Paying for a GC for a flip
Nashville, TN · Member since 2019 · 19 posts · 6 votes
Paying for a GC for a flip
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Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y@Elizabeth Beard, best practices: pay the GC for the job he performs, and you keep all the profit. I am willing to take the risk and reap the full reward. I get a bid for the scope of work I need completed. I pay based on specific milestones as outlined in the contract. I do NOT pay based on percentage complete, as that is both a red flag that the contractor is bad with money and an easy way to let the GC get ahead on draws. So if there is demo, I have my GC line item demo cost, rough-in plumbing/electric/framing AND passed inspection, cabinets installed with all pulls, etc. Milestones that are clear cut either completed or not.
Then I pay them with a check when those milestones are completed.
13 Replies
- Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes5y
EEek, not THAT one!
I get it . . . in a busy climate you can ask for the moon and someone will give it to you, but UNLESS that GC is willing to front ALL materials costs then they're wanting you to take the risk and they earn a partner's keep. If they are willing to pay all materials out of pocket, invoice materials costs only, and split 50% of the profit then that might not be a bad setup.
In general you want to use a "draw" method on a weekly or bi-weekly cadence to pay your people. They submit an invoice by X day, you pay on Y day. Pretty simple setup, and you'll want to make sure this is lined out in your work contract.
- Nashville, TN · Member since 2019 · 19 posts · 6 votes5y
@Will Fraser Thanks!! I thought it was something more like that from when I built my house a few years ago. I felt like this guy was getting greedy and trying to steal our deal from us. I want to pay fairly for work, but that felt a step too far. But he kept insisting that people won’t take the work unless it pays them well because everyone would rather be on a bigger job. Tough situation....
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes5y
@Elizabeth Beard, best practices: pay the GC for the job he performs, and you keep all the profit. I am willing to take the risk and reap the full reward. I get a bid for the scope of work I need completed. I pay based on specific milestones as outlined in the contract. I do NOT pay based on percentage complete, as that is both a red flag that the contractor is bad with money and an easy way to let the GC get ahead on draws. So if there is demo, I have my GC line item demo cost, rough-in plumbing/electric/framing AND passed inspection, cabinets installed with all pulls, etc. Milestones that are clear cut either completed or not.
Then I pay them with a check when those milestones are completed.
- Realtor · PInellas County Largo, FL · Member since 2016 · 902 posts · 810 votes5y
Originally posted by @Evan Polaski:
@Elizabeth Beard, best practices: pay the GC for the job he performs, and you keep all the profit. I am willing to take the risk and reap the full reward. I get a bid for the scope of work I need completed. I pay based on specific milestones as outlined in the contract. I do NOT pay based on percentage complete, as that is both a red flag that the contractor is bad with money and an easy way to let the GC get ahead on draws. So if there is demo, I have my GC line item demo cost, rough-in plumbing/electric/framing AND passed inspection, cabinets installed with all pulls, etc. Milestones that are clear cut either completed or not.
Then I pay them with a check when those milestones are completed.
☝️ That's how I would pay. His job is a s a GC. If he wants to be a salesperson or an investor, that's fine, but we do the jobs we chose. If he doesn't want your job because it's too small, that's fine. Let him quote what he needs or decline it. He definitely can't speak for all contractors in Nashville!
Everybody has (or should have) a specific niche that they work best in -- you just have to find someone that does the work you want.
- Nashville, TN · Member since 2019 · 19 posts · 6 votes5y
@Evan Polaski So helpful!! Thank you!!
- Investor · Morrison, CO · Member since 2015 · 221 posts · 177 votes5y
@Elizabeth Beard, I can understand how hard it is to find the right people. That can mean good at what they do, good business sense, and also not too expensive. It becomes a hard endeavor and once you find someone, just hope you have them around for awhile!
I would suggest finding some recommendations from your local clubs and REIA groups. There are sometimes people very willing to share their subs or at least know someone that might have availability. Also, if you have anyone that you have as a mentor or sharing their experience with you locally might be able to lead you in the right direction. Calling people from Google, Angie's List, etc will only end in frustration unless they are new and just went off on their own. Sometimes the guys that have the lowest review count can be open to negotiating and aren't the "too buys" type of guys.
For payment, I agree with Evan. Who's to say what a percentage is? Would you be able to discern that that is? Would he? So, only pay for things when completed. Trust me, you can make something look mostly done and progress is made, but it's always the little things and the finish work that take the most time and labor so even though it may look close, it may actually be far from completion. I don't mind giving materials deposits but the contractor should be willing to put his time and energy into the project until completion without complaining, otherwise, he's likely to only be out for money and not out to complete the project and have a satisfied customer.
- Investor · Pensacola · Member since 2021 · 9 posts · 6 votes5y
No way. If you are having issues getting work done, incentives work. X% bonus if finished by x date. But a piece of the action is crazy. He has no risk, but wants the reward.
I'm in Pensacola looking for another GC. My guys are hitting me with prices, (rather high) but not one has come up with crap like that.
Hi @Elizabeth Beard How to work with a contractor (including how to pay him), is a big subject, far beyond the scope of a forum post and I highly recommend getting yourself thoroughly educated on it.
In short, and risking being very superficial, it goes like this - you reach a prior agreement on the different elements of the rehab and much each should cost. Later you use this during the rehab itself to agree on the next chunk of work about to be done and you pay in advance only for this chunk according to the price agreed when you signed the contract.
This allows you control over the process and the contractor the financial freedom to do the work.
Again, this is a very bird-eye-30,000-feet look at the process.
There is a beautiful and deep reference to this entire subject of how to choose and work with contractors in David Greene's book Long Distance Real Estate Investing. My advice - read it. This is a complex subject that can easily make or break your ROI. Approach is when you are prepared.
Hope this helps!
- Rental Property Investor · Knoxville, TN · Member since 2011 · 701 posts · 531 votes5y
Evan is spot on. I know somebody that does 50/50 with his GC's and it works for him. They front material costs, etc. This is the reality, finding good contractors is HARD. So hard, many, many people get pushed out of this business or voluntarily leave it. There is no secret to finding them unfortunately. Contact as many as you can, don't hire someone you are not comfortable with, and let them go soon as it becomes clear that working with them is not in your best interest. When you do find a good one, don't get comfortable, keep building the rolodex. A contractor can be a Rockstar one day then MIA the next.
- 5yKerry Noble JrPro MemberInvestor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
I would personally have had the GC ready to go as soon as i closed not looking for the GC after I closed
- Flipper/Rehabber · Pensacola, FL · Member since 2015 · 220 posts · 99 votes5y
Originally posted by @Chad Westfall:
No way. If you are having issues getting work done, incentives work. X% bonus if finished by x date. But a piece of the action is crazy. He has no risk, but wants the reward.
I'm in Pensacola looking for another GC. My guys are hitting me with prices, (rather high) but not one has come up with crap like that.
I agree I like the bonus structure as well. I considered a penalty for every day not finished after the due date but believed that's a negative route that will not provide a good vibe.
- 5yDebbie FalesBusiness MemberLender · Annapolis, MD · Member since 2018 · 145 posts · 47 votes
Hi Elizabeth,
Thought you might find these tips helpful...
How to find a top-notch general contractor? Here is some advice:
Tap Into Your Network
Just like everything else in this world, it’s often not WHAT you know but WHO you know that makes the difference. So start asking around. Your friends and family may have some personal experience with home improvement contractors that could prove helpful. Check with your business associates as well including your realtor or broker and, of course, your lender. These folks have been around the proverbial block a few times and know what it takes to successfully flip a house. Here at NavCap, we have worked with many reputable GCs and subcontractors and are happy to make referrals to our investors.
Visit Your Home Improvement Store
It may feel a bit like stalking but visiting your neighborhood Lowes and Home Depot in the early morning can be a winning strategy. Busy contractors loading up for the day are a good resource—they may be looking for their next project or know someone who is. It certainly doesn’t hurt to ask.
Use Your REIA To Your Advantage
Your local Real Estate Investment Association or REIA is a great place to get both advice from and referrals for home flipping professionals. Fellow flippers with direct experience in the industry can offer solid recommendations because they've been there, done that. Don't know how to find a REIA in your area? Visit the National Real Estate Investment Association's website to locate a club in your state.
Ask For References
Once you’ve found a good contractor (or contractors, hopefully), ask for information about their past projects, either completed or, better yet, still in progress. Reach out to the homeowners to gauge their satisfaction level and, if possible, stop by to assess the level of workmanship. We suggest getting multiple references to get a good sense of the type and quality of work completed.
Compare Apples to Apples
When it comes to home renovation, there is no shortage of choices involving materials and supplies. Make it easy to compare multiple bids by specifying everything in the Scope of Work up front. That way contractors know exactly what is expected, and you know exactly what it will cost.
Work Out Financing
Most rehab lenders use draws to distribute funding for a project over time. As a practical matter, draws done in arrears allow the lender to reimburse the investor for the cost of work as it is completed rather than fronting the cost of renovations or construction. Your contractor should be amenable to this arrangement as it helps keep the project moving forward and on budget. It’s a good thing to discuss right up front.
Good luck!
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