Contractor Partner vs Hiring Contractor
Kalamazoo, MI · Member since 2016 · 37 posts · 5 votes
Hi everyone,
I just purchased my first fix-n-flip and am looking for some advice on saving $$$ and hassle.
Scenario 1: Partner with a contractor (consists of 2 people) to save on building and split profits (split would be 4 ways because I am partnering with my sister)
Scenario 2: Hire a few contractors (having a 'contractors bidding open house' this Saturday) to get multiple items done simultaneously and supply majority of materials myself. I already have all the wood flooring, tile, kitchen cabinets, kitchen appliances and misc. stuff. I love auctions!!!
I am leaning toward scenario 2, but would love advice from more experienced flippers.
I paid $22K for the flip and plan on listing for $75K-$92K.
No real contractor will risk a " profit split " deal , too much to go wrong . The second scenario sounds like you will be the general contractor , doing all the scheduling etc , its easy for someone with experience and contacts . But not to easy for a first time flip , time is your enemy , and it will take you more time . As a contractor and you tell me you have a bunch of materials you bought at auction , I would pass personally . With you supplying auctioned materials when you are short and cant find matching flooring , not my problem , when the kitchen cabinets dont fit right , Oh well , not my cabinets . There is an old saying " Penny wise and dollar foolish "
No real contractor will risk a " profit split " deal , too much to go wrong . The second scenario sounds like you will be the general contractor , doing all the scheduling etc , its easy for someone with experience and contacts . But not to easy for a first time flip , time is your enemy , and it will take you more time . As a contractor and you tell me you have a bunch of materials you bought at auction , I would pass personally . With you supplying auctioned materials when you are short and cant find matching flooring , not my problem , when the kitchen cabinets dont fit right , Oh well , not my cabinets . There is an old saying " Penny wise and dollar foolish "
As a contractor and flipper in New York. I would take the second approach however, not with a contractor partner. YOU must maintain the contractor position and produce a timeline and line item estimate of every item in the order it need to be accomplished. They must be in order or you could close in an area and then have to open it up again because you learn that there is an order to every project. Look for an experienced project manager to walk the job and supply a line item scope of work on an excel sheet with columns and cell so you do not miss items. every item should be represented on the sheet with a cells of material cost and one for labor. Have your potential subs walk the job and give you their point of view and labor cost. Explain that you want to do the purchasing of materials from their supplied list and specifications. and they are just for labor. Labor and list of materials. You may find that you need more trades than you expected as each trade will show you more about the project than you think you are aware of. Do not have them all come at once. You do not want them to meet up with a "friend" on the job and price fix the trade. Do you have construction management experience? Hire a professional project or site manager for this short term project. Question?? who did the cabinet measurements, do you gave blocking in the walls to support the cabinets? Do you require plumbing work inside the existing walls? Do you require electrical work in walls to bring the house into code compliance? When you go to flip the house you will need to sign papers that it is all safe and the potential buyer will have the house inspected from the buyers bank to agree that the value is worth the mortgage. It is not as easy as you may think. Email back if you have any questions. The project or site manager must have prior home renovation experience. Best, Sid
I'm very handy and can make cabinets fit. I know I have more than enough flooring for this flip. I figure if I don't have the correct material or amount, I have no issue paying the contractor for what is needed. I don't want to use shabby materials.
Thanks for your input.
Option 1 really makes little sense for a contractor as he can make more money and incur less risk by simply doing what he is in business to do.
Option 2 is problematic in that you would essentially be acting as the General Contractor for the project, yet it may not be legal for you to do so. I assume you intend to pull building permits for the work. Most states have laws prohibiting property owners from acting as their own GC, unless they intend to occupy the house themselves for a period of time (typically 1 year) upon the completion of the work. You may want to inquire with your local building department regarding this.
A 3rd option would be to simply hire a licensed GC to perform the work. You may end up making a little less but you will have a solid renovation, with the work professionally done and fewer hassles and headaches.
It's true: you have to find and select a good contractor but if you intend to flip houses regularly, having one will prove to be invaluable.
Makes sense. I appreciate that advice. None of this will b worth it if it isn't done right.
Thank you everyone for your input.
I bought a piece of property, in Riverside California for 305,000 after renovation of 100,000 to would be worth 750,000. Sweet deal built in equity. I arranged the financing with no money out of pocket and even leaving 30,000 in the account for renovation. I asked my fried ho was a contractor if he wanted to be my partner. He would need to come up with the other 70,000 to rehab. We would split 50/50 profits. seemed simple and fair. But he then told me he does not do this work for free, and his labor would be 100,000 which he said was normal labor to renovate. 1,000 per day. Because I would not agree to sign his agreement, he is using that has an excuse because it is taking 6 months so far with only 30% done. We have a 5,000-interest payment due monthly, but I thought he would have completed in 4 months. He will be at least 6 more months or more to finish. He says because I am not signing this contract that gives him 170,000 contributions which he gave me class B and himself class A with controlling votes.
On top of that the first 30,000 I put in, he spent 15,000 on his own personal expenses i.e food, gas, phone bills, Starbucks, lunches, girlfriend dinners, wrote himself checks, bought himself a car and I can go on... but he says that's part of his business expenses. There is no more money that I know of so he will by himself without a crew. but he was never hired as a contractor but a partner.
Is this the going rate for contractors to renovate property. It's just a 4 bd 3 bath with a pool. Just to flip property in the 750,000 range? So why does he get 50% partnership if he is a charging labor and materials for 170000. He also says he doesn't have to give e accounting for what he spends.
I am just lost and depressed. It's my fault I didn't have the agreement signed immediately but he was my friend for 5 yrs. I feel like a failure because other people are relying on me
Can't take him to the contractor's board because he is only a partner
Can anyone give me any ideas of suggestions of what I can do?
I am desperate