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Rehabbing & House Flipping

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David B.
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Contractor suddenly over budget by 40%

David B.
Pro Member
Posted Mar 24 2023, 04:43

Hi everyone 

I’m in the middle of my first flip. I locked up a single family home (roughly 2600 sq feet) with 5 beds and 3 baths for $454,000.

The ARV for the area tells us we can probably sell the house for 685-700k on the other side. We underwrote at 650k to be safe.

My contractor initially came in with an estimate of 98k for the rehab. This would encompass new floors, dry wall, electrical/ plumbing, and two new kitchens (upstairs and mother in law suite). Keep in mind, this was for zero exterior work… which I was considering having cash on hand in case we needed a new roof. We couldn’t tell when we bought it cuz it was covered in snow. 

Last week, he mentioned the budget was going over a little and we should talk about it. So we finally hop on the phone and tells me that we’re at 121,000 all of a sudden. 

I was shocked. But rather than freak out I tried to navigate how we could make that money work for us. I also decided to do some light exterior work. So I told him “look - this ain’t great - but if we can cap this at 130k - and ALSO fix the exterior - then I can live with it.” 

He then promptly came back with a bill for 142,000… 9,000 of which was “tax” 

So he’s almost 50% over budget. And frankly, the more I think about it, the less I understand HOW this number has blown up. 

We’ve had a couple overages, but not many, and most of the stuff we’ve done was completely within the scope of work in the initial bid. He also has only taken two draws at this point - for a total of 40k. That 40k has covered the demo of the house, dry wall, and handled most of electrical/ plumbing. We’re *basically ready for cabinets and flooring at this point, and then paint and fixtures. 

So I don’t really understand where this extra 100k would need to go. Or how he ever let it blow up to begin with. I went through the budget with him, but frankly it still doesn’t make sense. The budgeting seems VERY loose. And that 10k tax? As soon as I brought it up he went “oh good catch” and then eliminated about 6k of it. To me, it doesn’t make sense to pay ANY tax… I pay materials and labor and whatever tax there is should be included in that no? 

This is my first flip and while Iv tried to implement all the strategies Iv learned about on BP, this one is throwing me for a doosie. 

What are my options for a contractor who’s  this much over budget? I really like this guy - and had thought we would work together on more projects - but this is pretty inexcusable. He’s taken a deal I worked hard to get, where I thought my floor profit was 50k, and made it so now i could LOSE money if we get stuck holding the property too long. 

Do I fire him? Refuse to pay the overages? 

Any insight would be really helpful. Thanks in advance. 





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Josh Hurles
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Josh Hurles
Pro Member
Replied Mar 28 2023, 22:02
Quote from @David B.:

Actually - one specific questions now that I’m getting into some details with him…

he’s claiming we spent (or agreed to spend) 48,500 on demo electrical plumbing drywall framing stucco and windows. 

However, Iv only given him 40k in draws. And none of these overages were cleared with me. So do I have a right to cut him and not pay the additional 8,500? 

I’m not trying to rip the guy off. He hasn’t provided a single invoice and it seems as though he pledged money to people that supersedes the scoped of the budget without telling me. He also said - in text - that he added things BACK into our budget without adequately informing me, hence why costs went up (insane) 

So am I on the hook for what he’s pledged his subs? Obviously I could put that 8,500 back into the house and help move this along. 

Thanks guys 

Refer to your contract & signed proposal and you should have what his bids included.

User Stats

28
Posts
8
Votes
Josh Hurles
Pro Member
8
Votes |
28
Posts
Josh Hurles
Pro Member
Replied Mar 28 2023, 22:08
Quote from @David B.:

Actually - one specific questions now that I’m getting into some details with him…

he’s claiming we spent (or agreed to spend) 48,500 on demo electrical plumbing drywall framing stucco and windows. 

However, Iv only given him 40k in draws. And none of these overages were cleared with me. So do I have a right to cut him and not pay the additional 8,500? 

I’m not trying to rip the guy off. He hasn’t provided a single invoice and it seems as though he pledged money to people that supersedes the scoped of the budget without telling me. He also said - in text - that he added things BACK into our budget without adequately informing me, hence why costs went up (insane) 

So am I on the hook for what he’s pledged his subs? Obviously I could put that 8,500 back into the house and help move this along. 

Thanks guys 

In the line of work I do if we cannot perform after signing a contract owner or GC you are bound to that contract and if you can not perform your scope they email and document that you  the sub need to increase production and then if you do not keep the schedule they can hire another contractor to perform the work to keep the schedule and then back charge you if there is money left on the contract or sue you for the difference they came out of pocket.



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