Difficulty securing contractors

32 Replies

Good morning all!

I am eager to get started with trying my hand at some house flips, and one of my concerns surrounds contractors.

How do you get contractors on board in a market where they are struggling to find enough help to complete the existing obligations, material prices are sky-high, and as a starting flipper, I don't have enough volume to be attractive to the contractor.  I've had trouble getting people to come out for personal jobs even knowing I have cash.  Likewise, when I speak to builders, they complain constantly that they are running into issues with their subcontractors, and these are people with long-term relationships that are able to bring higher volumes of work.  I don't know how to compete with that.

Am I jumping at shadows? If not, looking for strategies people currently use that have been helpful.  

Thanks in advance!

Where I'm at the licensed GCs are so swamped they basically don't pick up the phone and if approached in person will walk the other way.  There is another tier to the market, the unlicensed "handy men", who have proliferated to fill the need gap in the market, and competition with each other has motivated them to be better than their previous reputations for showing up on time, giving reasonably accurate estimates, and getting quality work done on time.  The ones who live up to those standards get repeat business and word of mouth gigs because demand is insatiable, so one way to get a idea of how good they are is their level of organization, staffing, tools, and equipment.  If they look like a GC in all but paperwork, it may be worth giving them a try if those GCs are still hiding away from customers.

@Ronald Allen Barney

Sorry, but this is horrible, horrible advice.

Unlicensed and uninsured workers on your job site is a law suit waiting to happen. Just let someone get hurt on the job and you will have lawyers on your tail with the very real threat of them sicking the IRS and your state’s workmen’s comp board on you to boot. Drop your pants time.

In Georgia you can’t pull permits on anything but your own personal legal residence even as the owner. No license, no permits. No permits, be ready to be called out on it when you go to sell or refinance the property.

There is an extreme shortage of skilled workers, schools have done a great job at convincing people that college is the only way to make a living the last couple decades. You will not be able to help your contractor find skilled workers that is 100% out of your control.

As far as volume goes, my best suggestion is to not tell prospective contractors that you're even a investor at all on their 1st project with you. Less info is more. If they ask then don't lie but, Alot of contractors select their customers in the same way a landlord should select their tennats. Alot of contractors want little to do with investors for various reasons. Especially if you're price shopping or trying to justify that they should charge less because you'll have volume of work etc. 

in the sense of a business why would you trade volume for profit margins? Think if you had 100 rentals and cashflow $100 each. Sure you could make $10,000/mo but you could also have 33 units that cashflow $300/mo and make the same $10,000 with 67 less headaches to worry about every month. The same logic applies to owning a small contracting business. 

Now picture owning a quaility construction, electric, plumbing or hvac company etc. Would you rather be obligated to work littleraly non-stop to make money? Or would you rather only do profitable jobs and work less to make the same cash? Then you have time to pursue more profitable jobs and free time with your family.

alot of the problems people have with contractors is because they price shop so much that it becomes a race to the bottom for the contractors. The lowest price is the going out of business rate in the trades. If your jobs don't sound profitable to a prospective contractor then they probably will not want you as a customer unless they are desperate.

@George W.

Yes!

As an investor I don’t buy a property with no margin. As a contractor I’m not taking a job with no profit margin. There’s opportunity cost associated with this too. Contractors market only so they can turn down low margin jobs for the higher margin jobs.

Also, I recommend all investor drop the “investor friendly” phrase completely from your vocabulary. It’s not so code for “I’m a cheap SOB”. The words out y’all.

Thanks for all the great feedback guys!  I'm not trying to race to the bottom because I can't afford it;  On the contrary, I actually have hard capital with no lending required.  I'm a big believer that business transactions should make us both happy.  My greater concern is getting somebody to call me back at all since I'm not bringing them a ton of work.

Sounds from some of the feedback here that my volume won't make a difference in getting dialogues, and I'll just need to get in there and see what the reality is versus my perceived realities and fears.

Thanks for the tips!

Eliminate the hassle that your contractor has to go through. The sales process for a contractor on a property rehab is in-depth and investors are stingy. Don't play the game where you're afraid to state your budget because you don't want them to max it out. Tell them you have $50,000 to remodel this property and you want to rent it for $1,800/mo and then ask how much you can get done for that. If it works for both of you then great. 

We receive 5-10 calls per day and numerous emails. I don't visit a single job site to give an estimate, I tell them a low end and a high end and if they want to move forward only then will I get more information. Shoot over some pictures, shoot over your budget, shoot over your timeline, I have done kitchen remodels for $3,500 and kitchen remodels for $65,000. You need to be upfront with your budget and expectations. I just tried to help out someone from this site and I couldn't get a single one of my subs to check his property out, I ended up bidding the job ourselves in conjunction with just one sub contractor. 

All of our in-house guys are skilled and have been with us for a long time, we pay them well and we charge accordingly. If you want a good contractor you can't be penny pinching or you're going to end up with a guy who sold the job too cheap and is jumping from job to job kiting along the 50% deposits until they're all burned out and your project is 6 months behind schedule. 

Originally posted by @Jon Stephens :

Thanks for all the great feedback guys!  I'm not trying to race to the bottom because I can't afford it;  On the contrary, I actually have hard capital with no lending required.  I'm a big believer that business transactions should make us both happy.  My greater concern is getting somebody to call me back at all since I'm not bringing them a ton of work.

Sounds from some of the feedback here that my volume won't make a difference in getting dialogues, and I'll just need to get in there and see what the reality is versus my perceived realities and fears.

Thanks for the tips!

Back to the less is more logic, most contractors that you're calling will assume that the financing of the project is not an issue and already figured out to some degree. 

Not saying that you don't have the capital but to me a major red flag is when some one is over top with assuring I will get paid. Everytime I've ever been burned was when I was assured I'd be paid a 100 times.

As for getting phone calls returned sometimes its more about how things are worded. Like Tony mentioned "investor friendly" does not sound good. Saying "I'm flipping a property", also can instantly siphon you out as a prospective client. "Im looking to rehab a home" would sound much better in my opinion. 

Originally posted by @George W. :
Originally posted by @Jon Stephens:

Thanks for all the great feedback guys!  I'm not trying to race to the bottom because I can't afford it;  On the contrary, I actually have hard capital with no lending required.  I'm a big believer that business transactions should make us both happy.  My greater concern is getting somebody to call me back at all since I'm not bringing them a ton of work.

Sounds from some of the feedback here that my volume won't make a difference in getting dialogues, and I'll just need to get in there and see what the reality is versus my perceived realities and fears.

Thanks for the tips!

Back to the less is more logic, most contractors that you're calling will assume that the financing of the project is not an issue and already figured out to some degree. 

Not saying that you don't have the capital but to me a major red flag is when some one is over top with assuring I will get paid. Everytime I've ever been burned was when I was assured I'd be paid a 100 times.

As for getting phone calls returned sometimes its more about how things are worded. Like Tony mentioned "investor friendly" does not sound good. Saying "I'm flipping a property", also can instantly siphon you out as a prospective client. "Im looking to rehab a home" would sound much better in my opinion. 

Yeah, don't mess with their money lol. Obviously don't hire a sketchy guy who burns through a deposit check without much being done but have their money ready when they ask. Some guys may not have a lot of capital or may not have ANY capital and they have materials to buy and employees to pay some sections of the job go slower and that section may need more money to complete, jobs aren't as simple as they may seem. We take 50% down, then 25%, and then 25%. They won't be upfront about that, it's embarrassing for them. Also, don't try to save money by buying the materials yourself. You can specify the materials BEFORE they give you a price. Get them the exact item and the cost so they can have it in their estimate. Don't think you will save money by purchasing your own materials. 

These problems are nothing new. They are part of the reality of real estate investing that the popular media doesn't tell you about. Most flippers are looking for cheap contractors. These people are unreliable and difficult to get work done with. Good contractors are on bigger better jobs. There's no easy answer for all. In my case, I do BRRRs, I've hired my own crew of guys I supervise directly. 

@Jon Stephens

No negative intent on my part…

Generally speaking, when I’m commenting I’m also thinking about the quiet lurking learners out there absorbing things that we don’t hear from. Food for thought as it were.

@George W.

A lot of contractors select their customers in the same way a landlord should select their tenants. A lot of contractors want little to do with investors for various reasons.

Full disclosure: I am a former teacher.

Supply, demand. The schools, largely staffed by teachers with no-content bachelor's education degrees and Easy-A master's degrees in their fields from night school at state degree mills, have done a phenomenal job since WWII convincing young people that anyone who goes into the trades is stupid and anyone with any sort of ambition or promise whatsoever really needs a degree in "something they love" from a four-year school.

The young people with that ambition and drive who get through trade schools and realize they were force-fed the proverbial shame sandwich with a side of s**t from supposed professionals who can't teach their way out of a wet paper bag and are unfit to lead a three-year-old to the crapper, let alone guide the nation's youth, also realize quite justifiably that their critical skills are in such short supply today they can charge what the market will bear. So they do. And pick the customers they want to work with, just as George pointed out.

This process was just in its beginnings thirty, forty years ago when real estate investing started to become more and more popular, and only people with a real interest IN real estate and a connection with it owned properties. And it isn't the same throughout the country. In places with seriously outdated housing stock (especially on the East Coast), it seems to be a lot worse than it is in many younger, less-mature communities out west. In a place like Pittsburgh, with a LOT of high-maintenance elderly building stock, you see the extremes.

There are essentially four tiers of tradesmen. The best and most reliable work on new construction teams with major (usually government) contracts, and are always busy. The second best work for private rehab and renovation GCs that do major flips and upgrades from builder-grade to premium. The third best work semi-reliably for larger specialty contractors and accept contracts from the big box stores. So, if you are looking for someone small and cheap to do a little job for you, you are automatically selecting from the fourth-best people out there, people who were unable to work in new construction, well-established renovation, or Home Depot at a cut rate.

And here's the real kicker -- once they get big enough to put a few bucks by, what's to stop many of these tradesmen in an economy like today's from getting into the game themselves and realizing they can pay themselves more in increased equity and increased rent than they can make working for others? This is what happens to all the best handymen in my experience and in my area. My plumber is my main mentor. He can buy and sell me a few times over, and of course he owns an apartment building on the side. The guy whose business model I'm following most closely was an immigrant who was one of Fred Rogers' apprentice stage carpenters back in the day -- by the time the show ended in 2001, this guy had eight SRF rental properties in his target area, and he expanded to twenty-five before he retired and got out in 2010.

@Jim K.

I’ve found that contracts are apt to work off of referrals. For example, the contractor I currently use was a referral from a high volume friend. Do not haggle, rather get multiple bids. Either they are too busy and over bidding or they are a legitimate contender and their skill set is in high demand.

I have contractors come out who are more expensive than they used to be, but still offer extremely fair pricing and responsiveness. These same contractors won’t even call back the guys who referred him to me, because they constantly try to nickel and dime them.

Multiple line item bids can give you a sense of what things should cost. Keep a spread sheet, dial in on your own estimations and work your network.

If they are insured and professional, there is nothing wrong with trying out a young guy from a local meet up, BP or Facebook group.

Lastly, I caution to you have a realistic time frame and penalties built into the contract. They will job hop, so tighten up that contract. I recently ran into this problem as well.

Originally posted by @Eric James :

These problems are nothing new. They are part of the reality of real estate investing that the popular media doesn't tell you about. Most flippers are looking for cheap contractors. These people are unreliable and difficult to get work done with. Good contractors are on bigger better jobs. There's no easy answer for all. In my case, I do BRRRs, I've hired my own crew of guys I supervise directly. 

 @Tony Gunter says you can't get permits, lol.  "You stop painting that house right now, mister!"

@Ronald Allen Barney

Who exactly needs a permit for painting? What a lame example to use. Seriously.

I know what I’m talking about. I’m a licensed General Contractor in the state of GA. You have to sign an affidavit in GA starting it is your legal residence AND that you intend to live there for 2 years post work to pull any permits. Lying on a state document is a class B Felony in GA punishable by 3 years in the state slammer.

Go for it.

Originally posted by @Ronald Allen Barney :
Originally posted by @Eric James:

These problems are nothing new. They are part of the reality of real estate investing that the popular media doesn't tell you about. Most flippers are looking for cheap contractors. These people are unreliable and difficult to get work done with. Good contractors are on bigger better jobs. There's no easy answer for all. In my case, I do BRRRs, I've hired my own crew of guys I supervise directly. 

 @Tony Gunter says you can't get permits, lol.  "You stop painting that house right now, mister!"

 I'm in TX. The 5 Plex I'm currently rehabbing is outside city limits. There is no one to even pull any permits from, lol. 

@Eric James

Texas is different. There’s no professional licensing requirements for contractors. When I lived there all I had to do was call muses contractor, pay for the city license and have at it.

I actually had an issue selling my house in Denton due to this. My company relo company was buying the house. There was some minor water staining inside the cabinets from water getting past the silicon between the countertop and the backsplash. They insisted a licensed General Contractor had to inspect and issue a letter stating it was not an issue. Well, Houston, we have a problem. Texas doesn’t have any of what your asking for.

@Jon Stephens the key to flipping—and I have 40—is to have a solid contractor base you can trust and rely upon. About the only thing I can do well is paint, so I have had to hire many different people, but my go to guy is named Sam. Sam has been my trustworthy GC for 15 years and we began at $25 an hour and just finished a flip weeks ago at $40. He now wants to jump to $50. I do text to confirm at Home Depot and pay him for his time to shop for me, and the pro desk and cell is connected to my credit card. Obviously, trust had been earned! I am tired however as materials have shot up and Sam now is twice as slow at 55 years old and his price has doubled of course. He is still a deal but his hip has been replaced and now his knee is needed. He will no longer get on ladders and will not paint, but I can only imagine that all my flips have worn out his body

The key to finding a good contractor is finding one that does NOT have a fleet of 10 new trucks. Find one that has massive experience and has an old truck. A guy with diversified experience and let them know you will be a repeat customer so relationship is vital! I hear and see so many getting burned by flaky contractors. This is not rocket science, so vet your choice and find a go to GC you can build your business upon. I have always wanted to write a book, “Sam and I” as we have done our RE much differently. I flipped houses and he bought and held knowing so many old folks who let him buy on owner carries. He now has 13 houses and several paid for. He was a good old boy, but he also had a RE plan! We each built our wealth but it looked differently! Sam and I. You need a Sam!