Working with contractors

14 Replies

Good morning BP family,

I am new to the real estate investing world and I have a few questions.  I am meeting a realtor at a property in the Puyallup, Wa to take a look at a potential deal.  My questions are as follows:

1. should I have a contractor there to run estimates or does that come at a later date?

2. if I have a contractor there, what questions do I need to expect from the contractor and what questions do I need to ask the contractor?

thank you reading and have a good day.

Leonnard

Hard to answer your questions without more information. Why are you looking at the property?  What makes it a deal? Are you planning to fix and flip?  Buy and hold? Wholesale? What is your RE strategy?  Don't look at Real Estate Investing as a transaction. It can be a very painful mistake. 

Here are my thoughts on your questions based on the info provided....

1. should I have a contractor there to run estimates or does that come at a later date?

Depends on the circumstance- if you know it's likely that you'll be placing an offer and need to do it quickly then yes it's ideal to have everyone there especially when you're just getting started. I caution though- do not expect your contractor to walk thru every single house with you. Get good at taking a lot of pictures of prospect houses to forward via email for ball park estimates.

2. if I have a contractor there, what questions do I need to expect from the contractor and what questions do I need to ask the contractor?

As mentioned above, these questions will depend on what your strategy is. Will this be just a paint and carpet or are we talking about a full gut rehab? Once you determine that, the next questions should be "How much" "When can you start" and "When will you be completed"

Until you have done a few deals and established a relationship with your contractor they will probably not want to bid or walk through houses unless you already own them or at least have them under contract. I'd recommend getting a deal under contract and then getting estimates during the inspection period.

Thank you for replying Emilio. The property is listed at 89k and from the realtors comps, ARV would be at 200k. Located in a middle class neighborhood with schools and shopping close by.

Lisa,

Thank you very much.  That helps out a lot.

Matt,

Thanks for your reply.  Great advice!

89k is dirt cheap for anything in Puyallup! I would expect the place would need a ton of work just based on the price. A contractor couldn't do an accurate assessment in a walk through, although it would be a good idea to bring one just to assess the obvious things. And I'd just let him take it all in. Then I'd have one accompany an inspector during the inspection. Unfortunately, that comes after you've made an offer, and the inspection is cash out of your pocket.

I'm a GC in Fort Worth, Texas, with 7 crews and two other estimators besides me. We're all busy. Running a full-rehab estimate takes me a couple hours for the visit (drive time + onsite), plus anywhere from 2 to 10 hours, depending on complexity, to write it up. AND, investors are the lowest-margin clients. AND, new investors - because they're new - require a lot of handholding. 

I work with new investors all the time, and end up trying to help them navigate through all the stuff that they need to learn (and all the stuff some guru told them that they need to unlearn), but I WON'T go do an estimate on a house you don't already have under contract. Even if you have it under contract, but are in your option period, I'll probably do more of a general walkthrough and ballpark, plus I'll look at the inspection report and give you some ideas. I want to help you have information to make your decision, but really don't want to spend 10 hours working on a detailed estimate only to have you exercise your termination option. Once you're really set on the contract, we can work through specifics and get you on the schedule for right after you close.

If we have an established relationship and have done projects together before, of course, I'm a lot more flexible on that. But you can't imagine how many calls good contractors get from new investors.

If you go to some local investor group meetings, you can get some recommendations from other investors about contrators, may even meet some investor-friendly contractors there. Once you've established a relationship with a contractor, he might be willing to do a quick walk-through and give you a ballpark, but doing a real rehab estimate takes time, and even there, there are a lot of things you cant discover about a house in even an hour or two of examining it.

Also, just a note...if you call a reputable contractor like me, get realistic advice, take up hours of their time, then hire a couple of no-overhead guys working out of their truck because they're 10% cheaper and made a bunch of promises they'll never keep....well, karma knows you did that ****. :)

This is one of the reasons that I ask over the phone what they want done on the property, it helps me size the work or size of the project. I do not do simple bathroom or kitchen remodels, i know a lot of unlicensed and 2-man GCs as @Michael Hayworth mentioned that if you dont pay them, they can't feed themselves, that can do it a lot cheaper. I like the complex jobs and gut-out rehabs, specially if it involves issues that those 2-man contractors won't be able to handle. 

My advice to you is, get the house under contract first, even buy it first. if you want a bid, either ask the inspector or pay the contractor for his time or else you will potentially burn all the good ones pretty fast. I don't do anything cheap, but I could guarantee 6 months in labor and materials.

Before buying, you need to learn the end game, not the contractor to tell you what you want for an end game. I walked a couple of investors a few weeks ago when I started to try to penetrate the residential market, there are three issues that I encountered, 1) most of them don't know what they want, not even a floor plan with scope of work, which renders the bids from us contractors like comparing an orange, an apple and a rotten grape. 2) They want the best contractor with the cheapest price, the best quality and to be done yesterday. I don't see any contractor that can do all those. 3) I never get back the results of the bids nor feedback, I am ok if they go with others, at least give me feedback to improve my bid for the next client by letting me know strengths and weaknesses. 

With that said, you need to take lead on what you want done, write it down so you could show the same things for the 3 contractors before choosing one.



Originally posted by @Michael Hayworth :

I'm a GC in Fort Worth, Texas, with 7 crews and two other estimators besides me. We're all busy. Running a full-rehab estimate takes me a couple hours for the visit (drive time + onsite), plus anywhere from 2 to 10 hours, depending on complexity, to write it up. AND, investors are the lowest-margin clients. AND, new investors - because they're new - require a lot of handholding. 

I work with new investors all the time, and end up trying to help them navigate through all the stuff that they need to learn (and all the stuff some guru told them that they need to unlearn), but I WON'T go do an estimate on a house you don't already have under contract. Even if you have it under contract, but are in your option period, I'll probably do more of a general walkthrough and ballpark, plus I'll look at the inspection report and give you some ideas. I want to help you have information to make your decision, but really don't want to spend 10 hours working on a detailed estimate only to have you exercise your termination option. Once you're really set on the contract, we can work through specifics and get you on the schedule for right after you close.

If we have an established relationship and have done projects together before, of course, I'm a lot more flexible on that. But you can't imagine how many calls good contractors get from new investors.

If you go to some local investor group meetings, you can get some recommendations from other investors about contrators, may even meet some investor-friendly contractors there. Once you've established a relationship with a contractor, he might be willing to do a quick walk-through and give you a ballpark, but doing a real rehab estimate takes time, and even there, there are a lot of things you cant discover about a house in even an hour or two of examining it.

Also, just a note...if you call a reputable ntractor like me, get realistic advice, take up hours of their time, then hire a couple of no-overhead guys working out of their truck because they're 10% cheaper and made a bunch of promises they'll never keep....well, karma knows you did that ****. :)

Michael, 

When you do a full estimate, the 10 hour job, how close does your final price match the estimate?  Is there a guarantee or how does that work?  What input or help do you need from the investor or do you take the lead?

After completing about a dozen full-blown rehabs I don't need to have any contractors come as part of my due diligence. I'm able to determine a ballpark rehab budget on my projects by paying close attention (and taking photos) during the walk thru. 

Starting at the top...roof, siding, windows....going all the way down to the mechanicals in the basement. I always assume the worse, which offsets surprises (pleasant or otherwise) and my numbers usually turnout to be pretty close to the actual project cost.

I don't bring in contractors to quote until I know my floor plan, design and full scope. It helps to minimize change orders.

Having a G.C. there is great, just remember their time is not going to be free.

@Ryan Hall , in most cases, a good contractor's "estimate" is really a fixed-price proposal. The final price shouldn't vary from the proposal unless the client changes the scope, or unless there's hidden damage that requires rectification. There are things that I can't see during the estimate, though - they'll be revealed when we remove the sheetrock, pull a light fixture and find fried wiring, something like that. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here