A Fair Price to Pay Contractors - Per Rehab

12 Replies

Hello,

First post on BP.  

I'm in the earlier stages of writing a BP to acquire and lease rental homes.  I'd like to outsource the rehabs to contractors and consider their wage in terms of the "total investment" of the subject property.  

I was thinking a good way to determine their wage would be to consider it a percentage of the bid or SOW.  

For example, if the contractor bid a house at 10k, suppose I cut a deal with that contractor so that they get paid 10% of the bid.  In this case, 1k.

Of course, I'd have to stay on that contractor to make sure they're not overbidding as a mean to increasing their commission.  

What would you suggest as a fair percentage of the bid as a payment (10%, 15%, 20%)?  Or is there perhaps a better way of doing this.

Thanks,

-wormbite

So you are not flipping the house for retail sale but buying and rehabbing to get rent ready and hold long term correct??

The contractor labor rates for the area will be dictated by some degree to how construction has recovered in your area. If construction is booming and they are working on larger jobs then it will be very hard to find affordable good quality contractors at good prices.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

We have no idea what you're talking about.  Their "wage" as a percentage of their bid?  Their bid, is their bid.  There's no "wage" involved.

A contractors bid includes their pay, profit and overhead spelled out in a contract.  If you are talking about someone who is a handyman and just works by the hour or talks about "cost plus" that is different.

Cost plus is negotiable but 10 % is fairly standard.

Thanks, ya'll!  This sites amazing by the way.  

Yes, I'm planning to rent and hold long term in DFW.

What I want to do is make a deal with a contractor before I start this business, and rather than negotiating the contractors cut for each rehab, I'd like to negotiate their cut before hand as a function of the SOW (i.e., the cost to convert the property to rent ready condition).  I could be wrong, but my intuition tells me this could be a good way to expedite this process.  So, if I agree with their SOW (say 10k), I would assume his fee would be 10%, or 1k.  etc.    

Based on your experience, is that a fair ratio?  Seems a little low to me.

-worm      

In the DFW area good contractors are hard to get scheduled right now,,,if you go asking for some sort of discount or paying them with anything other than cash,,they will laugh at you.

I just got through waiting nearly 2 months for my favorite contractor to work on a ceiling in a living room, it wasn't an emergency, and I have to wait while he does $50k bathrooms in rich areas, to come work on my rentals,,,thats the way it is right now

And BTW, I still don't understand what your talking about 10% of their bid etc..please explain, I must be a little slow

Originally posted by @Phillip Stevenson :

Thanks, ya'll!  This sites amazing by the way.  

Yes, I'm planning to rent and hold long term in DFW.

What I want to do is make a deal with a contractor before I start this business, and rather than negotiating the contractors cut for each rehab, I'd like to negotiate their cut before hand as a function of the SOW (i.e., the cost to convert the property to rent ready condition).  I could be wrong, but my intuition tells me this could be a good way to expedite this process.  So, if I agree with their SOW (say 10k), I would assume his fee would be 10%, or 1k.  etc.    

Based on your experience, is that a fair ratio?  Seems a little low to me.

     

Still very, very confused...

Using the example above, if the contractor gives you a bid of $10K, what do you think that includes?  Do you think that's just the cost of materials, and he's getting paid 10% of that for his labor?

Basing the labor cost on the material costs doesn't make sense -- if you pay one contractor to install a $1000 set of appliances and another contractor to install a $10,000 set of appliances, the second is getting paid 10x as much for the same amount of work.

Or are you saying something else?

In contracting , the contractor isnt receiving a "cut" , they are charging for the work performed . Each project is different , I dont believe you will find any contractor to work under what you are proposing .  The best you may get is a time and materials price .  You may want to talk to some local contractors to get a understanding of costs before you jump in unprepared.   

As people are trying to explain, the contractor's "cut" is included in the SOW bid. The bid for the SOW generally consists of materials + (man hours X hourly rate). Their "cut" is built into that hourly rate. 

If they give you a bid based on the scope of work that's 10k . . . then 10k is what you pay. There is no additional "cut fee" or anything like that. 

Correct me if I am wrong, but it seems that you are suggesting that if a contractor gives you a bid for 10k of work at a property, then you want to pay him 1k ( 10%) now and hold off on paying him until a later date.... Is that correct? 

If that is what you are saying, I can't see a contractor agreeing to that. If you have a decent contractor and he gave you a fair price of 10k for rehab work, then he would have to buy a lot of material and carry that cost till he gets paid. Contractors don't usually make 90% profit on jobs where they can wait to get paid their profit until a later date.

Okay guys, I think I understand why this concept is inapplicable.  

-worm

Here in Dallas most contractors will have the investor go to home depot and pay for the materials and then all you owe is the labor.


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