Do contractors not get it;more you charge me the less I can flip

91 Replies

Dude, this is a symbiotic relationahip. 

Trying to start my new REI project, a flip in Milwaukee. Trying to negotiate with a contractor to budge on the plumbing costs, he wants 10k to pipe a 2,200 sqft. duplex, I need the number to come down to around 6k.

With all the things that need to be rehabbed, I've noticed the electrical and the plumbing are major areas of contention. Not only that we need to purchase furnaces and water heaters etc. 

How do you cut costs?

Is this your same issue? I would like to get a fair contractor, so we can make money for a long time.

Get quotes from a couple plumbers to do the job.  If they are in line with your contractor,  then that is the cost.  if they are much lower,  then use that to negotiate, or just have the plumber do the piping.

I pulled in an electrician to do work on a property I just rehabbed.  He was a couple grand cheaper than what my contractor was going to charge.  When my contractor couldn't meat his price, I had the electrician rewire my house , and the contractor did everything else. It ws a little trickier, because I had to work the electrician in around all the other work, but it kept my budget in check

Originally posted by @Tim Lindstrom :

Get quotes from a couple plumbers to do the job.  If they are in line with your contractor,  then that is the cost.  if they are much lower,  then use that to negotiate, or just have the plumber do the piping.

I pulled in an electrician to do work on a property I just rehabbed.  He was a couple grand cheaper than what my contractor was going to charge.  When my contractor couldn't meat his price, I had the electrician rewire my house , and the contractor did everything else. It ws a little trickier, because I had to work the electrician in around all the other work, but it kept my budget in check

 Thanks Tim. I had wondered about that. I have spoken with several other rehabbers who had done that but it created some contention between the rehabbers and the contractors. True there are more fish in the sea, but I am kind of a long term relationship guy. 

I was certain that this guys work was beyond reproach I wouldn't hesitate the pay the extra. 

Oh yes I do plan on getting several quotes. 

Just trying to stay as close to budget as I can. I 

Re piping the entire house to copper for 6k?

New construction costs 25k here for the entire house.

Get multiple quotes and see if your contractor can match the price. Or get don't over pay for the home. Anyone can cut costs and cut corners on rehabbing homes. But you can't cut corners or costs on electrical or plumbing. These are licensed Individuals who value their time.

Where you can cut your costs down is in other areas.

If the plumber is just setting a new toilet and tub and trimming throughout 6k should include all materials

Originally posted by @Nino Alfano :

Re piping the entire house to copper for 6k?

New construction costs 25k here for the entire house.

Get multiple quotes and see if your contractor can match the price. Or get don't over pay for the home. Anyone can cut costs and cut corners on rehabbing homes. But you can't cut corners or costs on electrical or plumbing. These are licensed Individuals who value their time.

Where you can cut your costs down is in other areas.

If the plumber is just setting a new toilet and tub and trimming throughout 6k should include all materials

 Great point Nino. I definitely respect the work that they do. Cutting corners is not the way I run my business, so I see your point. Maybe that is an area where he and I or another plumber and meet in the middle. 

@Davon Lowery Hi Davon,
This is going to be an ongoing struggle with contractors and I can tell you as a guy who used to install flooring in college is that your contractors that take a lower price are normally only willing to do so while they build their book of business but as they get better they only have two ways to make more money by charging people more or working more hours. This is going to be an ongoing fight for you so I would recommend getting a better deal on the house because eventually as you become more seasoned time is your biggest asset, not money. 6000 for a full replumb is low in my opinion. I would say if the home is down to the studs and completely open 7k is a best case scenario for a seasoned plumber. I had a guy do a job for that cheap before and he failed two inspections which cost me two weeks and he kept complaining he needed more money. If I paid 15 percent more I could have saved alot of time and money. Lastly, I would recommend finding a way to build value for your contractor if you want him to help you. For example, there is a very small building materials store that sold SnapTile for 1.50-2.50 a square foot which normally runs 5-7 dollars a square foot in my area my flooring guy was unaware of. I asked him how much he charged for tile labor and he said 6 dollars a square foot for flooring tile. So I explained to him how snap tile works and even told him how to sell it to his customer. He started installing the SnapTile which was less labor for him while also charging his other clients normal Home Depot pricing on the SnapTile he was getting for 2.50 -5.50 cheaper. I just helped this guy almost double his profit while
decreasing his labor time. Now I got a guy that does 65 cents a square foot for flooring because he knows I do whatever I can to help him out. Doing jobs at rock bottom cost for investors is not what most contractors want to do so I'd recommend paying their price oh you're going to be constantly shopping contractors.

Originally posted by @Charles Kao :

Davon Lowery Hi Davon,
This is going to be an ongoing struggle with contractors and I can tell you as a guy who used to install flooring in college is that your contractors that take a lower price are normally only willing to do so while they build their book of business but as they get better they only have two ways to make more money by charging people more or working more hours. This is going to be an ongoing fight for you so I would recommend getting a better deal on the house because eventually as you become more seasoned time is your biggest asset, not money. 6000 for a full replumb is low in my opinion. I would say if the home is down to the studs and completely open 7k is a best case scenario for a seasoned plumber. I had a guy do a job for that cheap before and he failed two inspections which cost me two weeks and he kept complaining he needed more money. If I paid 15 percent more I could have saved alot of time and money. Lastly, I would recommend finding a way to build value for your contractor if you want him to help you. For example, there is a very small building materials store that sold SnapTile for 1.50-2.50 a square foot which normally runs 5-7 dollars a square foot in my area my flooring guy was unaware of. I asked him how much he charged for tile labor and he said 6 dollars a square foot for flooring tile. So I explained to him how snap tile works and even told him how to sell it to his customer. He started installing the SnapTile which was less labor for him while also charging his other clients normal Home Depot pricing on the SnapTile he was getting for 2.50 -5.50 cheaper. I just helped this guy almost double his profit while
decreasing his labor time. Now I got a guy that does 65 cents a square foot for flooring because he knows I do whatever I can to help him out. Doing jobs at rock bottom cost for investors is not what most contractors want to do so I'd recommend paying their price oh you're going to be constantly shopping contractors.

 Golden, Charles just golden. I will take that advice. The good thing is he is willing to negotiate. Like you guys say the back and forth is part of the game, sometime I get a little more sometimes they get a little more. 

I'm looking also at the need for new furnaces and HVAC. The 4k I save could go in to those systems; but saving to produce a subpar product is not something I am willing to do; you've got a good point the more seasoning I have the better deal I can negotiate on both ends. Thanks. The tile was a great touch. I have to remember that snap tile.

Have multiple bids is about the only way to save on items like electrical and plumbing, and a good way to cut costs nowadays are with the finishes. For example you can get a porclein floor tile that looks just like marble. Engingered hardword that looks like real hardwood, etc... Shop the big box stores and stay out of those specialty stores.

Hey Davon,
A really good strategy I have seen people use is talk to them level headed and say "hey, I want to flip x amount of houses per year and most likely I'm going to need a plumber on every one of them. If you cut me a deal on the price I'll keep you busy" I doubt he will come down to 6k, just because his number is so far off from that to begin with, but it may be a start.

You are trying to look after your business, and profits. He is trying to do the same. Therein the rub. Using a sub steady still requires some bids to keep them in line. Even then their business may outgrow working with you.

I flipped a couple dozen houses in Milwaukee a couple years ago, and we decided to get out of that market for the very reasons you mentioned -- contractors were our major bottleneck.  There are several reasons for it:

- Lots of union contractors expecting union prices

- Contractors having more work than they can handle in the spring/summer, so they take higher-paying jobs

- Not enough buyer demand for rehabbed houses (meaning you can't charge a premium and recoup renovation expenses)

- Strict codes and inspectors requiring higher rehab costs than other locations for same work

- Long winter delays means inefficiency in getting reasonably priced work done in winter months

Perhaps you can ask them if they have a labor price and you could supply the materials by setting up accounts at local plumbing supply places, paint stores, ect..

Aaaand....this is why my company stopped taking investor work, except for my own houses.

Reno costs what it costs. Labor  + materials + overhead + a fair profit for the contractor. It doesn't matter what you "need" it to be.

If two or three different plumbers tell you $10K, the cost is $10K. If two plumbers tell you $10K and one says he'll do it for your $6K, you'll probably regret it in the end. He's either planning to cheat you, or he doesn't know how to run his business and will either change order you to death or bail o the project.

I can't tell you how may conversations I've had with investors who've bought a house where ARV & rehab costs were based on hope & prayer, then get frustrated with the contractor because he can't stuff $50,000 worth of reno into a $30,000 budget.

The remodeling market is booming all over the country. Most good contractors have a backlog of work from homeowners paying retail. If you want work done from a quality contractor, you're going to have to have your ARV and reno costs in line, so you've allocated a realistic reno budget.

In my experience, if contractor is willing to cut costs by 40%, you will get exactly what you pay for - lots of headaches down the road.  You are in business to make money and so are they.  Get multiple quotes from contractors that have good reputation/references and pay the going rate.  It is more important for the long term to form a partnership with a solid quality contractors.  Many times they would be willing to do a preinspection with you to give you a better cost estimate for an upcoming job if they know you will bring them steady business down the road, and that is priceless.

Originally posted by @Mike Hanneman :

Have multiple bids is about the only way to save on items like electrical and plumbing, and a good way to cut costs nowadays are with the finishes. For example you can get a porclein floor tile that looks just like marble. Engingered hardword that looks like real hardwood, etc... Shop the big box stores and stay out of those specialty stores.

 Great advise. I am learning new areas where I can save costs, one of which is recycling cabinets, if the conditions permit. 2nd hand stores are good for bulk items like tile and paint, etc...

Originally posted by @Noah Kurz :

Hey Davon,
A really good strategy I have seen people use is talk to them level headed and say "hey, I want to flip x amount of houses per year and most likely I'm going to need a plumber on every one of them. If you cut me a deal on the price I'll keep you busy" I doubt he will come down to 6k, just because his number is so far off from that to begin with, but it may be a start.

 Good advise, I do need to get better with the personalization aspect of our business. I get so wrapped up in the number and the ritualism of working the deal that I loose sight of what we are doing all this work for and believing that we are all on the same team, to some degree.

Originally posted by @Tony Gunter :

You are trying to look after your business, and profits. He is trying to do the same. Therein the rub. Using a sub steady still requires some bids to keep them in line. Even then their business may outgrow working with you.

 Very true Tony, ties in to that "his piece is bigger than mine" though process. We let them know that they are not the only game in town, we could have more respect and fairness in the relationship. Good point thanks.

Originally posted by @J Scott :

I flipped a couple dozen houses in Milwaukee a couple years ago, and we decided to get out of that market for the very reasons you mentioned -- contractors were our major bottleneck.  There are several reasons for it:

- Lots of union contractors expecting union prices

- Contractors having more work than they can handle in the spring/summer, so they take higher-paying jobs

- Not enough buyer demand for rehabbed houses (meaning you can't charge a premium and recoup renovation expenses)

- Strict codes and inspectors requiring higher rehab costs than other locations for same work

- Long winter delays means inefficiency in getting reasonably priced work done in winter months

 Right J. I wish I would've found your podcast and book prior to buying, would've saved me some stress. 

I had handymen tell me that they charge $200 per hour. You could've heard a pin drop as I was waiting for him to laugh, but he was dead serious. The handyman business there is a racket and the guys are busy nonstop, I called about 10 guys an only 2 could show up the same day or within a 2 day period.

I am going to be using strict calculations to account for all the things you mentioned. 

Positively, I learned that the work doesn't stop on account of weather, i've had some  guys tell me that they turn the furnace up and keep working on the inside of the property. Factoring in for weather (something we don't have in socal) Is a necessary step in the due diligence

Nevertheless, for my long term landlording goals, I do believe that this will work.

Thank you.

It takes a while to build a relationship with a contractor that truly has your best interest in mind as well as his own. For me I work with many return investors, I'm doing 4 houses for one investor right now and 3 for another, but I do not just take on any client. I have to know that the client wants me to profit also. I believe I am a rare type of contractor that looks to build the relationship for return and ongoing revenue stream rather than hit and run and take as much as I can on any deal. Contractors are a many varied and diverse creature and you need to be diligent and thorough in your search for the one that fits with your plans and goals. Good luck!

Originally posted by @Michael Hayworth :

Aaaand....this is why my company stopped taking investor work, except for my own houses.

Reno costs what it costs. Labor  + materials + overhead + a fair profit for the contractor. It doesn't matter what you "need" it to be.

If two or three different plumbers tell you $10K, the cost is $10K. If two plumbers tell you $10K and one says he'll do it for your $6K, you'll probably regret it in the end. He's either planning to cheat you, or he doesn't know how to run his business and will either change order you to death or bail o the project.

I can't tell you how may conversations I've had with investors who've bought a house where ARV & rehab costs were based on hope & prayer, then get frustrated with the contractor because he can't stuff $50,000 worth of reno into a $30,000 budget.

The remodeling market is booming all over the country. Most good contractors have a backlog of work from homeowners paying retail. If you want work done from a quality contractor, you're going to have to have your ARV and reno costs in line, so you've allocated a realistic reno budget.

 Micheal, I definitely respect a mans right to choose (no pun), but thats why we have variety. 

I get it, if all the bids are coming in at the same amount, then that is the cost; but, my contention is, believing, initially, that the prices are inflated that i'm being gouged for someone else's discount. 

I'm of the elk that says, if you don't want to work with me that is fine because someone will want to make what you've decided to pass on. And again, that in great advise, and it is my responsibility to ensure I have analyzed my deal correctly and allocated enough capital appropriately. Thanks.

Originally posted by @Tom G. :

It takes a while to build a relationship with a contractor that truly has your best interest in mind as well as his own. For me I work with many return investors, I'm doing 4 houses for one investor right now and 3 for another, but I do not just take on any client. I have to know that the client wants me to profit also. I believe I am a rare type of contractor that looks to build the relationship for return and ongoing revenue stream rather than hit and run and take as much as I can on any deal. Contractors are a many varied and diverse creature and you need to be diligent and thorough in your search for the one that fits with your plans and goals. Good luck!

 Thank you Tom. I respect you and your work. You are right, I must never loose sight of the humanism that goes into our relationships. I'm in this for the long hall so, I might as well get comfortable and get use to it.

Originally posted by @Michael Hayworth :

Aaaand....this is why my company stopped taking investor work, except for my own houses.

Reno costs what it costs. Labor  + materials + overhead + a fair profit for the contractor. It doesn't matter what you "need" it to be.

If two or three different plumbers tell you $10K, the cost is $10K. If two plumbers tell you $10K and one says he'll do it for your $6K, you'll probably regret it in the end. He's either planning to cheat you, or he doesn't know how to run his business and will either change order you to death or bail o the project.

I can't tell you how may conversations I've had with investors who've bought a house where ARV & rehab costs were based on hope & prayer, then get frustrated with the contractor because he can't stuff $50,000 worth of reno into a $30,000 budget.

The remodeling market is booming all over the country. Most good contractors have a backlog of work from homeowners paying retail. If you want work done from a quality contractor, you're going to have to have your ARV and reno costs in line, so you've allocated a realistic reno budget.

 You beat me to the punch on this one Mike - couldn't have said it better!

The only thing I'll add for @Davon Lowery is: if you're rehab costs are sucking the profits out of your job, then why not just pay less for the houses you're buying?

Wait, what's that? You can't just arbitrarily and magically make things cost less? Well neither can 'your' contractors. 

Get multiple quotes, build relationships, get real about your numbers.