Difficulty finding the right contractor to fit my business

Sherwood, OR · Member since 2014 · 13 posts · 5 votes

Contractors seem to be everywhere, but the right contractors to fit my business seem to be elusive. I've Compiled lists and cold called by searching places like homeadvisor or angieslist, as well as go through my networking of contractors that I currently work with, but where I seem to hit a road block is finding the select few contractors that are willing to work with in my business model. Specifically I'm looking for contractors that have a work force that can tackle multiple projects at once, are motivated by repeat business, and will give me solid consistent pricing (in return for the volume of work I give them). The catch is I have access to all my finish materials (flooring, tile, cabinets, counter tops etc..) at cost direct from the manufacturers. This means they don't get to mark up the materiel. I still expect to be charged for all the install labor and any coordination time it takes in delivering materials to the job sight or scheduling between different trades. I've been very successful in the last year running my flips as the General contractor but find that I need to bring on multiple GC's to keep up with the amount of work I've been putting in the pipeline. I don't want to keep running my own projects so I can work more ON the business and less IN it. Any creative suggestions or advice about how to track down the types of Contractors I'm looking for??

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Christopher B.

Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes

11y

My plumbers took me out to lunch a couple weeks ago. We got into the topic of bad contractors and customers (from their perspective). One of them said this, paraphrasing, "if the guys says to me 'I've got a bunch of work and want to build a long-term relationship with you' I get back in the van." This is used often towards them and isn't seen as a positive by many.

The reality is they're interviewing you as much as you are them. Us investors have a reputation as being cheap, hard to work with, unrealistic, and sometimes difficult to get payment from. They view us as negatively as we do them. So when you're interviewing them remember they're interviewing you too and think about how you can gain their confidence and trust.

Finding good ones is a tough part of this business.

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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
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There are millions of houses out there, but you sometimes need to look at a hundred of them before you find a good deal.
Same with contractors... Talk to 50 or 100 of them, and you're likely to find one or two good ones.
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Account Closed
Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
11y
@Brian Butterfield It seems you would want guys who are new in business and hungry for work i.e. willing/able to work cheaply. Established contractors these days seem to have plenty of regular (full price) work so an offer of 'repeat cheap work' is of little enticement.
Also, if you remove the ability to mark-up any materials, you force a higher labor rate: a business has its operating costs and the money has to come from somewhere. Again, this is less the case for a new contractor, just starting out.
Since you're a GC yourself, perhaps you should hire and train your own crews and then groom some of them to be lead-men. That would free you up for other things.
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
11y
My plumbers took me out to lunch a couple weeks ago. We got into the topic of bad contractors and customers (from their perspective). One of them said this, paraphrasing, "if the guys says to me 'I've got a bunch of work and want to build a long-term relationship with you' I get back in the van." This is used often towards them and isn't seen as a positive by many.
The reality is they're interviewing you as much as you are them. Us investors have a reputation as being cheap, hard to work with, unrealistic, and sometimes difficult to get payment from. They view us as negatively as we do them. So when you're interviewing them remember they're interviewing you too and think about how you can gain their confidence and trust.
Finding good ones is a tough part of this business.
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Aaron McGinnis
Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
11y
What you want is someone who is established with lots of work crews, management to tackle many jobs at once, and the ability to work through problems...
None of those businesses want to (or need to) work with an investor who wants to provide finishing materials and cut the contractor out of that margin.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Christopher B.:

One of them said this, paraphrasing, "if the guys says to me 'I've got a bunch of work and want to build a long-term relationship with you' I get back in the van." This is used often towards them and isn't seen as a positive by many.

Why isn't this seen as positive? Did the contractor not want lots of business for some reason? I've had contractors that have made literally hundreds of thousands of dollars off of me over many years (and continue to), and I've yet to have one of them tell me that they don't want a long-term relationship. In fact, I can't think of any business-person who would say, "I don't want repeat customers..."
Now, perhaps that contractor doesn't believe it when he hears that. Or perhaps that contractor has some assumptions about the potential strings that would be attached, but to rule out a customer who says he wants a long-term relationships seems like bad business to me (though granted, many contractors seem really bad at business :-).
In my opinion, it's a trade-off. Would I pay a contractor the same as I'd pay if I were hiring him to do one-time repairs on my personal residence (i.e., retail work)? Nope. I would expect to pay less. But, here's what I offer in return:
- The contractor legitimately gets more work
- The contractor doesn't have to waste time giving me bids that I will reject (when I have a contractor I like, I don't get multiple bids)
- The contractor doesn't ever have to worry about getting paid (I always carry my checkbook with me)
- The contractor can save money on advertising costs -- I'll refer him to lots of other investors and he'll keep busy without advertising
- The contractor doesn't have to worry about someone who wants to cut corners (I don't do that)
- When a project goes smoothly and comes in on budget, I pay bonuses
These are the things I offer in return for lower labor costs. Seems pretty reasonable to me. Many other businesses I frequent (restaurants, supply houses, grocery stores, etc), are happy to provide me discounts, freebies, coupons, etc., for being a good repeat customer. It just makes business sense. Why wouldn't a contractor want the same thing.
Here's the problem -- most business owners who aren't business savvy don't think much about "customer acquisition costs" and "churn costs." Most business owners would be very surprised what it costs to get a new customer and what is lost when you lose a good existing customer. If they truly understood those costs, they'd be much more likely to want long-term relationships with customers...and would likely be willing to pay for those relationships with lower prices.
Personally, when I hire good contractors, I recognize that I'm getting value as well, which is I try to treat my good contractors like gold...
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
11y
@js
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Brian Butterfield
OP
Sherwood, OR · Member since 2014 · 13 posts · 5 votes
11y
I appreciate all the feed back!
@J Scott you obviously have been in this business much longer then me and it is reassuring that you view the contractor relationships the same way I do. I strive to keep the same principles with my contractors that you mentioned. My issue is the amount of work that I have is much more then the amount that my select few Solid contractors can handle. Thus the need to reach out and drive in more options. I have plenty of work so for someone to be turned off by me saying I want to give them multiple projects .would make me not want to work with them all the same. Thanks for the insight into the mind of a seasoned investor :)
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Scott Rist
Investor · Placerville, CA · Member since 2015 · 48 posts · 11 votes
11y
Great information here. I'm in the same boat as @Brian Butterfield and looking to ramp up production, but my current crew won't be able to keep up. I work as the owner builder and have 3 full time "jack of all trade" hourly employees and the rest are subs.
@J Scott How do you structure your bonuses/incentives? I've been considering doing the same thing with my crew. I really want them to feel like they are more of a part of the process and vest some more interest in the jobs.
Also, when interviewing contractors, what questions do you ask and guidelines do you follow? Is there any red flags or green lights that really get your attention?
Thanks,
Scott Rist
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Account Closed
Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
11y
@J Scott I understand what you wrote but is it really so simple?
Does quantity trump quality?
Why should a business desire a high volume of lower-paying work? Do you guarantee this high volume? How can you? And wouldn't the referrals you give him also expect a discount?
Doesn't giving lots of discounted work devalue his brand... causing his regular pricing to seem extravagant and capricious?
Many businesses offer coupons and discounts (grocery stores, restaurants, hotels, etc) but are able to recoup that loss in other ways. How can a contractor recoup, especially when the customer insists on providing his own materials?
There are other ways contractors can reward repeat customers e.g. priority scheduling, etc. without significantly decreasing their earnings and jeopardizing their ability to stay in business.
It's a complex topic; I'll be interested to read your reply.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by :
Why should a business desire a high volume of lower-paying work? Do you guarantee this high volume? How can you? And wouldn't the referrals you give him also expect a discount?
Doesn't giving lots of discounted work devalue his brand... causing his regular pricing to seem extravagant and capricious?

This is a problem that's been addressed by thousands of businesses before I ever mentioned it. My grocery store gives me discounts for my loyalty. My coffee shop does. My title company does. My ice cream shop does. Amazon.com does. Car manufacturers do. I get volume discounts at Costco. Likewise when I order business cards in larger quantity. In fact, I own another business that does manufacturing, and with only one exception, every component and part I purchase is cheaper the more I buy. I can't even begin to name all the stores that offer "Buy 1 Get 1 Free" incentives. Almost all major brands will sell at a discount to volume buyers.
You're acting as if discounts for more business and loyalty is the exception, but it's closer to the rule. Are all these businesses devaluing their brand? Does the fact that they put things on sale make their regular pricing seem extravagant and capricious?
If many of the largest companies in the world offer loyalty and volume discounts, why should contractors be any different? What makes contractors special?
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Barbara G.
Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
11y
You are asking for the impossible. Good contractors want to be paid well. You are looking for a contractor that is willing to make less of a profit.
You are looking for toasted snow flakes.
The contractors you are looking for do not exist. You want to make money by paying your contractor less. It just will not happen.
Perhaps if you want to General contract the job you can save something by hiring your own sub contractors. A manufacturer can give you a break on large volumn of a manufactured item. On the other hand when you are talking about paying for labor you are not going to find this master contractor that is willing to take less for his labor so you can make more. A good contractor just does not need you.
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Scott Rist
Investor · Placerville, CA · Member since 2015 · 48 posts · 11 votes
11y
In my case all of my discounts and priority treatment have come from ALL of our regular subs through consistency. They know our work isn't going anywhere and they always meet our schedule, but that only came after giving them job after job after job. We didn't ask for discounts up front or priority. It all just happened. We just asked for quality work in timely manner. I've found that quality work and people that can meet deadlines is well worth the price. Nothing worse than coming back to a house after a sub leaves to find they left more of a project. It's been working for us for quite awhile and haven't needed to fire anyone in quite some time.
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Brian Butterfield
OP
Sherwood, OR · Member since 2014 · 13 posts · 5 votes
11y
Originally posted by @Barbara G.:

You are asking for the impossible. Good contractors want to be paid well. You are looking for a contractor that is willing to make less of a profit.
You are looking for toasted snow flakes.
The contractors you are looking for do not exist. You want to make money by paying your contractor less. It just will not happen.
....... On the other hand when you are talking about paying for labor you are not going to find this master contractor that is willing to take less for his labor so you can make more. A good contractor just does not need you.
I'm sorry but I have to strongly disagree with what you are saying here. I Currently have contractors that turn out quality products and give me solid discount on their rates because I give them repeat business. Prime example is my contractor "David". His company did a total of $125,000 in business last year (his first year in Business) and already this year I have given him 4 projects that total over $150,000. If he is able to consistently have work from me and grow his business along side mine why would he not continue to give me a discounted rate? He still can take on full priced conventional home owners but lets face it they are only using him for 1-3 projects in a 5+ year timeline, its just good business to continue to work for a little cheaper while having project after project lined up. I'm not new to the contracting world by any means and I apply this same principle in my full time job as a project manager for a large industrial control automation company. We have tons of customers that continue to work with us because of our quality of work and the fact that we give them a discount on labor rates. Thats what keeps them being repeat customers. I feel that's not an unrealistic thing to ask for in my contractors.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Barbara G.:

You are asking for the impossible. Good contractors want to be paid well. You are looking for a contractor that is willing to make less of a profit.
You are looking for toasted snow flakes.
The contractors you are looking for do not exist. You want to make money by paying your contractor less. It just will not happen.
Sorry, not necessary true...
Here's an example:
Let's say the going rate for a plumber is $75/hour. And let's say I find a plumber who could command $100/hour, but I offer him $60/hour.
If he refuses my offer and works for $75/hour, he might spend a typical week like this:
- 30 hours earning $75/hour
- 10 hours bidding jobs
- A couple hours on the evenings and weekends talking to potential customers, writing up invoices, calling customers trying to collect payments, etc.
- Perhaps spend some time and money on advertising/marketing
In that typical week, he will earn $2250.
Now, let's say he decides to take my offer of $50/hour...this is what a typical week might look like:
- 40 hours earning $60/hour
In that typical week, he will earn $2400, but he won't have to work evenings/weekends, he won't have to deal with chasing down payments, he won't have to spend money or time on advertising, etc.
In terms of money, he makes more working for me. In terms of time and headaches, he spends a lot less while he's working for me.
In other words, it's more profitable and less headaches working for me for a lower hourly rate than working for retail customers at a higher hourly rate.
As to your point about those contractors not existing, I've proven otherwise over the past 7 years...
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
11y
The @ doesn't work on my phone..
Jscott, I completely agree with your points and have that kind of relationship with many contractors. It was my plumbers taking Me to lunch, not the opposite. My regulars get consistent work from me, I refer them often, pay them on time, and don't beat them down on price like many investors. They really like me.
However, not all contractors "get it" because like you said most aren't good businessmen. Really most business people aren't very good at business, the failure statistics don't lie. Ive found through experience that some contractors have a negative view of investors. I think many investors are cheap, want to cut corners, beat the contractors down on price, try to add to the SOW without adding to the cost, and can be slow to pay. So if this has been their experience or what they've heard from other contractors they can hesitant, and I would be too. So if that has been their experience and they meet an investor who tries to hang that carrot out there they're going to be hesitant if not fully resistant to it. Again just my experience.
I've simply changed how I approach contractors and how I propose things to them, that's really what I was suggesting to the OP. A good contractor doesn't have to work with us, they can find other opportunities. A smart contractor sees the advantages that you listed in working with us, we don't need to oversell that to them.
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Christopher B.
Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes
11y
Barbara, jscott beat me to the punch. He lays it out pretty well though, more concie as well.
We may pay less by project/hour but we provide consistent work. And the biggest challenge a contractor faces is getting consistent work. I also do my best to make their work as easy and simple as possible when they're on my job site because I truly respect their time and want them to make money off me, the faster they get the job done the more they make on the project. I provide detailed SOW's, have their materials delivered as much as possible, work to be thorough on my SOW so we can have little to no change orders and sometimes don't make change orders that I want just to keep them on schedule. I also use detailed drawings, lists, etc to make things clear so they can work efficiently even if I'm not around.
It's my goal to be very easy to work with because most customers are not. Have you ever worked as contractor for a retail customer? I'm doing a rehab for a friend right now and she is not bad. She's mot doing anything I wouldn't do as a customer and is concious to my time and efforts as she knows I'm doing her a favor. It's still very difficult, time intensive, and sometime frustrating. It's just the nature of it and she's not bad, most customers are much worse to deal with. This is big trade-off, imo, for contractors that work with investors.
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Account Closed
Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
11y
Originally posted by @J Scott:

Originally posted by :

Why should a business desire a high volume of lower-paying work? Do you guarantee this high volume? How can you? And wouldn't the referrals you give him also expect a discount?
Doesn't giving lots of discounted work devalue his brand... causing his regular pricing to seem extravagant and capricious?
This is a problem that's been addressed by thousands of businesses before I ever mentioned it. My grocery store gives me discounts for my loyalty. My coffee shop does. My title company does. My ice cream shop does. Amazon.com does. Car manufacturers do. I get volume discounts at Costco. Likewise when I order business cards in larger quantity. In fact, I own another business that does manufacturing, and with only one exception, every component and part I purchase is cheaper the more I buy. I can't even begin to name all the stores that offer "Buy 1 Get 1 Free" incentives. Almost all major brands will sell at a discount to volume buyers.
You're acting as if discounts for more business and loyalty is the exception, but it's closer to the rule. Are all these businesses devaluing their brand? Does the fact that they put things on sale make their regular pricing seem extravagant and capricious?
If many of the largest companies in the world offer loyalty and volume discounts, why should contractors be any different? What makes contractors special?
Thank you for telling me what Amazon and Costco do. I contend that they recoup those discounts in other ways, e.g. shipping fees, etc. No business can consistently operate at a true loss as a business model and expect to survive. They use loss-leaders and other gimmicks to make you think you are saving when in fact, you are not.
I also note that you did not answer all of my questions:
"Why should a business desire a high volume of lower-paying work? Do you guarantee this high volume? How can you? And wouldn't the referrals you give him also expect a discount?"
@Barbara Goodman is exactly right: You want to make more money by paying your contractors less. You wrote that they have made "hundreds of thousands" working for you but that simply means they probably could have made "millions" working without you for the same billable hours at full rate. But as you pointed out: many contractors are not business savvy.
You wrote:
"Here's the problem -- most business owners who aren't business savvy don't think much about "customer acquisition costs" and "churn costs." Most business owners would be very surprised what it costs to get a new customer and what is lost when you lose a good existing customer. If they truly understood those costs, they'd be much more likely to want long-term relationships with customers...and would likely be willing to pay for those relationships with lower prices."
It's interesting that you see loyalty as a one way street. I should value your loyalty by taking a loss but you shouldn't value my loyalty (reliability, competence, etc) by paying me my normal rate.
What is the cost to the consumer for hiring unreliable, incompetent or dishonest contractors? You value premium, reliable service yet seem unwilling to pay for it. Who needs whom more? After all: there are many more consumers than reliable contractors.

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Barbara G.
Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
11y
I see a lot of investors on this site agreeing with each other about being able to get discounted labor from top contractors but I don't see one contractor saying he is happy to work for less. If he wanted to work for less he would be working for a contractor and he would not be in his own bussiness.
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Aaron McGinnis
Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
11y
Warning: Word-wall. The TL;DR summary here is - large firms that can really do what OP wants the contractor to do will not be incentivized to work for an investor doing a lot of jobs at a reduced rate.
The model proposed by the investors looking to trade price for quantity is a valid model... when you're talking about individual contractors or small-scale subcontractors with limited overhead. AKA: The kind of contractors that just won't be capable of growing with you, or servicing 10 jobs at the same time.
A huge part of what @J Scott proposes is that his favored subs will save administrative time and marketing dollars by not having to scout quite so hard to find their next sale... or spend quite so much time chasing down payments...
To a small operation, that could potentially mean very real cost savings. ASSUMING that the small operation has complete faith in the investor to KEEP ON providing a statistically meaningful portion of their yearly gross. Also, assuming that the investor that is providing this work doesn't provide so much work that the contractor has to add infrastructure to keep up... because odds are, the investor is not going to want to pay for the contractor to add infrastructure.
Of course, this is a false dichotomy to begin with - giving a contractor a steady 5 jobs at a time is not the same as giving them 50 jobs at a time. Most small contractors willing to trade dollars for volume just won't be able to handle a big uptick in quantity of work.
HOWEVER... the trouble spot that OP was presenting was that he was having a hard time getting a contractor of adequate size and capability to handle a LOT of work.
The trouble here is that a good builder/developer/renovator of 'real' size and capabilities (Office, real management, infrastructure to handle several ground crews, maybe an architect/designer on board full time, someone to handle material logistics, tools, etc.) is going to see the volume-for-lower-cost proposal as being weak... very, very weak.
Let me go through the value-add bullet points and tell you why a large, capable firm (not a single dude... a firm) isn't going to care, and will be getting back in their truck as soon as an investor tells them "Give me a good rate and I'll give you 10 hours a second"
- The contractor legitimately gets more work
If I am large enough to handle that much work, I have my own means for getting that work that are in place and working for me. More work is... more work. Ultimately, it's unlikely that your $100-200k per year is going to really move my needle.
- The contractor doesn't have to waste time giving me bids that I will reject (when I have a contractor I like, I don't get multiple bids)
Most good firms playing at the level you need are charging investors for bids, and screen carefully enough that we are already not wasting a statistically meaningful amount of time giving investors non-winning bids.
- The contractor doesn't ever have to worry about getting paid (I always carry my checkbook with me)
This is actually kind of insulting. Sure, Joe the Jackleg has to worry about getting paid. The people who are really in business have contracts and scary-looking lawyers to deal with people who don't pay us. This is... rarely an issue, actually.
- The contractor can save money on advertising costs -- I'll refer him to lots of other investors and he'll keep busy without advertising
The firm you want is already spending so damn much money on advertising it would make most investors sea-sick... they are not worrying about 1 customer making or breaking their yearly figures through word of mouth.
- The contractor doesn't have to worry about someone who wants to cut corners (I don't do that)
A good contractor won't work with someone who wants to cut corners. Again, this isn't really a great reason.
- When a project goes smoothly and comes in on budget, I pay bonuses
A really good firm is going to look at this and realize it for the carrot/stick approach, and be reluctant to even consider it in a real and meaningful way. Bonuses are super duper when you're a lone ranger making $30k/yr personally, but meaningless to a large firm.
----------
So... what is the solution, you ask?
Most of the time, investors (especially flippers) end up becoming money lenders or builders. (or both) ... for precisely this reason. Competent, well-organized, well-run firms are disincentivized to work for investors at reduced rates doing a lot of work, and small contractors are typically unable to self-manage a high volume of work. This means that the investor either has to start self-managing the rehabs, or get away from the contractor headache entirely.
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Account Closed:

Thank you for telling me what Amazon and Costco do. I contend that they recoup those discounts in other ways, e.g. shipping fees, etc. No business can consistently operate at a true loss as a business model and expect to survive. They use loss-leaders and other gimmicks to make you think you are saving when in fact, you are not.
I think we're talking two different languages here...but I'll give it a try...
None of these businesses are operating at a loss, and I never suggested that they were. I was merely suggesting that some businesses operate at lower margins (different than operating at a loss) and higher volume as part of their business strategy. Walmart is a perfect example. They underprice their competition, but do you think they're losing money? Or course not. They accept lower margins (last I checked, they were at about 25% gross margins compared to 30-35% for competitors like Target and Dollar Tree) and then sell higher volumes to close the profit gap.
Do you think Walmart is stupid for lowering their prices below their competitors and reducing their margins?
Btw, I don't know of any stores like Walmart that use loss-leaders to generate business. Higher-end stores do this all the time, but the lower-margin stores rarely do.
Why? I thought I explained it above. This way they get more PAID hours, and FEWER unpaid hours. They don't spend 5, 10, 15 hours a week working for free by having to give bids, chase customers who aren't paying, etc. They spend those hours actually working, so in total, they make MORE money working for me. And FEWER headaches.
Do I guarantee it? Nope. Do I have a reputation of keeping my word with contractors? Absolutely. They have no reason to doubt what I tell them because I never lie to them.
Of course I do. Just like any business person, I want to spend less on COGS to increase my profits. Do you know ANY smart business person who doesn't think this way? I doubt it.

No, they couldn't have made millions working for me at a higher rate...because I wouldn't pay them a higher rate. And they couldn't have made millions working for anyone else in that time, because they wouldn't have been working nearly as many PAID hours if they weren't working for me. They would have spent a large portion of their time giving bids, chasing down payments, etc. So, while in theory they could make millions, in reality, they would have made pretty much the same as working for me...though with many more headaches that they didn't have working for me.
Here's the thing... You don't seem to believe it's possible, but I've been doing it for 7 years now. I have some of the same contractors with me that I had back in 2008-2009 when I started. They don't seem to be complaining, and my customers certainly aren't complaining about the quality of the work.
So, while you're arguing this can't work, I'm making it work.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Aaron McGinnis:

- The contractor legitimately gets more work
If I am large enough to handle that much work, I have my own means for getting that work that are in place and working for me. More work is... more work. Ultimately, it's unlikely that your $100-200k per year is going to really move my needle.

If we're talking about contractors for whom my $100-200K per year isn't going to make a difference, then we're having different conversations.
I hire subcontractors, and for most (all?) of them $100-200K per year makes a difference.
If anyone reading this is hiring contractors that don't really care about $100-200K per year, then ignore my advice...it doesn't necessarily apply...
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
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Originally posted by @J Scott:

Here's the thing... You don't seem to believe it's possible, but I've been doing it for 7 years now. I have some of the same contractors with me that I had back in 2008-2009 when I started. They don't seem to be complaining, and my customers certainly aren't complaining about the quality of the work.
Btw Art, I'm not saying this would work for your contracting business or that it would work for every investor. There are certainly things that work for others that don't work for me and my businesses. All I'm saying is that it CAN work...
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Account Closed
Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
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Originally posted by @J Scott:

Originally posted by @J Scott:

Here's the thing... You don't seem to believe it's possible, but I've been doing it for 7 years now. I have some of the same contractors with me that I had back in 2008-2009 when I started. They don't seem to be complaining, and my customers certainly aren't complaining about the quality of the work.
Btw Art, I'm not saying this would work for your contracting business or that it would work for every investor. There are certainly things that work for others that don't work for me and my businesses. All I'm saying is that it CAN work...
J Scott: This is one of those issues that is not going to be resolved here. My original suggestion to the OP was to seek contractors who were new in business and in need of work. For them, it would not be a matter of them giving "discounts"; rather their regular price is probably lower to begin with.
I also would like if you'd answer my other question: "And wouldn't the referrals you give him also expect a discount?" Where does it end?
I believe you that your method works for YOU but I'm not convinced it is in the long term best interest of your contractors (after all, you did say many contractors are not business savvy). Let me ask you this: If you can not guarantee a certain volume of work, what are they to base their future business on? Under your proposed scenario, they have suspended advertising and pursuing other work...all for the sake of your "promised" un-guaranteed future work. If you can't deliver, say you move or retire, they have put all their eggs in your lower paying basket and have no customer base to fall back on. They are effectively starting from scratch...after years of being in business... primarily working for you. Isn't a contracting business better served by having a much broader customer base?
And finally: it is said repeatedly on this forum that good, competent, reliable contractors are extremely rare and hard to find...that is: they are scarce. Investors who want discounted work are plentiful. So using supply/demand thinking, how do you figure a contractor should accept lower paying work? It seems the opposite to me.
I very much enjoy reading your posts and respect your knowledge and willingness to share it here. I certainly have learned much from your posts. I disagree with you here on this one but thank you for debating in a gentlemanly fashion!
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Account Closed:

I also would like if you'd answer my other question: "And wouldn't the referrals you give him also expect a discount?" Where does it end?
That's a fair question. Considering one of the biggest benefits that I'm giving my contractors is full-time work (or near full-time work), the fact that I'm referring them to other contractors like me (easy to work with, always pay on time, won't shop around for lots of other bids, etc), I would expect that they got discount pricing as well.
Here's how I imagine many of the contractors look at it:
They think, "If I charge my retail rates, after all the time spent giving bids, dealing with advertising/marketing, chasing after customers for payment, etc., I'm probably working 1800 hours per year but only getting paid for 1200 of them. If I do work for J and his investor buddies, I can probably do 1800 hours of work per year since I don't have to spend time giving bids for work I don't get, chasing payments, etc. That means I can charge up to 1/3 less and still make the same amount of money for the same amount of work...and less headache."
What's the issue with that line of thinking? Why is that a bad deal for the contractor? He makes the same amount of money for the same amount of work with less headache. What is the downside for the contractor?
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y
Originally posted by @Account Closed:
Let me ask you this: If you can not guarantee a certain volume of work, what are they to base their future business on? Under your proposed scenario, they have suspended advertising and pursuing other work...all for the sake of your "promised" un-guaranteed future work. If you can't deliver, say you move or retire, they have put all their eggs in your lower paying basket and have no customer base to fall back on. They are effectively starting from scratch...after years of being in business... primarily working for you. Isn't a contracting business better served by having a much broader customer base?
Another very reasonable question...
They have no guarantee. Just me telling them how many deals I expect to do, and how they fit into my plan. I certainly don't lie to them, though as you pointed out, that doesn't mean things can't change or go south.
I don't buy the "all their eggs in one basket" argument. While they may not be advertising during the time that they're working for me, I can't imagine it would take too long to ramp up advertising again. Not to mention, if they're doing a good job, I know about 20 other investors who are probably very interested in using them. Unless we all stop doing deals at the same time, they probably can keep doing full time work at the pay rate they've gotten from me (and if we all stop doing deals at the same time, there are bigger issues for that contractor).
Plus, if you do work for me, you have a great portfolio to show other customers (I document my flips with lots of pictures and details), you have an automatic in with other investors (I'm always being asked for contractor recommendations) and I also get asked by a lot of homeowners (neighbors while doing the flips, friends, etc) for contractor recommendations -- they get to charge whatever they want on those.
In addition, let me give an example of how my scenario actually can TREMENDOUSLY help contractors in certain locations...
When I started doing rehabs in Milwaukee back in 2012, I was looking for contractors early in the summer. I had a really tough time finding any that would give me less-than-retail pricing, as they all had more work than they could handle. I had to pay more than I wanted, and I had to settle for contractors who needed more management than I would have liked.
Winter comes along, and the guys who were with me during the summer are still doing jobs for me. I start getting calls from the guys I talked to over the summer asking me if I had any work for them. They were pretty desperate for work, as VERY LITTLE construction work gets done in the winter in Wisconsin. I reminded them that my promise was that any contractors who were already working for me got first dibs on jobs, and that was the guys who worked for me over the summer.
A few months later, the weather broke, we were ramping up our business, and I called a few of the guys who had called me over the winter asking if they wanted to join us. Not all of them (actually, only a few of them) agreed to come on during the summer rehabs, with the expectation of winter work. Those that did ended up being very happy working for us, as it smoothed out their income over 12 months, and also made them more money because they otherwise would have only been working 25% during the winter (if that).
My Milwaukee contractors were always complaining about money during the summer (they knew they could be making more), and I was always (jokingly) complaining during the winter (that I could be hiring the out of work guys for even less than I was paying my crew). It was a win/win, despite the complaining on both sides.
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