I'm in a relatively new REI with a goal to buy distressed properties and holding them to serve as rentals. I recently closed a deal and the property requires a fix-up (kitchen, flooring, ...)
My question is, I showed the property to two contractors, they both gave me a bid for labor. Bid for one of the contractor (lets say C1) is 4 times higher than the other one (C2). After talking to their clients, I came to know C1 is more reliable in terms of time, efficiency and commitments but expensive whereas C2 is less reliable in keeping his promise for rehab time. He takes job on multiple sites and try to multi-task. I may have to chase him to complete my job. Not to forget he is much cheaper (4 times less). Both of them gave a time frame of 3 weeks and lets assume the finish quality is the same for both.
Please advise, based on your experience, which one is better? and why?
I would get one more quote. I was always taught to get three quotes. I personally would not want to be chasing someone that is working on three other jobs at the same time.
I don't have advice as far as flipping houses but as a builder and painter i know you get what you pay for. I see all the time people just skip steps to keep the price down and get the job . Then it ends up costing as much to chase them down and actually get them to do what they promise. I would agree with Lora on getting one more estimate cause four (4 times more ) is much more.
All you need to do is work one time with a contractor who is unreliable and fails to finish on time and I promise you won't even want to work with anyone who shows up late to a business meeting with you.
Not only would I get another quote but I would only get quotes from contractors who are referred to me by other investors. Too many sheisters walking in off the street. Although your speaking with his customers may remedy that.
I suggest to get with C1 - expensive but at least you are sure that he's focus and reliable on the work you need than the other one who is cheaper yet tries to work on multiple tasks and may even lost priority to what you need.
Two bad choices. I'd get more bids.
Originally posted by Jon Holdman:
Two bad choices. I'd get more bids.
I agree. Seems there should be some sort of middle-ground out there. I'd definitely get another (if not another couple) bid(s).
It's hard to know what you don't know on your first rehab, but asking lots of questions helps.
After you've had a bad experience, and you've seen common contractor tricks, you start to ask questions at the bidding stage- how many guys are you sending to put in my floor? What hours do they work? Are you planning on working on other jobs at the same time as mine? Who is cleaning up? Who pays for the dumpster?
Paying high prices doesn't protect you from flakiness - some of the worst contractors are very expensive and slow.
Setting clear expectations at the beginning of a job helps - if you're hiring a true GC, and you want a "finished" product on xx date, make that clear that you aren't going to be the one sweeping floors and installing doorknobs the night before it goes on MLS. Then make sure that your bid includes those things, and penalties for dawdling that are sufficient to cover your expenses if you need to hire someone else to finish the job.
If your bid for flooring & a new kitchen is just two sentences, the contractor is probably playing games. Just like buying a house, if it isn't in the contract, it's not happening.
Just my opinion, but you can't afford a contractor that you have to "chase" to finish the job on a house you plan to rent out. If it isn't finished & rented you're bleeding cash while the contractor dawdles & works on someone else's job. On a $1k monthly rental, you're losing $35 per day.
Contractors can and will disappear for weeks at a time, 3 week jobs can become 3 month jobs pretty easily, and I don't think you can imagine the anger you'll feel when you get lied to about your job being finished today, then tomorrow, then next week, etc. after it happens to you one time, you'll be a lot grumpier with every contractor you deal with.
Thank you everyone for the valuable response. I will now look for a few more (may be 2) bids and will see how it goes from there.
Get 10 more bids. Finding and dealing with contractors is probably the hardest part of this business, and you're going to have to make some tradeoffs.
I'm a big fan of the "Better, Faster, Cheaper -- Pick 2" approach when it comes to contractors. It's unlikely you'll find all three of these attributes in someone, but if you can decide which two are most important to you, and focus on finding someone with those two, you'll be a good way towards your goal of finding someone.
Btw, you'll likely go through dozens of contractors before you are able to build a great team -- don't be afraid to fire bad contractors at the first sign of trouble...things only get worse over time with bad contractors...
Something to bear in mind is that contractors are not all created equally. Most investors (Heck, most PEOPLE) don't realize that a truly good, dedicated contractor is going to have some pretty major overhead expenses.
A question to ask - is the guy who is 4 times cheaper paying for insurance? Licensing? Dedicated trucks/vans? Communications? Job clocks? Shop space? Back-end scheduling software? Office help?
In other words - things that should theoretically make your job go easier, smoother, and faster than a 'buck with a truck'
Most contractors make lousy salesmen who think that customers don't want to hear about their real value-add proposition. That can make it very hard to differentiate between a guy running a legitimate business with legitimate backend, and a guy whose sole concern is his gas and cell phone.
This can go the other way too, though. The guy who is 4 times more expensive may be that much because he works one job at a time with no back end and no help, so to make up for his lack of sales he has to make sure that every win is a hit out of the park.
Meantime, the guy who is 4 times cheaper may have 60 guys working for him with 12 dedicated vans and a full time office staff and a metric ton of automation on his side. So he's selling cheap and making up for it with economy of scale while running just enough manpower to service 20 or 30 jobs at the same time... so while your schedule might suffer, you'll get it cheaper and more reliably done [eventually]
Speaking as a contractor, it's hard as crap to make a good balance between sales/manpower/backend/cost. Economy of scale is a very really thing in the contracting world, but it's also easy to get out of whack and end up with a long list of PO'd customers because... oops... I went out and outsold our capacity and we're simply undermanned.
Of course, the most likely thing here is that the less expensive guy is an unreliable flake and the more expensive guy is just... more expensive.
This is a really round-about way of backing up what J just said about getting 10 more bids. To dovetail onto that - the ivnestor/contractor relationship is just that - a relationship. Just like most people date around, expect to spend a lot of time interviewing contractors.
Really, until you do a few rehabs you won't really know what questions to even be asking. Your best bet is to work off referrals and talk to as many people as you can. (Protip: The guy who wants money to come take a look may be your future best resource. The guy who comes and talks to you for 4 hours for nothing is probably a schmuck. Really good contractors are really freaking busy and tend to have a pretty high opinion of their time.)
Things to think about...
Thank you @Aaron McGinnis for this detailed reply. As I do more research I agree more and more with J Scott that it is difficult to find all three characteristics in one single contractor. As I am starting out, I don't have enough funds and I am not a big fan of loans. So I am looking for cheaper and better right now.
As per suggestions from others I am looking for more bids and will decide after that.
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