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My Plan to Optimize Contractors and Begin Taking More Control of Repairs

by Mark Ferguson on August 3, 2014 · 29 comments

  
My Plan to Optimize Contractors and Begin Taking More Control of Repairs

A couple of weeks ago I wrote an article about my difficulties with finding contractors that work quickly and for fair prices.

I have been thinking about starting my own contracting company to take control, get jobs done faster and save some money along the way.

Maybe at some point i will start using the company to work on other jobs and create a business out of it.  First off, I want to thank all the people who posted suggestions and advice on my last article.  A lot of the comments helped me form my strategy moving forward.

What Has Happened with Contractors Since I Wrote That Article?

It is funny how things work, but whenever I focus my energy and thoughts on something, I usually see immediate results.

I used Angie’s List to interview new contractors and I have hired one new contractor who appears to know what they are doing, have a large crew and reasonable prices.  On Angie’s List I sent messages to at least 8 contractors and three responded to me.

The first contractor was the one I hired; he called me right away, set up an appointment right away and got me a written bid in three days.  I estimated the house he bid on would need $15,000 to $20,000 in repairs and he came in at just under $20,000 for his bid.

Related: 9 Tips for Choosing and Managing Contractors

I was very happy with that bid, since the other contractor I have been using was coming in about 30 to 40 percent higher than I thought the jobs should cost.  I was starting to think I couldn’t estimate repairs anymore or prices had skyrocketed!

The second contractor who contacted me back, got back to me right away and we set up an appointment.  He seemed like a decent guy, but did not have a big crew, although he said he could hire people for bigger jobs.

As we were parting ways he then started to ramble on about jobs he did for his landlord and how he had gotten a DUI.  He then mentioned he had a beer one afternoon, then had to drive to an emergency job where the homeowner smelled beer on him.  They then called the cops and he got another DUI.

He said he would get me a bid the next day and one week later I still do not have a bid from him.  Quick tip for anyone bidding jobs or looking for a job; don’t mention multiple DUIs, especially when you got one on the job!

The third contractor turned out to be a painter who did minor drywall work and that was all.  He gave me a bid for a rental property I jut bought and it was almost $5,000 to paint the inside of a 1,800 square foot house and half of one exterior wall.  I guess one out of three is not a bad batting average.

As a bonus, I had a contractor I used to use years ago email me out of the blue last week.  He had quit contracting to pursue a full-time job at a wind turbine production company (giant windmills that produce power).  It was a great job, but he said he wants to start working for himself again and wondered if I needed a new contractor!  I am meeting him next week sometime to see what his plans are.

With New Contractors will I Start my Own Contracting Company?

I have one new contractor that I think will do a great job and be quick.

I am going to test him out on one job to start with and see how it works out.  I learned in the past not to start out new contractors on multiple jobs, that never seems to work well.  Last week I met with an older builder we used to sell houses for.

Related: Make Your Contractors Accountable Without Having To Be There In Person

He has a bunch of rentals, his wife is way up on the ladder in the corporate world and he basically maintains his rentals and takes care of his kids now.  he is not looking to repair any houses, but he gave me some great advice that was mirrored by comments from my other article.

He basically said really good contractors will build houses or move on to commercial projects, because they are more profitable.  The contractors left to do small residential jobs are either not great businessman and don’t scale up to where the money is or not very good contractors.

His advice was to use a general contractor like I have been doing for now, but look to change my model slowly.  He thought I should hire a full-time maintenance person who can handle painting, drywall work and most handyman type activities.  Then I can use subcontractors for electrical, plumbing, roofing, flooring and specialized jobs.  It will take a little more work from me hiring subs, but that is not a big deal.

The big deal will be finding and hiring a good maintenance guy and then figuring out what motivate him.  Once I find one good maintenance guy, I can start to look for another and slowly start moving from suing general contractors to becoming my own general contractor.

I figure I will have no problem keeping a full-time maintenance person busy with my flips rentals and if the wife needs anything done around the house.

Any tips on how to find that great maintenance person?

Be sure to leave your comments below!

 

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{ 29 comments… read them below or add one }

Walt Payne August 3, 2014 at 6:32 am

Mark,
Something I have learned in several totally unrelated businesses is that if you have the time, it is much better to grow your own talent. Find a motivated, intelligent and hungry young guy/gal and teach them to do what you want done, the way you want it done. If they are not good at the management side, a good candidate would still make a good long term employee. If you do it right, the worst you end up with is a trusted, motivated employee that you can feel comfortable with sending to a job site alone to do something important. A win-win. The ideal candidate? Look for the right personality just out of high school who went to a trade school for carpentry, plumbing, etc. They have a good head start. The benefit to all of this is you are teaching them your way, and not breaking bad habits learned from that contractor you just fired last week for doing it all wrong.

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mark ferguson August 4, 2014 at 11:20 am

Hi Walt,
I completely agree about growing your own talent. I do that with my real estate team. My downside is I am not an expert in carpentry, drywall etc, although I can do minor stuff. If I could find a trade school person, hopefully they would have the basic skills needed.

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Ana August 3, 2014 at 7:20 am

Mark,
Makes sense in what you are doing. If you have the resources and know how and are flipping and rehabbing a ton of properties hire some core managers and do what you do best. As we grow just remember there are more rules and responsibilities….. Just be prepared. Corporate structures are important as you increase in scale. Do not skimp on them and make sure you build there real costs into your plans…

The new corporate model Is to hire very “limited smart” needy (in debt) people to fit in your business model as managers so they will do as they are told and only know your way of doing things. Corporate USA new hires are never promised anything beyond 2 years as that is what most new hired people can bring in real worth to a company today because of the fast paced world we now live in. With in 2 years there value drops significantly…

I used to have business plans scaled out 7 years then 5 then 3 now 2….. I maximize my returns as fast as possible then sell or scale accordingly and move on…. Sure I keep my core (clients & Managers that pass the 2 yr test) through services I offer but the real money is being fast and keep moving forward.

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mark ferguson August 4, 2014 at 11:21 am

Hi Ana,
Thank you for the tips, My team manager was a senior level corporate manager for 10 years at a fortune 5 company. I have learned a lot from him! I think I will show him this comment as well

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Eric August 3, 2014 at 8:32 am

Rather than use a contractor, I use a handyman once in a while. I pay by the hour. Since I almost always do my own work, I know what needs to be done. I can direct the handyman, and use alternative materials and methods if I need to. I also probably have more tools on site than a handyman would typically bring.

Just make sure you have someone that knows construction, not just how to change a light fixture,

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mark ferguson August 4, 2014 at 11:23 am

Hi Eric, I have 9 flips going right now, so even if I wanted to do the work myself, I could not. I definitely want someone experienced in most remodeling facets.

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Antonio Coleman August 3, 2014 at 9:21 am

Yo Mark,

Dealing with contractors maybe one the most terrfing experience in real estate. Don’t know who to trust even if you do go through Angie’s List . Really the only thing you can do is build great respectable relationships with people who you know will not over charge you, and will do good quality work. Just a sticky situation.

Antonio Coleman “Signing Off”

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Patrick Flanagan August 3, 2014 at 10:47 am

Hi Mark,
The best way to hire a good maintenance worker, is to verify all the referrals they give. If they don’t want you to contact previous clients, there has to be something wrong. Any good contractor should be proud to take you (personally) to a previous job and show you all the details. Also, it shouldn’t be his personal house either, mind you. If they didtheir job right, previous clients should want to show you and brag about this person…hope this helps?!?

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mark ferguson August 4, 2014 at 11:24 am

Thank you Patrick,
I plan on doing all of that!

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mark ferguson August 4, 2014 at 11:23 am

Hi Antonio, Thanks for the comment and I agree!

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Matt Lavinder August 3, 2014 at 5:29 pm

We’ve scaled the volume of our flips to 30/year. One of the things I’ve learned along the way is the only way to keep good contractors is to keep them busy 12 months a year. Our ideal contractor swings a hammer and manages two other guys on his crew. He doesn’t want to bid jobs or manage people He enjoys being hands on and has a couple guys who are loyal to him. He prefers making $25/hr from us day in and day out over the feast or famine cycles of the contracting business. It’s difficult to find such people. When we do, we make sure we keep them busy full-time. We currently have 3 contractors like this going full-time and two of them have been with us for over a year. Several people have mentioned “handymen”, but that’s becoming a problem in our area. All the local codes offices have adopted the 2012 Building Codes, which means we have to pull a combination permit by a licensed contractor for almost every project. The days of using cheap, unlicensed “handymen” are coming to an end in our area. We’ve gone on to form a separate construction company, but there are some silent costs you need to be aware of. For example, having multiple companies takes your accounting to another level of complicated. If you go this route, you need to have an experienced CPA set up an accounting system that can manage multiple entities. It cost us nearly $20,000 to transition from QBO to a system we could scale with. It sounds like a lot, but any inefficiency or weakness is magnified when you scale to 30/yr. If you don’t have the right accounting system, you can’t manage 30 flips per year and stay out of trouble with the IRS.

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mark ferguson August 4, 2014 at 11:30 am

Hi Matt,
Thank you for the detailed response. I do have my real estate team and my flipping business in separate S corps that my accountant set up. We could set up another company without too much of a learning curve. This sounds like the system I want to get to eventually! How long do you think it took you to be able to find enough good people to do this?

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Dennis August 4, 2014 at 6:55 am

From the perspective of a contractor of 30 years, most just getting in to business have no idea what it takes to stay in business. These go for the easy customers (landlords) on this battle ground they learn many things if they survive the first encounter.

Realize most made it though high school by the skin of their teeth, or are actually smart but could not fit in the typical employee mold, or are just completely unemployable.

Who taught the contractor to estimate, to run subs, to do their books, to run a business? They learn gain this education at SWU or Side Walk University.

You can see how this will turn out. Now to how my first landlord customer was smarter then most landlords on these boards. My first customer realizing I was a talent but also an idiot, decided to sit down and create a win win contract, and then to help me facilitate the installation via coming up with specifications of exactly what he wanted and how I would be paid. I fact he put me in business and later referred me to his similar friends and clients. Eventually he told me he was going to taper off buying properties, I should put some money into advertising and marketing to go off on my own. Looking back I worked for peanuts for this customer but I knew the steady work and education made the discounted work all the more valuable.

What he gained was houses and apartments that were mechanically perfect, and done to the highest possible standard at the least price. A few years ago I bought 3 of the apartment buildings that I had worked on from his widow, the systems are all still in place and in good condition after 25 years. Sadly the widow ran the tenants and interior down as she had no idea how to run her husbands empire. Something I have put some time into with my wife if something happens to me.

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David C August 4, 2014 at 9:33 am

Dennis,

That is a great story that I wish I could see more of. My grandfather has done that same exact thing with his contractors but unfortunately all of the ones he has come across fall apart after a few years. Mostly his lack of being able to keep them busy and their lack of motivation.

Thanks for the great read.

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mark ferguson August 4, 2014 at 11:33 am

Thank you Dennis, If I can provide that management for hiring subs, running books etc. Then it would be pretty attractive to a contractor who wants a steady income without the headache of running a business?

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george p. August 4, 2014 at 11:19 am

oh boy, this topic hits home hard. i absolutely hate this part of the business. if i ever quit or stop buying, it will be because of the contractors. i have used/gone through at least 30 contractors in the last 5 yrs. with the exception of 2, they all fit the mold (either dont show up, quotes get higher for no reason, work quality gets worse, start to nickle and dime me, or keep materials even though i paid for them).

and that’s the ones i have worked with. i can’t even get people to come out and give me a quote now a days. i called 15 tile contractors (recommended from the tile shop). first 10 either were too busy or never came out. 5 came out and their prices were $10-$20 per sq. ft.

I have had a house under contract starting 5/28 and have not closed on it yet. However, i have met aabout 20 contractors there (out of 80 i have called). most never got back to me, 2-3 quotes i have gotten are in the range of 15-25k, when the labor should cost AT MOST 10k.

I tried to use people that quoted previous jobs and their ego was too big (for not getting the last job) and told me, “Dont waste my time”.

I called roofers and they never went to give me a quote. it’s just depressing.

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mark ferguson August 4, 2014 at 11:34 am

Thanks for the positiveness George! lol I know what you mean, but I won’t give up!

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george p. August 4, 2014 at 11:40 am

oh, any time. i just shake my head, laugh at their stupidity and move on. I have reached out and put ads on CL and will use a few people from there under strict supervision. At lease those people want the work.

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Walt Payne August 5, 2014 at 1:43 am

Yeah, many contractors who “give free estimates” any more don’t really mean they give free estimates. They expect you to get a quote and then hire them. And I have had some get insulted because I was getting another quote before choosing. I am glad I only have to deal with the higher quality guys (elect, plumbing) now.

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Amy August 4, 2014 at 12:02 pm

I’ll be interested to hear more about how this turns out for you! I want to do the same thing on a much smaller scale. I will have 32 units after Thursday (hopefully) and currently do 2 or 3 flips per year. Most of what I need done doesn’t take much skill – flooring, painting, cleaning, landscaping, changing out plumbing fixtures. Sometimes I do these myself just to get the job done and get the unit on the market, but my time would be better spend growing my business.
Please keep us posted on your hiring experiences!

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Mark Ferguson August 4, 2014 at 3:30 pm

Will do Amy. I know my best use of time is not making repairs myself.

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Alex Craig August 4, 2014 at 2:54 pm

I think I posted a similar response when you made a similar post about this a couple of weeks ago.

I hired a project manager and found 3 really good crews to replace using contractors. The crews can do all the non-permit type work and usually have a $20,000 renovation knocked out in 2 weeks. Buy yourself some GL Insurance and Workers Comps if you go this route.

Bottom line, I am in total control of the rehab, I give the crews enough work where they don’t need to work for anyone else. Every so often, if there is a lag time in between houses, I will find them work for other investors; I make a little extra money by doing this, but more importantly, I keep them busy so that I don’t lose them.

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Mark Ferguson August 4, 2014 at 3:31 pm

Thanks again Alex!

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Patrick Flanagan August 4, 2014 at 3:21 pm

Hi all, donte get me wrong, alot of the comments have been very negative to the contractor. I’m not saying all of you are doing it, but alot have. I happen to be a contractor (on the retail side) and most flippers and rehabbers think it’s ok to demand we work for wholesale prices. While they collect huge profits from resale or rents. In defense of my position, we have all of the same expenses you do. Don’t we deserve fair pay for OUR efforts. Would you be offended if your boss or tenants said you dont deserve retail for your rental or flip?!? I think most of you, would be quite taken aback!! Please feel free to let your position be know. You get what you are willing to pay for, you know?!?

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Mark Ferguson August 4, 2014 at 3:29 pm

Thanks for the comment Patrick. I have a couple questions.

1. Why does it matter how much money the flipper or person renting a house makes? Do you charge more for the same job based on how much the investor is making on his side?

2. How do you figure how much profit you will make? Is it based an hourly work or a per job fee?

As a flipper or renter it is my job to know what a house rents for or will sell for. If it doesn’t sell for what I think it should have, that is my fault for miscalculating the market.

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george p. August 4, 2014 at 4:05 pm

How much have u invested in getting to work every day? 20k? Because that’s about half of what we have invested in each house, on average. Most of contractors simply don’t understand that the more we make, the more work they will get.

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Walt Payne August 5, 2014 at 2:04 am

Patrick, I think the problem goes much deeper than just with contractors, it is just the group that a lot of flippers and landlords encounter. It really is a problem with the “Me Generation” and the lack of integrity, lack of pride and workmanship in general. Whether it is at restaurants, retail stores or hired laborers. It is the attitude of entitlement that abounds. It is way too many people in general. They not only want something for nothing, they want everything for nothing. Now don’t get me wrong, it isn’t everyone. It is just too many people that act that way. And as much as it is often blamed on the youngest generations, that is the group with the least of the problems from what I have seen. And maybe part of the problem comes from the business models of McDonalds and Wal-Mart and some of the other big corporations that pay so little that their employees are supported by federal subsidies, which creates a culture of people looking for a handout because they truly need it, but which then creates an attitude of entitlement. Ok, rant over, lol.

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Kimberly H. August 4, 2014 at 4:46 pm

I totally agree with testing people out. Had a guy quote paint work and installing a light fixture, and building an interior wall to separate off a small bedroom from a large basement rec room. The guy could start the next day, the other people I talked to couldn’t start for two weeks, and the price was low so I hired him and didn’t check references since I decided not to build that wall yet and figured who could screw up painting and a light fixture? I found out after the fact the guy bought two brands of ceiling paint, so not all parts of the ceilings are the same color, mixed up paint sheens on the walls (I wanted semigloss for the bathrooms and eggshell for the rest of the house walls) , and installed the light fixture without connecting it to the light switch, which I of course discovered after he was gone when I went to turn off the light. Took the light down and found it was just connected to the ceiling with just one of the 2 provided screws. God knows how building that wall would have turned out!! Fortunately it’s just a rental so I am not concerned about the paint job.

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Meghna (Meg) Bhagat August 4, 2014 at 6:53 pm

Hi Mark,

Thanks for putting your process on this issue up here. It is definitely something we are always shopping in our business. Even when we are working with some contractors because of the experience we have had (very similar to yours :-). We are not actively seeking to replace anyone, but we want to find the best fit, as that sometimes changes also. It also keeps everyone’s pencil sharp.

Something that had been great recently is getting references from other people we work with like surveyors, architects, inspectors etc. who work with investors, builders, contractors and in the process of checking references we are also finding qualified leads for potential partnerships with others.

Thanks again for sharing your ongoing process with this and for all those who have been commenting–very useful!

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