New Investors Dealing With Contractors

6 Replies

In what ways do contractors take advantage of new investors wholesaling or flipping and how can we avoid this treatment?

@Troy Cole  

This is good question with many different answers unfortunately, I suggest that you always ask for references, and always make sure you look up there state contractors license.

at least here in California each and every contractors has to be licensed.

I angle I always take is I never ask for a Estimate, the word it self implies a rough calculation. I always ask for a Hard Bid. This seem to get there pencils a lit bit sharper.

I would encourage precise written scope and timing definition be built into a contact signed before work proceeds.  Include a clause to cost them for delays in a reasonable manner.  Define scope change and cost adjustments.  Careful with any upfront money.  I would pay for material and manage it separately yourself.  Pay labor on a progress payment schedule related to %completed weekly.   Require contractor to pick up material and you pay for it well in advance so you don't hold up the show.  Quote at least three contractors with an understanding that lowest bid wins.  Review bid with lowest bidder before awarding to validate no omissions...particularly if there is a large difference.  Find a customer focused contractor. that hussles.  Lump sum bids are the best if scope is clearly defined and you don't anticipate changes.  Stay involved as much as practical...daily if possible.  Watch things closely particularly if it's moving at a fast pace.  Good luck!

...if they have to ask you to pre-pay so that they can get the materials...RUN !!!! Learned this one the hard way.  Plus, if they don't have the money to front their projects, than they probably aren't killing it in their business.  Also, stay away from Craigslist...another lesson learned.  Word of mouth from other investors and people you trust is the best way in my opinion.  Learn from my mistakes and good luck...!!!

I like the idea of getting a referral from someone at your local REIA. That's how I found mine. He has always done a good job for me!

In wholesaling the contractor could only give you and estimate of cost. But what are you offering them for their time and expertise? For flips, in adddition, to the above, I would add check out one of their existing projects in progress. You can learn a lot by seeing and watching a job in progress. It will be what your job will look like. 

While a Scope of Work is necessary, for larger projects it may not be sufficient. In addition, you will want to have a Schedule of Values. The SOV is a breakdown of project cost by category. this especially useful if you are going to pay by % completion. It avoids arguing over money. 

Also don't provide the final payment without a Release of liens. This will ensure that no mechanic's lien can be placed on your project. Your bank may even require this for thier final draw. 

Hey Thurmon

Re: Schedule of Values  - this is good information to know.


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