Investor/ homeowner rehab cost difference?

Question

Why does there seem to be such a big difference between what rehabs cost investors & what they cost homeowners? (For example, many investors talk of doing rehab on a 50k budget--but then on the same project, many GCs will charge that much for the kitchen alone.)

Is it because the former buy materials themselves & have subcontractors install them? Do most contractors mark things up significantly? Are homeowners getting stiffed because they don't know any better?

Account Closed · Answer

@Vonetta Booker  From what I can see, investors and home owners, in general, have different foci.  The former is often willing to sacrifice quality for cost...while the latter is not.

Homeowners are usually discouraged from purchasing their own materials because they prefer the contractor to stand behind the products they install.  Most contractors will not stand behind a product they did not purchase or supply. Investors aren't as concerned about that because they intend to sell the house.

There is, of course, a markup for materials but it's not much, perhaps10-15%. All business have markups or they couldn't stay in business.

So, to sum up: homeowners pay more to get a higher quality job.  I know it doesn't always work that way but... :)

Lisa Kohl · Answer

Congrats on the project! I will typically have materials delivered in increments depending on the stage of the rehab. That way I can account that everything was received and make sure everything is in good shape. Plus, storage for such items can be problematic. If you hire a GC they will most likely want to order materials, just know what you are paying for- also if there are certain things you want to tackle like bathroom vanities, appliances or kitchen cabinets then you can certainly order those yourself if you happen to get a better deal .When I first got started it took a lot of bidding out to find the right people. My advice is to be upfront and let them know that you are an investor and there will be more work to come. I don't know how it is where you are from but winter time tends to be slow time for contractors therefor should help with the pricing. Also if you happen to go to local REI meetings ask around for a good contractors.

Vonetta Booker · Answer

Thanks for your input, guys. @Lisa Kohl, what's the best way to get materials for your subcontractors to install, have them delivered or picked up? (I'm thinking the former...)

Also, what is the best way to bring up the conversation of a lower investor (vs homeowner) rate? With many of the ones I've talked to, they seem to still have those homeowner prices in mind even when I make clear this is a flip.

Mind you, this is my FIRST flip (yay!), and it looks like I'm starting off 2015 by finally putting into action all the REI I've been eating, sleeping & breathing for the past two & a half years. But even though I'm confident, I'm still new at this, there's a leading curve in actually DOING it--and I don't want to be taken for a ride. We close on the 29th if all goes well, so I'm just trying to get all my ducks in a row (i.e. SOW, vendors, GCs, etc) before then. Thanks for bearing with all my questions, lol ;-)

Lisa Kohl · Answer

If you're a homeowner general contractors will always quote a retail price. If you're flipping properties general contractors will usually give a lower price. This happens because they know they will continue to do repeat business with you and the work environment comes with a lot less hassle vs dealing with a homeowner which can be challenging. Materials are also marked up which is why I purchase all materials for our flips then have the subs install.