Construction companies have poor presence on BP
Contractor · Indianapolis, IN · Member since 2016 · 267 posts · 144 votes
Construction companies have poor presence on BP
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesI think part of it and based on my personal experience in Indy.. is there are two opposing forces working.
the investor who wants to buy and rehab a property for as cheap as possible to make the numbers work.
and contractors who give honest quotes but don't get a lot of work with rehab investors because there is no money in it for them doing 15 to 30k rehabs..
that leaves very much bottom of the barrel hand to mouth contractors running around that will take on those small jobs.. they have no money to buy materials.. and we as consumer take on huge risk paying in advance.
103 Replies
- Contractor · Indianapolis, IN · Member since 2016 · 267 posts · 144 votes7y
@Ross Denman if I could vote for that post more than once I would. Thank you for the insight. You gave me a few good ideas and an epiphany.
I saw Dave at the last meeting, I'll make a point to approach him on the 9th.
That's an awesome tip about the Marion county permits. I'll definitely be pulling that up in the next hour to start "combing" through it and making calls. I had no idea.
I appreciate the time a lot Ross.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes7y
Originally posted by @Storm S.:
@Chris Mason I disagree with your definition of off market. I often bring deals where I’ll call a apartment owner and I convince the seller to sell directly to one of my clients, and I don’t take a listing agreement. There was one realtor involved, me but the deal was still off market.
In that very rare circumstance you describe, I'll go ahead and concede.
Most of the time when someone describes something as "off market" that they got through a Realtor, what they really mean is that the market exposure has been:
1) That Realtor.
2) All the other Realtors in that office.
3) The immediate friends/family of all those Realtors.
4) 8 different facebook/instagram groups.
Basically people often define "off market" as "not yet on the MLS," when in reality it's being marketed to many many people via other platforms... if it's being marketed to a wide audience, it's not "off" market. My $0.02.
But, again, I'll concede your example as an exception. :)
- Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes7y
I think you have a few challenges:
- What you are looking for are investors who understand how contractors work and know what a reasonable price is. For example, there's a countless number of investors that get burned when they take the lowest bid. As you know as a contractor, most GCs that know what they are doing will always do de-scope meetings with their subcontractors. To properly do a de-scope, you need to kind of need to know what you are talking about or at least have the data to back it up. Most smaller investors don't have that luxury.
- The other problem is that it takes time and effort to do a proper bid. Most projects we do is in the $500k to +$1 million range. It takes months for us to properly do the bidding. And we are often bidding for jobs that won't start in a year or two. Doing all this allows us to generally nail our gross margins even when there are hiccups on a job. But since most smaller contractors do not have the luxury to do a very careful bid, they account for that by bidding at much large gross margins. I know smaller contractors where their gross margins are in 40 to 50% range. They still get the job because they have the reputation and track record but those margins wouldn't fly for larger projects.
The above factors make it very difficult for new, smaller investors to find a contractor that is good, timely, and inexpensive. It's a problem with no excellent solution.
Just out of curiosity, what does your company normally do? Sell materials, install, or both? Do you guys have any proprietary products or are you guys mostly focused on being a dealer for other vendors?
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
- Contractor · Milltown, NJ · Member since 2016 · 297 posts · 213 votes7y
@Joshua Howaniec I’m a licensed electrical contractor in NJ. I also work full time for an electrical contractor. I work primarily for single and multi-family investors and spend a few hundred/year on advertising(networking would be a better way to describe it). I refuse to pay someone else to market my business, and my plate is healthily full. As for the electrical contractor I work for, his revenue is approx. $10m-$15m /year, and he he spends less on advertising than I do. Oh and neither of us have a functioning web site. Networking and relationships are a very big deal in construction.
- Contractor · Indianapolis, IN · Member since 2016 · 267 posts · 144 votes7y
@Chris K. thanks for the insight.
Since you asked, we are a retail operation that looks to sell the product and the install. Though for a competitive edge we will separate the two. Occasionally someone doesn't need us to do the install as they have their own installers. Other times an investor will only want us to do the install. This usually provides an opportunity in itself because once they accept the install quote its a natural up-sell to ask if we can give them a quote on their materials. If we are close we will usually get both the install and the product.
We do not have any propriety products at this time, I would say at this point we are fashioning ourselves to be uniquely placed to work with investors, builders, etc. All the above challenges considered I do think there is a place for us with the right strategies and methods.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes7y
Originally posted by @Dennis M.:
Most contractors in my area *are so busy they don’t have time to be online drumming up business ! Either that or they are at the bar getting drunk . Not all .. but many
Well this past weekend they were at the Jellystone campground with their families , and getting drunk once the Kids went to bed . 30% of the trucks there were contractors . And the RV's were not cheap . Fun weekend .
- Ventura, CA · Member since 2017 · 29 posts · 11 votes7y
@Jay Hinrichs Would you say that it would be better to start with some higher margin flips to build a relationship with a contractor and then move to a BRRR model? Or would it be best to do more homework and networking up front to find the right contractor-investor relationship and start with the BRRR model?
- Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes7y
A lot of people hitting it right on the head here: investors just don't spend enough on rehabs/turns to want to actively market to. They'll go out, do a bid for $10k and know that they'll be on the phone for two hours just to end up at cost+10% or something like that. It's the investor's job to get prices low but at the same time, most of them seem fairly oblivious to the other party and just want to win win win 100% of the time on 100% of the items. Most contractors in the current environment just don't think it's worth it for now. All that said, I do believe that we need them on here as resources for our investors, especially as Agents. We need to be able to recommend as many options as possible!
- Flipper · Friendswood, TX · Member since 2017 · 401 posts · 368 votes7y
The problem is pretty simple with most investor/contractor relationships. The investor doesn't want to pay a pro so they hire cheap, then nobody knows what to do or how to do it professional. Then there is no professionally done retail product to sell, until they can just keep throwing human life and/or cash at property in hopes to maybe recover. Making them quit, or decide they need to be in even more control (still w/out knowing what they are doing) and pay even less (getting people who know less than they do.)
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes7y
I'm way late to the thread, but just to throw it in (someone else may have said it already)... you're not wrong, but that's not really how things work. Companies like construction and more technical jobs are usually really good at what they do- construction, other technical jobs, etc. They aren't usually very good at the customer service side or communications side... because they're so good at the other stuff. They're two different skillsets.
I buy primarily turnkey properties and if there's one thing turnkey companies are usually terrible at (with a couple of exceptions), it's customer service and communication. Their brains are good at the technical stuff.
Same with handymen in general. Ugh, don't even get me started on their communication!
The only time a company like this does have a lot better communication is if they have someone hired who is that liaison between the contractors/worker and the clients/customers. Like an office manager.
- Contractor · Indianapolis, IN · Member since 2016 · 267 posts · 144 votes7y
@Ali Boone no you're not wrong or to late to the thread. Communication is a huge problem with contractors unfortunately. When I was installing for myself and even now I use just the fact that myself or my installers are good at communicating as a selling point. Odd as it may sound "we all speak English and will be prompt to communicate" closes more sales than dropping the price.
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
@Joshua Howaniec
@Jay Hinrichs
Jay nailed it, and the rest too.
Just like Real Estate Agent’s, Contractors that are looking to work with investors are chasing the cheapest bunch of potential customers out there. Why would a good contractor subject themselves willingly to that?
I think Jay is spot on regarding the BRRRR strategy. I've had to get my RE license AND my GC License as well. Only way I can make it work with any hope of consistency, so I made it my niche. In GA you can't legally pull permits on your own property as a GC unless it's your residence.
All things being equal, outside GC work is focused on the type of business that offers the best return. It’s a business.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Tony Gunter:
@Joshua Howaniec
@Jay Hinrichs
Jay nailed it, and the rest too.
Just like Real Estate Agent’s, Contractors that are looking to work with investors are chasing the cheapest bunch of potential customers out there. Why would a good contractor subject themselves willingly to that?
I think Jay is spot on regarding the BRRRR strategy. I've had to get my RE license AND my GC License as well. Only way I can make it work with any hope of consistency, so I made it my niche. In GA you can't legally pull permits on your own property as a GC unless it's your residence.
All things being equal, outside GC work is focused on the type of business that offers the best return. It’s a business.
ya that was what really worried me with the new approach to BRRRR that is on this site.. in theory sure .. in practice Oh man..
- Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes7y
I tried to do a remodel for a friend to fit within his budget and we would have had to cut corners to get it done. We ended up doing a ton of extra stuff for free and at the end we had gone way over budget and didn't even want to go back for warranty work and no one ends up being happy with it. We've done $40k full remodels on properties that make them rent ready and I've done $40k kitchens.
The contractors that can articulate themselves and the types of contractors that you really want working on your project are going to be way out of your budget. Just to give you an idea, one of my crews costs me up to $4,000 in LABOR per week not to mention all of the extra stuff we have to pay for them. We have G&L, Errors & Omissions, commercial auto, most guys will have a truck payment or two, and then we need to make a profit. I won't even look at anything if I'm not making a minimum of $1,000 a day per crew and we're smaller than some of the big fish around here.
Jay is absolutely spot on. The guys that think they can get full remodels done that cheap are truly mistaken, they don't know their numbers and they're going to have a rushed finish which will give you a sub-par product. I only take large margin jobs right now or I flip or have my guys work on our own stuff.
- Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes7y
I didn't read this whole thread but regarding the BRRRR method for us as contractors... its absolutely killer. We are finding deals where we're NET $500-$700 a month after refi. I'm 100% happy keeping my workers just working on my own projects for now lol.
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
For most investors, the deck is not stacked in your favor IMHO.
Contractors taking there cut (deservedly)
Materials cost are creeping up
Wholesalers sell the best deals to their regulars, and are squeezing the life out of all the other deals.
By the time your done the investor is left with a pretty, but over budget property. In a tighter market I really don’t know how to consistently do this without a certain level of vertical integration.
- Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes7y
Originally posted by @Tony Gunter:
For most investors, the deck is not stacked in your favor IMHO.
Contractors taking there cut (deservedly)
Materials cost are creeping up
Wholesalers sell the best deals to their regulars, and are squeezing the life out of all the other deals.
By the time your done the investor is left with a pretty, but over budget property. In a tighter market I really don’t know how to consistently do this without a certain level of vertical integration.
Start a construction company lol
- Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes7y
Originally posted by @Chris Mason:
Originally posted by @Storm S.:
@Chris Mason I disagree with your definition of off market. I often bring deals where I’ll call a apartment owner and I convince the seller to sell directly to one of my clients, and I don’t take a listing agreement. There was one realtor involved, me but the deal was still off market.
In that very rare circumstance you describe, I'll go ahead and concede.
Most of the time when someone describes something as "off market" that they got through a Realtor, what they really mean is that the market exposure has been:
1) That Realtor.
2) All the other Realtors in that office.
3) The immediate friends/family of all those Realtors.
4) 8 different facebook/instagram groups.
Basically people often define "off market" as "not yet on the MLS," when in reality it's being marketed to many many people via other platforms... if it's being marketed to a wide audience, it's not "off" market. My $0.02.
But, again, I'll concede your example as an exception. :)
I completely agree with this.
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
@Jay Hinrichs
Yeah, the proverbial “camel through the eye of a needle “.
That's BRRRR in a tight housing and contractor market IMHO.
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
@Julia Fair
Hey Julia. We’re ATL neighbors. Sent you a connect prompt.
Tony
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes7y
Originally posted by @Ronald Starusnak:
Originally posted by @Tony Gunter:
For most investors, the deck is not stacked in your favor IMHO.
Contractors taking there cut (deservedly)
Materials cost are creeping up
Wholesalers sell the best deals to their regulars, and are squeezing the life out of all the other deals.
By the time your done the investor is left with a pretty, but over budget property. In a tighter market I really don’t know how to consistently do this without a certain level of vertical integration.
Start a construction company lol
Its not funny , If you want to make money in real estate , become a GOOD contractor . If I were to buy and flip , I am risking my money , hoping to make a good return , sometimes you win , sometimes you lose . As a contractor I am not risking a dime , Deposits and draws cover materials and expenses , a good contract addresses problems and change orders . You will make money as long as You bid it correctly
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
@Ronald Starusnak
I did!
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Tony Gunter:
For most investors, the deck is not stacked in your favor IMHO.
Contractors taking there cut (deservedly)
Materials cost are creeping up
Wholesalers sell the best deals to their regulars, and are squeezing the life out of all the other deals.
By the time your done the investor is left with a pretty, but over budget property. In a tighter market I really don’t know how to consistently do this without a certain level of vertical integration.
I wholeheartedly disagree, unless you're talking about the 1 off small time investor. Then I totally agree. I tell people everyday, I'm not sure how I would start flipping today. The infrastructure needed to flip isn't easy to build.
Material costs will always go up & down. If you do more than a couple of properties, you buy a lot of stuff in bulk. Most of my houses have the small back splash for a reason lol.
Wholesalers- Become their regular. If they become too greedy, move on. There are 1000 wholesalers out there. There are short sellers, Lawyers, accountants, RE agents, and another 10 different sources to find projects.
Sure it's a tight market, but for the existing guys, we're still making a killing. Many of us use a HML + OPM for most of the equity. Meaning we can make a large amount of money doing a flip with a relative small investment.
I use both in-house and fully outsourced labor on different deals.
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Matthew Paul:
Originally posted by @Ronald Starusnak:
Originally posted by @Tony Gunter:
For most investors, the deck is not stacked in your favor IMHO.
Contractors taking there cut (deservedly)
Materials cost are creeping up
Wholesalers sell the best deals to their regulars, and are squeezing the life out of all the other deals.
By the time your done the investor is left with a pretty, but over budget property. In a tighter market I really don’t know how to consistently do this without a certain level of vertical integration.
Start a construction company lol
Its not funny , If you want to make money in real estate , become a GOOD contractor . If I were to buy and flip , I am risking my money , hoping to make a good return , sometimes you win , sometimes you lose . As a contractor I am not risking a dime , Deposits and draws cover materials and expenses , a good contract addresses problems and change orders . You will make money as long as You bid it correctly
I could say the same thing about becoming a GOOD flipper. There are plenty of flippers and contractors that both go out of business.
- Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes7y
@Syed H.
I was specifically speaking about doing a BRRRR and walking away with no cash (anybody's) left in the deal. So since it is a Buy and Hold it has to hit some other parameters that a flip would not. The hold rather than sell aspect. To be fair I didn't specify that was part of my calculus.
Your describing my destination with HRD+OPM, etc. but I’m still en route. Finish a couple projects I gave and that’s where I hope to move to.
So... “not being able to do it today” is not a considered option for me.
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