Too often we think of our employees as our team, and our contractors as something other than our team. But they’re all on our team. We should be treating contractors the same way we treat our employees—with respect. Treat them fairly, treat them well, and treat them like team members.
Let’s go over sourcing contractors. One of the hardest parts of this business is finding good contractors. It’s definitely not always fun.
So, I asked veteran investor, author, and BiggerPockets Business Podcast co-host, J Scott: “If somebody is new to investing—or even somebody that’s advanced in investing—what pointers can you give them about finding some quality contractors in this business, specifically for flipping houses?”
J had a wealth of info to share. Watch the video or read on for tips on finding contractors (and incentivizing them to stick around!).
How to Find & Keep Great Contractors
These days, finding and keeping good contractors is literally the hardest part of this business. But there are a few things you can do to increase your chances of success.
1. Great contractors know great contractors—so ask for referrals
Something I’ve learned over the last dozen years of investing in real estate, great contractors associate with, recommend, and deal with other great contractors. So typically speaking, if you can find just one great contractor, you should be able to find a whole network of contractors
Find that first great contractor, and go up to him and say, “Hey, I’m looking for an electrician. I’m looking for a plumber. I’m looking for an HVAC guy. I’m looking for a roofer. Who have you worked with in the past that has been absolutely fantastic who I should call and add to our team?”
They’re going to give you one or two or three names. You’re going to call those people; you’re going to add them to your team.
Then, you’re going to say the same thing to them: “Who are one or two or three other great contractors who I should add to my team?”
Before you know it, you’ve got a full team of great contractors.
2. Great investors know great contractors—so ask for referrals
Similarly, go to meetups locally, local events, Facebook groups, BiggerPockets, and so forth. I’ve made friends with a lot of other investors. And one of the first things that I’ve done over the years is say, “Hey, who has a good general contractor? Who has a good handyman? Who has a good plumber?”
So ask around, just like you did with the other contractors.
And keep in mind, you’re not just asking for referrals from any contractor or investor. Ask for referrals from great contractors and great investors, because great investors, great contractors, we only like to associate with the best.
How to Identify a Great Contractor
So, what’s a common quality of all great contractors?
They work hard. They get up early and are prepared.
I like to say, if you want to find a great contractor, go to Home Depot, go to your local plumbing supply house, go to your local electrical supply house at 5:30 or 6 in the morning. Find the contractors who are up shopping for materials and getting ready for their day early.
These are the good contractors. These are the guys who are reliable, are going to be on time, or are going to be at the job early. These are the guys you want for your job.
If you get to Home Depot at 10 a.m. and you see contractors walking the aisles, these aren’t the guys you want to work with. These are the guys who are going to be showing up at your job at 11 a.m. or noon.
So, get to the supply house and get to Home Depot or Lowe’s early in the morning. Find the contractors who are working. Grab them and give them your card.
Say, “Hey, I’ve got work for you.”
And if you’re not a morning person, you can also go to supply houses and supply desks and ask, “Who comes here all the time? Who pays their bills on time for their supplies? Do you have a stack of cards of good contractors?”
Now, let’s switch to keeping contractors. It’s one thing to find great contractors; it’s another thing to keep them.
We’ve been in this business for years and years, and we’re always finding new contractors. Because the older contractors that we’ve kept, maybe they’ve grown their business, maybe they’ve shifted to something else, maybe they messed something up, maybe they have personal issues.
That said, you always need to find and recruit contractors. So, I would always recommend having a recruiting process for contractors—no matter what. Even if you feel comfortable, you never know when you’re going to need somebody. Something might happen.
But in terms of keeping them, here’s what we recommend.
How to Keep Great Contractors
1. Treat your contractor like a team member, not an adversary
I’ve seen a lot of investors over the years feel like it’s an “us against them” situation, where they’re like, “OK, they’re trying to hurt us on our bids. They’re trying to get way more money out of us.”
Well, of course, that’s because they need to make a profit, too.
But if you come to them with an agreement and say, “We can do this together. I buy plenty of houses. If we do this together, you’re going to get the business. You’re not going to have to source for new business. You’re not going to have to go market yourself. I will keep you busy as we build this relationship. But we’ve got to work together as a team for pricing. And you’ll make money, I’ll make money, and we’ll go from there.”
And then it is a better relationship, in my opinion, if you treat them as a team member.
2. Have reasonable expectations for your contractors
All of us are looking for three things when it comes to our contractors. We’re looking for better, faster, and cheaper—better quality, faster work, lower prices. Realistically, you’re not going to get all three of those.
If you find a contractor who has all three of those things, he’s got competition from a million other investors. To snag him would be to capture a unicorn.
Ultimately, somebody is going to be willing to pay more. So, it’s no longer going to be the cheaper option.
Basically, you’ve got to pick two of those—two of the three, in terms of better, faster, cheaper. Decide which one you’re willing to give some leeway.
Maybe you’re not really desperate to get things done quickly. Then go for the better and cheaper option. Or maybe you’re willing to spend a little bit more money. Then you’re going to get the better and faster version.
Which one do you prefer?
Personally, I’m generally willing to give up speed. Things can take a little bit longer, because I want good prices. But I also really, really, really need high quality. Quality is my brand—I’m never going to give up on quality.
But price is where I make my profit. So typically speaking, I’m going to be willing to give up on speed if I have to give up on one of those three factors.
And there have certainly been times I’ve had to pay for the speed. Maybe because of market timing or whatever it might be. What’s right is determined by the situation.
3. Have clear contracts
Contracts make friends stay friends. Not just in construction, but also in joint ventures, partnering with family members, and so on—contracts are key.
When you’re doing business with other people, if you put this stuff in clear writing and clear contracts, it sets expectations of what is going to happen on the job. So put those contracts in place before you actually start anything. Because when stuff goes south (sometimes it does), then you go back to the contract to revisit what you all agreed upon.
What did you agree upon in terms of how to handle change orders? What did you agree upon about how to handle draws or payments? You can see in writing what was agreed to before anyone got upset about something.
So, yes, clear contracts. I don’t mean just sign the contractor’s contract. Most of those are super generic. Get some good contracts, work it out with an attorney, or do what we did in the past—steal from other investors that are friends. (As time goes on, adjust them based on state specifics.)
Clear contracts show:
- How much do you get paid?
- What is the scope of work?
- What’s the draw schedule?
- How do you get paid?
- Is there any holdback?
- What happens with change orders?
- How do you approve a change order?
These items are all in the contracts, so there are minimal misunderstandings. And we make everybody sign the scope of work, including us. We even make people sign finish packets. We try to make it as clear as possible.
Keep in mind that we think of contracts as these things that kind of bind us together on the things we agree to. But really, contracts are most important when things go south. We don’t need contracts when everything’s going well, everybody is happy, everyone is agreeing on everything. We don’t need contracts then.
The reason we have contracts is for when we disagree on something or when there’s a fallout or after something bad happens. And so it’s important that our contracts capture all those things that can go wrong and what happens in those situations where things go wrong.
Therefore, your contract should (in addition to all the great things above) contain what the penalties are if the contractor doesn’t perform. What should the contract contain if you don’t perform?
What do you do about things like lien waivers? Do you ensure that your contractors, general contractors, and subcontractors all sign lien waivers, so you don’t have to worry about a contractor not getting paid from the GC and then coming back and putting a lien on your property?
These are all the things that you have to think about that could go wrong, that need to be captured in the contract. That way, if and when something does go wrong (and it eventually will), you will know how you are going to remediate it.
It can be a little overwhelming at times. In reality, it’s not that complicated, though; it’s pretty simple. Most good contractors will have contracts already. Just review them. And getting an attorney involved is only going to make it even better.
If you’re like us, we did not go into this business because we wanted to deal with contracts, contractor sourcing, all that kind of stuff. We never intended to become experts in rehabbing construction. We didn’t want that at all.
We just wanted to make money flipping houses—and so the scope of our duties evolved somewhat. You (or someone on your team) will need to become better versed at dealing with contractors at some point. Hopefully this advice helps.
Let’s talk in the comment section below!