Purchasing Material For Contractors
I found a contractor I like to rehab a house I bought. Is it best for the investor to always purchase the material? I am assuming the answer is "yes" to get credit card points and prevent a contractor from charging a premium on materials. Please let me know what you do when it comes to buying materials for a flip.
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It's not necessarily the way to go, depends on the property and your contractor. The most important thing is to work with a contractor you trust 100%. I know my contractor marks some of his materials up and I couldn't care less, because he's honest about it and I WANT him to profit off of my deals and return my calls when I need him.
I've found MOST quality contractors wont' use the materials you've bought because MOST newer isnvestors will buy the cheapest pieces and parts they can find, often providing used materials and then the expect the contractor to guaratee their work. I wouldn't do that- I'm sure most people in that situation wouldn't either. In most cases, a contractor wants to provide their own materials, not because they want to rip you off, but because they know that if they use quality materials that they are familiar with, they can provide you with a reasonable guarantee.
There are always exceptions, but don't make the assumption that a contractor who will only provide their own materials is trying to rip you off, it might be a sign that they have pride and want to stand by their work.
- Corby Goade
@Patrick Goswitz Depends on the contractor. All of my work is a material plus labor type of payments so I'm not paying a contractor a premium for buying the materials. Some will float the cost themselves, but you've gotta also be quick to pay them draws on time so they can pay their guys and keep it going.
Cory points out that their is more than one way to execute. One of my friends follows this template and is very successful. I think the most important consideration when entering into a relationship with a contractor is your need to control costs. All of you interactions should be viewed through that lens. Whether you use a fixed price contract, a labor plus materials approach or, have a contractor as your partner. You can not control the costs if you are not familiar with material and labor prices. Accurate and controlled construction costs together with savvy buying equals success. Know your costs and your market! Both current value and after repair value.
Forgive me if this has already been discussed somewhere in this forum (it's pretty lengthy). It seems most people agree when hiring a GC its best to trust them with purchasing materials.
I'm not a GC but I've worked on 4-5 flips from start to finish and completed about 60% of the work myself so I have a decent amount of knowledge/experience. I work for an REI and he's been "showing me the ropes". I plan on buying my first property soon to do my own flip and plan on subbing out the majority of the work rather than hiring a GC. In this scenario, is it common to supply all the material and just hire the subs for labor or do they ever supply their own material? I imagine it would depend on the trade and if they work for a company or if they work for themselves. I have no problem purchasing material I just wasnt sure how most people go about it when subbing out the rehab.
Hi Patrick, there could be arguments on both sides.
When I was starting out, I used to purchase the materials for contractors and have them pick them up at Home Depot and I did all the shopping myself. It took a lot of time. In phase 2 of my growth as a REI, I would have the contractor do the shopping and used Home Depot's "text to confirm" system where you can see all the items the contractor is purchasing (with pictures, quantities, and pricing), and then you approve the purchase (or deny it) with the credit card on file. I found it to be very useful because I was able to 1) get detailed knowledge about actual pricing and 2) control costs by establishing vendor accounts with Home Depot.
However, once you have several successful flips under your belt and have built relationships with trusted contractors and are looking to do more volume, transitioning to contractor-sourced materials maximizes efficiency. Find a company that isn’t going to gouge you on pricing but they handle the logistics so you can focus on finding more deals.
In the end, you will make more margin finding the next good deal rather than splitting hairs to save $50 on kitchen cabinets by shopping around for an hour at supply houses. Just my 2 cents
So many reasons - like you found the "deal" on some limited stock item and don't order enough to allow for the usual waste and breakage (tile) and the crew runs out of material and you can't find a match. You'll open a box of tile sometimes and the bottom 1/4 of the box is shattered or they cut weird and sometimes break going thru the saw. 10% is the minimum over allowance on tile material but depending on the actual product sometimes 20% extra is needed.
Or if it's an available product and they run short everyone is on pause while someone runs out on an emergency basis to buy more of whatever and you have a crew sitting around doing nothing.
The listed shipping date on whatever is more like a suggestion from the el-cheapo online supplier and it takes way longer to show up or sometimes doesn't show up at all. It happens even from big suppliers. Or something that takes a long time to show up and then comes in damaged the day before the crew is set to install it. (Those warehouse forklift guys love to stab and smash the boxes the big expensive vanity's come in and then give you a hard time returning the item once delivered). We always open up the boxes on those when we pick them up and about 30% of the time they are damaged in some way.
When you rehab there is always some can of worms that pops up when you open the walls - the more you squeeze out of the contractor on a line by line basis the more they will up charge when that water line no one knew was there is discovered in some wall it shouldn't be in or the electricians on the original build decided to run the entire houses circuits for the ground floor and second story thru some ugly soffit in the kitchen that looks like it's there for no reason.
Permit inspections - in some cities it's a smooth process others it's a nightmare. For something as simple as a deck the permit approval takes a MONTH then they want to inspect the hole for the footers, then they want a separate inspection once the footer is poured and the window to get those inspections done is from 1-3pm and maybe the guy shows up in that time window, maybe he came early and you missed him and need to reschedule, or maybe it's 3:30 when he shows up in a terrible mood and fails you for some ridiculous reason, or maybe they tell you at 3:45 when you call in to see where the inspector is that he won't make it that day and you've wasted 4 hours waiting on some city employee to show up... there is no way to price that into a quote.
A more experienced contractor will have better pricing from local suppliers they use and trust than you will ever get as an out of state investor - they spent years earning those discounts and trust the product supplied.
If you are happy with the work and it's on budget - who cares how they get to the number.
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We are moving to buying materials for contractors as we can take advantage of the price discounts that come from buying materials, especially in large amounts as we do. Home Depot's Preferred Pricing program, for example, can offer discounts in excess of 15% when buying that much. We also get 2% cash back from our membership in MAREI (a local benefit to Kansas City area investors who are in that group).
For newer investors, I don't know. It's a lot of hassle and could cause issues if you miss something or buy the wrong thing. The biggest reason I would consider doing it is quality control. But if your contractor is buying bad materials, they're probably a bad contractor.
#2 Contractors Contributor
- Severna Park, MD
When you buy materials , there is no warranty and all the responsibility falls back to the owner . When you are short on materials , the clock is still running for the contractor , you get billed for that unproductive time .
The contractor is going to make the same whether you buy materials or not , its just moving the numbers on the estimate .
Years ago we were going to do a roof for a guy , a 2 story colonial 25 square , he wanted to buy materials and pay only labor . I gave him a price and a materials list and WROTE DOWN to have ROOF TOP delivery . We get to the job and the shingles are on a pallet in front of the garage . I pointed up and said roof top delivery is up there . He said that was more expensive . I said here is a ladder , call me when the shingles are on the roof . He offered $100 for us to do it , I picked up the ladder and never heard back from him .
The contractor adds what they need to the shopping cart of home Depot and shares the shopping cart with me. I look it over and purchase it and authorize them to pick it up. They pick it up. Easy.
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#1 Rehabbing & House Flipping Contributor
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when a contractor, especially a general contractor, is wandering around Home Depot with a shopping cart, he is losing money big time and guess who's going to pay for it in the end?
You may find this interesting; My broker scraped the CSLB master list & found only 210k(+-) "active" licenses left. That's out of all categories.
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Well over 1.1 million.
Hey @Patrick Goswitz - Like anything there are advantages and disadvantages like @Mathew Pezon pointed out. If it's your first deal, I think it's easier to allow the contractor to handle it...as you streamline your overall process, maybe that is the place whereyou can save down the line.
Being a general contractor myself here in Chicago, I can tell you that you aren't necessarily going to "save" any money buy materials for a couple of reasons.
1. Contractors often get better prices than consumers
2. If they were marking up materials and then switching to labor only, then the labor would be higher
3. If you don't have all materials extremely streamlined and on time, you have the potential to cause delays instead of the GC
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