I'm a new investor working on my first flip. I've got a contractor who asked if he discounts the labor up front, if I'd give him a good bonus if the house sells for a lot more, so I would give him more work on additional flips. Originally we were going to fix up the house and sell as it is, size wise. But he said we could add a bunch of space, which would significantly increase the value and make us a lot more money. Having run the numbers, I would say he is correct. What sounds like a reasonable amount? A set dollar amount? A percentage of profits?
Contractors can be like good idea fairies sometimes. Sounds like scope creep to me. Adding space as in an addition? If you go ahead with it, make sure to get a change order and lien waiver signed. You're looking for a fixed price plus incentive contract. I can't help you out on the amount.
Originally posted by @Wayne Brooks :
don't do it don't do it don't do it.. if you can do minimal work get in get out get paid.. if you are not experienced this could go horribly wrong.. not worth the risk is my thought
@Andrea L Eskew first flip? Donas little as necessary to make a decent profit. The more complicated it becomes, the better chance something goes wrong.
Keep it simple. His bonus will be the continued work as you flip more properties.
This is a perfect recipe for how to go bankrupt trying to be a house flipper. This is not the time to do long term flips, esp if you're a rookie. Get in and out as quick as possible. When you do all of the math even if you make 2x or 3x the money you initially planned, if it takes you 6-10x as long, it isn't worth it. That is assuming you don't run into issues with construction, permitting, etc
Adding square footage usually isn't worth it when you consider the added cost for construction, permits, labor, holding costs and time. Also doing weird "bonus" deals with contractors isn't a good idea. Keep it simple!
He should give you fair pricing, not discounted with an expectation of something in return. His 'bonus' will be getting your business on future flips. Have him prove himself first before deciding if you will even use him again. I agree with the others...keep it simple and get in/out ASAP to reduce holding costs and possible issues.
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