Contractor bids before or after offer?

Question

When putting offers in on BRRRR properties, do y'all have your contractors give you a bid on the job before putting an offer in? Or do you estimate yourself and then renegotiate price during due diligence once your contractors has actually seen the property and has a much better idea of the price to rehab?

Thanks for the input!

Greg Kasmer · Answer

Steven - If you've worked with a contractor before I would hope they would be willing to stop by and provide their thoughts on the project. But, my guess is that you could probably only do this 2-3 times before they would "cry wolf" and get tired. However, if this is your first project or first time working with a contractor it may make sense for you to pay them a small ($50-100) fee to stop by and provide an estimate. The other way I've done this is to bring in a contractor after the contract is signed but before I send in my earnest money. That typically is a very small window, but a small window that you could take advantage of if you time it right.

Andrew Postell · Answer

@Steven Barr you should ALWAYS know your rehab BEFORE making your offer.  Otherwise, how do you know what your offer should be?  But there is a "theoretical" way to do this and then there's "reality".  In theory, you should speak to a rehab person, ask them to visit a property with you, and provide you a quote before making your offer.  However, in this market that is not a realistic expectation to have.  Your contractor will be across town, there will be a property to view, and you'll have 1 hour to make your offer.  It's just impossible to get a contractor over to a property in this type of a scenario.  Or as mentioned above, after they do it once, twice, three times....they will stop doing it because it takes a lot of their time.

So the "reality" of this is that you need to be able to estimate the rehab on your own.  And how do you estimate the rehab when you have no idea how to estimate the rehab?  This is where you need to rely on other investors - or a very competent contractor.  Usually when I quiz rehab companies on how to estimate a job they will usually default to "There's so many things to consider, there's no way I can teach you how to do it".  But I eventually did find one that showed me their worksheet on how the estimate and it's still the same worksheet I use today.  It took me speaking with lots and lots of contractors though.  But if one is not willing to do this for you then you should lean on another investor in your area to help.  In either case, we need you to get out and network with a real estate investor group local to you.  That's the best technique I can recommend for you.  But know your rehab beforehand.  Otherwise you are taking a big risk with the property.  Hope all of that makes sense.