All Forum Posts by: Davon Lowery

Have him bid it with PEX instead of copper and that will lower the material costs. My clients are always in charge of the selections of fixtures- this can have a major impact on the overall cost of the project.

Second, as a contractor I mark up my subcontractor bids by 20%- this is O&P (overhead and profit). O&P helps the GC cover the possibility of a warranty occuring. For instance, a leaky fixture that requires the GC to replace sheet rock or flooring. I don't recommend going around your GC, but you could expect a 20% savings by going directly to the subcontractor.

Of course, going around your GC may cause your GC to balk at the entire project.

Davon,

I know investors don't like to pay for a contractor to come out and give a bid.The contractors know you will take their bid and use it to try and get a lower price from another contractor.

Ask them specific questions and make them line item everything out to see what everything costs. Then compare estimates. Most of what I've seen is they want to give you an estimate that says "rewire house" or "replumb house" $10k with no rhyme or reason and see if you'll bite.
When I call them on it I've seen the price literally drop as much as half.

I have a unique perspective this topic. I started in this wonderful industry of REI as a handyman, then moved to a contractor, Then moved out of REI contracting to working for residential primary residence home owners, then came back to REI as an investor in SFRs flips and buy and holds, and now I buy apartment buildings.

I have stood in many shoes in the many steps of REI. Through that I can see both sides of this argument.

When it comes down to it there are more real estate investors than there are good contractors. And that scale continues to shift further as our society makes people believe to be successful you need to get a college degree in a white collar career path. Think about it how many millennial's do you know that are focusing on becoming a skilled tradesman. As the supply of these skilled tradesman decline the good ones will continue to push prices up. As they should. I believe technology, will continue to eliminate jobs from the typical white collar jobs. While the tradesman jobs like HVAC, carpentry, electric, plumbing, etc will need a human to handle the issues. 

I flip houses and hire out much of the work now. I respect my contractors and realize I need them more than they need me.  However I am running a business for profit and need to keep costs down. How I do this is I have found at least 3 good sub contractors of each trade that have PROVEN they can do a good job. Once I have this group of three I give each the scope of work I am requesting and tell them I will not be negotiating I am have 3 contractors then give me their lowest bid and I take the lowest one. The key here is you need to know all 3 of these options are quality contractors. This takes time. 

I work well with contractors because I respect what they do understand it very well. 

One of the simplest and most effective things you can do is keep a fridge (Mini or regular) stocked with drinks at your job site as a thank you. I have been doing this for years. I tell them its just my way of saying thanks for all their hard work. This in turn keeps prices down on future bids (reciprocity effect). It prevents theft of materials and tools from job sites from the contractors. Finally they work hard and faster. This cost is nothing in comparison to the total job cost and the increase you see else where. I can stock a fridge of drinks from wal-mart for 50 buck and it will last 3-4 weeks. I tell them I know how long this typically last so you can drink as much as you want when you're on site and even take one for the ride home but if you take them home to stock your own fridge I wont re stock it.  I also make sure I give plenty of drinks with caffeine to give them the boost through out the day that helps :) !

Everybody says contractors are very busy and cannot come out. The investor should pay the contractor to come out and give a bid because contractors know the investor will get many bids and go with someone else.

Sure seems like a ton of work, risk and frustration only to have to give 40ish% of your profit to taxes and split what's left with a realtor. In hopes of doing it again, we frantically search for the next deal to keep the pipeline full.

@Davon Lowery, the contractors on here have spoken.  This is what you are up against. They are in this to make money, too.  When the goal of everyone involved is just to make a buck, it's a tough sandbox to play in.  

My brother-in-law is a very good contractor.  He raised his t&m rates another $15/hr, heading to $80. Joked about it over Easter.  He will continue to raise them until he is booked to only a month out. It's like a pro career he reasons. At only 40 his shoulders and hands are giving him trouble. Wearing out. While the going is good, the sky will be the limit on his and most others' labor rates.

Best wishes with this. Perhaps you will consider a BRRR strategy as you tire of the flipping rat race at high tax rates. Would this make a good buy and hold?

 You beat me to the punch on this one Mike - couldn't have said it better!

The only thing I'll add for @Davon Lowery is: if you're rehab costs are sucking the profits out of your job, then why not just pay less for the houses you're buying?

Wait, what's that? You can't just arbitrarily and magically make things cost less? Well neither can 'your' contractors. 

Get multiple quotes, build relationships, get real about your numbers.

It takes a while to build a relationship with a contractor that truly has your best interest in mind as well as his own. For me I work with many return investors, I'm doing 4 houses for one investor right now and 3 for another, but I do not just take on any client. I have to know that the client wants me to profit also. I believe I am a rare type of contractor that looks to build the relationship for return and ongoing revenue stream rather than hit and run and take as much as I can on any deal. Contractors are a many varied and diverse creature and you need to be diligent and thorough in your search for the one that fits with your plans and goals. Good luck!

Aaaand....this is why my company stopped taking investor work, except for my own houses.

Reno costs what it costs. Labor  + materials + overhead + a fair profit for the contractor. It doesn't matter what you "need" it to be.

If two or three different plumbers tell you $10K, the cost is $10K. If two plumbers tell you $10K and one says he'll do it for your $6K, you'll probably regret it in the end. He's either planning to cheat you, or he doesn't know how to run his business and will either change order you to death or bail o the project.

I can't tell you how may conversations I've had with investors who've bought a house where ARV & rehab costs were based on hope & prayer, then get frustrated with the contractor because he can't stuff $50,000 worth of reno into a $30,000 budget.

The remodeling market is booming all over the country. Most good contractors have a backlog of work from homeowners paying retail. If you want work done from a quality contractor, you're going to have to have your ARV and reno costs in line, so you've allocated a realistic reno budget.

I flipped a couple dozen houses in Milwaukee a couple years ago, and we decided to get out of that market for the very reasons you mentioned -- contractors were our major bottleneck.  There are several reasons for it:

- Lots of union contractors expecting union prices

- Contractors having more work than they can handle in the spring/summer, so they take higher-paying jobs

- Not enough buyer demand for rehabbed houses (meaning you can't charge a premium and recoup renovation expenses)

- Strict codes and inspectors requiring higher rehab costs than other locations for same work

- Long winter delays means inefficiency in getting reasonably priced work done in winter months