay my contractor by Thursday or Friday morning at the absolute latest.

No matter how you decide to do it, be sure to maintain fairness and timeliness in order to keep everybody happy and motivated.

4. Treat Them Right

Approaching people with respect and dignity is a good move no matter what business you are in. Working with contractors is certainly no different.

Sure, most contractors are a bit on the gruff side, but it doesn’t matter, everyone including contractors want to be treated well and with some respect.

Surprise your team with a few beers after work on Friday or a tray of coffee on a random Tuesday morning. Show them that you appreciate what they’re doing. It’s the little things that often have the most dramatic impact on morale.

Show them you appreciate them and that the work they’re doing is valuable and that they are valuable too. Everyone likes to feel appreciated and respected. And rust me, the small things make a huge difference.

If you stick to the tips above, you will be well on your way to profitable real estate flipping for years to come – while keeping your stress level to a minimum and developing a solid relationship with your contractor.

If you’ve read this far, then please leave a comment below! Have you ever wanted to strangle, kill or maim your contractor? Tell me about it below!

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{ 10 comments… read them below or add one }

Glenn Schworm March 24, 2013 at 7:11 am

Great article Mike and so true. After years you quickly find out that paying the right people enough money is so much less expensive in the long run. Don’t jump over the dollars to save the pennies when it comes to contractors. I agree with you that those relationships can make you or break you. FInd them, teach them your way, pay them on time and treat them right. Good advice.

Reply

Michael March 24, 2013 at 9:08 am

Thanks Glenn- Always learning and improving our systems. Thanks for your feedback & keep the comments coming.

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Mark Ferguson March 24, 2013 at 8:18 am

Great read!
We have an awesome contractor now. He does what we want, can handle multiple jobs at once and even shops Craigslist for deals on materials.

We have had much worse luck in the past. The biggest issue is a contractor going way over schedule. We have also had one who would listen to me but not my wife. My wife was the one managing the rehab. We had contractors who don’t pay attention to what we ask them to do and add jobs without asking us!

A good contractor may be the most important factor in a successful fix and flip business.

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Michael March 24, 2013 at 9:18 am

Hey Mark – Thanks for the feedback. One of the things we are thinking of doing is implementing a bonus for finishing the job on time or early 100% no exceptions but also putting a penalty for going over per day. The one thing I want to be careful with here is that quality is not compromised to get it done early. That is great that you have a contractor handling all your projects with out any difficulties. I checked out your website – Good job acquiring rental properties. Where about are you buying?

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Mark Ferguson March 24, 2013 at 10:10 am

Thanks Michael!
That website is dedicated to my long term rental strategies. I am in Northern Colorado and buy all my long term rentals in Greeley. I also fix and flip 5-10 houses a year with my father in the same area. I don’t need a time bonus for my current contractor, but that would have helped with previous contractors for sure.

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Michael March 24, 2013 at 12:22 pm

Great strategy Mark. Mine is very similar. Keep living the dream!!!!

Lori Hagen March 24, 2013 at 6:33 pm

Thanks for the great article. In the past my ex-husband and I were one of those contractors. We had a remodeling business and it did work well to get 1/3 up front and 1/3 in the middle. Since we had lumber accounts to pay and other expenses, we needed some money while the job was in process. Usually our problems were associated with sub-contractors not living up to their part of the job. It becomes difficult when the GC has to answer for their mess-ups. Any positive feedback given to a contractor goes a long way to great service.

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Michael March 25, 2013 at 10:29 am

Hello Lori ,
Great to hear from a contractor. You are correct and answering for your subs isn’t always easy.
Some of the GC’s that we hire now have some of the same subs job to job and I notice a change on some of them as well but is up to him or her to manage now & I only have to manage one person now.
Thanks for your comments they are much appreciated.

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Brandon Foken March 25, 2013 at 10:02 am

Great article, Mike. I’ll be printing this one out and referring back to it when I feel like strangling my contractor. Your last point, “treat them right” is so spot-on and I think a lot of people (no matter the profession) forget that they are dealing with a living, breathing human being who may have conflicting needs/wants or priorities. Making sure to treat them right is a simple way to get other’s to work harder for you without breaking the bank.

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Michael March 25, 2013 at 10:35 am

Hello Brandon. It is all about the law of reciprocity. The more you give the more you get back.
Thanks for your comments.

Reply

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