Long-Distance Rehabbing- How To Remotely Shop For Materials?

Question

I'm reading @David Greene's book "Long-Distance Real Estate Investing", and am learning a ton from every page. One strategy that he mentions for avoiding getting ripped off by contractors is to shop for and purchase the materials yourself. This makes a lot of sense, but this seems hard to do when one is investing remotely and I don't see any remote-specific advice in this section. In fact, a lot of the advice seems to apply more to local investing (for instance, he recommends buying clearance inventory, but I know that what counts as excess/clearance inventory in one store location won't apply in another location in another state).

Does anyone have experience buying and paying for materials remotely? Is my best bet going to my local big-box home improvement store and placing the order there, but having it fulfilled at the store's location near where the property is? Is this what most remote investors do, or is there another strategy I haven't considered? Thanks!

Richie Thomas · Answer

Thanks for your perspectives @Caleb Heimsoth and @Jeffrey Stasz.  I re-read my original post and realized it could be interpreted as perhaps casting aspersions toward contractors as a group.  To clarify- that's not my intention.  I understand there are many ethical contractors out there, and I'd bet most of the ones that post on BiggerPockets fit that description.  If they spend time here trying to cultivate a positive reputation, by giving advice, answering questions, and otherwise being of service, I'm confident they're a safe bet.  The reason I'm focused on the unethical ones is not because I think most builders are unethical, but simply because if I'm lucky enough to find an honest one, the question in my post will be moot.

I'll defer to your experience when you say that ethical contractors make their money by efficiently executing a plan, but unethical ones (like unethical folks in any industry) will make money any way they can.  That's what makes them unethical.  Surely we can agree that there are good and bad actors in every field, and so one of my primary tasks as a newbie investor is learning how to tell those two groups apart, as far in advance as possible.  I trust that this statement isn't a terribly controversial one.

Two of the biggest contractor-related risks mentioned in the BP book I'm reading are contractors who either pad their materials expenses or keep excess inventory that they have billed the client for, to use on a future job.  That was the goal of my post- to find a way to mitigate or eliminate those risks, not to cast aspersions on contractors or builders as a whole.  If the way to avoid those risks is to avoid working with someone like that in the first place, then it sounds like the real question I should be asking is how to sort the good from the bad.  Which would be a question for a different post, but one that seems worth asking.

Jeffrey Stasz · Answer

@Richie Thomas you get to the meat of the of question at the end of your post. And yes, you are MUCH better off looking for solid deals with enough margin to pay a quality contractor then trying to control for materials risk. I'd be more then happy to talk you through these things in more detail and if you'd like to do that over the phone just shoot me a DM and we can set something up.

For the benefit of the larger community here are some tips on helping you form a successful partnership.

First - Find a deal that has more than enough margin to pay a quality contractor and hit your target ROI (We will talk about cost estimation later but this is the single most important principle. Find a deal where everyone can make money and you will be good)

Second - Take some time to understand your state and municipality's laws and regulations around contractors. Each state is unique and knowing what a license means and what they do will help you find the right person. For example: I currently hold an unlimited commercial contractors license. This lets me build any type of structure at any price point. It also means I am terrible guy to call if you need a bathroom tiled. My company is set up to build big houses or office buildings. Can I retile your bathroom? Yes! Will I be more expensive then most other folks? Yes!

Third - Try to frame the overall size of the renovation/build you want to accomplish and at what price point. If you are just planning on doing a couple bathrooms and some paint that's one thing. If you are planning on doing a more extensive build then look for someone that can handle a larger build. If you have not found a project then make the scope of the build part of your criteria. Doing that will help you look for builders prior to closing on a project.

Where to find contractors - if you're doing something on the larger side, go to your local building materials supplier (NOT LOWES OR HD) and ask for some names from the sales people. If what you need is more cosmetic I'd recommend starting at your local Sherwin Williams branch and going from there.

I hope this helps.

Jeffrey Stasz · Answer

@Richie Thomas it's a fair question and the answer lies in the underlying economics of a build or remodel. Specifically the cost of materials relative to labor.

Builders (and I am a builder) make money by efficiently executing a plan, not by taking undue margin on materials. Contractors want to buy the materials because we have relationships with quality suppliers. This affords us a discount, a stable price list, and the ability to order excess materials to account for both waste and cull. Materials are delivered and culled stock (eg. boards that are warped or twisted etc) are set aside and picked up by our supplier and refunded to our accounts.

When clients order the materials they often miss these nuances and don't have the relationships to over order and return materials. Often this leaves deployed crews without the materials they need to complete the work. Downtime is expensive ($2-5/minute) and it's hard for a builder to charge a client for that time even though it is 100% the clients responsibility (client ordered materials > Materials were not sufficient > client pays for downtime). So long as you're happy to sign an agreement where you pay for downtime I'm sure contractors will be happy to have you supply materials.

Finally, there are just as many shady investors as there are contractors. The difference is, the contractor ultimately holds the liability. So when an investor starts asking to buy all the materials that is usually a red flag: that's a client that wants to do the bare minimum and place all the liability on the builder regardless of the builder's recommendations.

Caleb Heimsoth · Answer

Even with a list you could buy the wrong stuff, or may need something extra than originally planned (happens all the time).

Richie Thomas · Answer

@Caleb Heimsoth I was under the impression that clients purchasing materials was common practice, given the frequency with which I've seen the advice mentioned (not only in David Greene's book but on the BP podcast and elsewhere).  I'm curious what objection the contractor would have to their client buying the materials, especially if the contractor could simply give the client a shopping list of exactly what was required?It seems like the client has a reasonable fear of being over-charged on the materials end, since shady contractors could simply pad the materials bill.  So I'm curious why an ethical contractor would have an objection to this practice, given they know how their unethical counterparts operate.

Caleb Heimsoth · Answer

@Richie Thomas most contractors won’t want you buying materials for them, so make sure you’re aware of that.  I usually have contractors buy material and then I pay them what the material cost without a markup.

There’s no good way to do what you’re asking.  Having something shipped or delivered is likely your best bet

Long-Distance Rehabbing- How To Remotely Shop For Materials?

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