Getting Bids From Contractors
How do you guys actually go about getting bids from contractors for rehabs? Is it before you buy or after? Seems risky waiting until after the purchase when holding costs will start to pile up, but it also seems silly for the contractor to walk the property with you, write up a detailed scope of work and risk the buyer not actually completing the purchase. Do you pay a contractor money each time they walk a property before hand?
I'm comfortable analyzing a deal, I understand I'll need to get an LLC in order to get a short-term loan, and I know I'll need to find a lender for the refinance, but sourcing bids is what is currently hanging me up. Any feedback would be appreciated. Trying to get all my ducks in a row so I can actually look at some properties with intention.
Most Popular Reply
@Griffin Malcolm, Before or after purchase, that is the question??? My answer would be NEITHER!!! lol. How about DURING the purchase!
I do my own estimating. I create a scope of work and then for each line item I make my own estimate. THEN I assign a confidence level for each line that I used to create a low estimate and high estimate. The more certain I am of my original estimate the tighter the range, the less confident I am the wider the range.
When I'm done, and I add everything up, I have 3 estimates. An original estimate, low and high estimates. The original estimate is my target and should look like a very good deal. The high estimate should never happen because everything would have to go wrong and I would have to manage the project poorly but if it still makes money or breaks even or close I feel secure. The low estimate will never happen.
Using good project management, you can manage the cost of the project as you go by adjusting the scope of work, negotiating better deals, or extending the time frame.
So, pre-purchase I use this estimate and then once I have the deal under contract I can use the time between then and closing to firm my plans up. To refine my scope of work and to begin getting estimates and lining up contractors.
@Griffin Malcolm, Before or after purchase, that is the question??? My answer would be NEITHER!!! lol. How about DURING the purchase!
I do my own estimating. I create a scope of work and then for each line item I make my own estimate. THEN I assign a confidence level for each line that I used to create a low estimate and high estimate. The more certain I am of my original estimate the tighter the range, the less confident I am the wider the range.
When I'm done, and I add everything up, I have 3 estimates. An original estimate, low and high estimates. The original estimate is my target and should look like a very good deal. The high estimate should never happen because everything would have to go wrong and I would have to manage the project poorly but if it still makes money or breaks even or close I feel secure. The low estimate will never happen.
Using good project management, you can manage the cost of the project as you go by adjusting the scope of work, negotiating better deals, or extending the time frame.
So, pre-purchase I use this estimate and then once I have the deal under contract I can use the time between then and closing to firm my plans up. To refine my scope of work and to begin getting estimates and lining up contractors.
@Griffin Malcolm The best answer I could give you is find a really good GC and pay them for the time. The problem is the good contractors are all tied up with projects and don't have time to much so a good incentive would be to pay them for their time. In return you should be asking for a detailed scope of work, or a really good breakdown.
Once you start establishing relationships and you're doing enough business the good contractors will start walking your potential projects for free.
Thank you both for the replies. @Kevin Sobilo I'm about to start reading How to Estimate Rehab Costs, so hopefully after that I can attempt to do my own estimates with confidence levels like you do.
@Kevin Paulk This is ideally what I want to work towards. I got in touch with two contractors yesterday and they each wanted $500 to walk the property and give an estimate. Might be a worthwhile investment for my education
I would see if you have any friends who are in a similar situation and try to shadow when the Contractor is around to get bids to get estimates. Some contractors are willing to walk through your property for free to give you bids since they want your business. I'm located in Dallas area and am currently working on a rehab project on a rental property I have purchased that I plan to BRRRR. I asked the contractors for a bid and they are all happy to come and walk thru the property free of charge. I've had 5 contractors come thru and now I have estimates for all of the projects and now have a rough idea how much it cost for each part of the rehab. Also see what level of rehab you are planning to so. I'm around level 2 for my project.
Hi Griffin,
If you build good relationships with contractors, they could walk through the property before the purchase, given you have high confidence in pushing. You can also get utilize the inspection period to obtain multiple bids from contractors. If you ask detailed bids for each items and look across multiple bids, you can confidently estimate the overall rehab cost.
In general, the best practice is to pay the contractor across multiple payments - before rehab, during and after. Some investors pay extra or deduct for quicker/late completion.
#2 Contractors Contributor
- Severna Park, MD
$500 would be a reasonable amount to pay the contractor to walk a property PRIOR to you buying it . You are paying for an estimate , but you are really paying for information that you will use to make your offer on the property , just like when you pay for a home inspection . One difference between a home inspector and a contractor , is a home inspector doesnt perform the work and has no clue on pricing .
@Griffin Malcolm Remember this , Professional contractors are not sitting around waiting for the phone to ring so they can work . A 6 month wait time is normal . Be very weary of ANY contractor who says they can start right away , there is a reason they are not busy .
At first just sell them the dream of how working with you will be profitable and easy for them. When you are looking at a property, send them to get you a quote on one or two. Usually they'll do that for free and submit a bit. But if you don't accept the first or second one, they probably won't go out for the third. That's when you would need to start paying them.
when possible, try to get a contract with contingencies before you send them out. That will greatly increase the odds of them giving you a serious bid and taking the time to do it without getting annoyed with you. But sometimes the market is too competitive for that and you have to get them in the door during the narrow window of the open house or whatever, and in those scenarios you might have to just start paying contractors. You can also look at it as an inspection to some degree as they will likely come back with information you did not have before.
I am a contractor and GC in Nashville tennessee, and every time I've gone to make a bid, I saw things they didn't know about . Usually projecting issues they were not prepared for yet.
#2 Contractors Contributor
- Severna Park, MD
When a customer tries to sell themselves to me , telling me how easy they are to work with and how profitable it will be , I know I am getting played . Most contractors prequalify their leads , and a customer selling themselves is a big no
Kevin is right on. I concur with his process. You should get a good scope of work form to use to do your own estimating. Bigger Pockets has a book about estimating rehab costs by Scott. If you are clueless that is a good place to start. If you work at it you can find a contractor who is eager enough to work wit you that he or she will walk the property and give you his thought. I will not even begin a project unless I have a good idea bout my team members including the contractor. Good luck.
I've got a GC now who has done plumbing at my house and I've been satisfied with the work he's done. He's walked a property with me for free and I've made it known I want a good relationship with him and that it can be mutualistic. However, he did say he could start anytime. Hoping that's not a red flag.
Seems like a catch-22. The really good GCs are all busy doing work, but you need someone who can start right away to avoid paying unnecessary holding costs, so that leads to people who are available but maybe not the best.