While trying to find a new 'go-to' contractor for the rehabs on the houses we are flipping, I decided to put together this post to outline some of the things I do when trying to find the perfect investor-friendly contractor. We recently have had some issues with our main contractor and it has been really overdue for me to get out there and find someone else to use. It's tempting to stay with a contractor for longer than you should simply because you become comfortable and lazy. He knows what you want and how you work. You don't have to get into huge negotiations because you have both found a mutually agreeable balance.
But this all becomes a huge problem when you start letting things slide that you shouldn't be. Shoddy work might rear its ugly head or increasing bids for work that you don't check because you trust them too much. You start showing up less and less to job sites and they start taking advantage. Very bad idea.
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Here's what I do when starting over and looking for a new contractor for our rehabs:
Where To Look For An Investor-Friendly Contractor
The first thing I do is contact other investors to see if they know of any good contractors that need work. Most investors, no matter how well you know them, will not give you their 'go-to' guys. They don't want you keeping them busy or getting them used to higher pay or whatever other evil things you might do. :) I don't blame them. If I am keeping someone busy and we have a good thing going, I don't want to share them either. Guess I'm selfish like that.
But, this works if they do know of someone that has done some work for them that they cannot keep busy or just use when they need an additional crew. Sometimes investors get stuck with too many properties on the market and hesitate to buy more, at which point their contractors will be looking for work. The investor will want to help them by referring them.
Another great way to find a good contractor that knows how investors work is to keep your eyes peeled while driving for dollars. Look for rehabs in progress. When you see a front door wide open and a pile, or construction debris in the front yard, it's a good sign some serious rehabbing is taking place. Check out the job and see what work they are doing. Ask who the boss is and ask if the house belongs to an investor. Ask the questions that I bring up in the next section below. Try to really pay attention to how good of a job they are doing with the current rehab.
Is the job site clean and orderly? Is there trash strewn about everywhere and texture on switches and plugs (things that should have been covered first)? Is the line between baseboard paint and wall paint clean and straight? Are there beer cans everywhere? Is everybody on the job site working or are they standing around talking on cell phones or texting? You get the idea.
I don't know how many times I've stopped at rehabs to meet contractors and because of some of the things I just mentioned, will throw the contractors card away on the way out the door.
Another good source of contractors is your local Home Depot. Go to the contractor desk (pro desk) and ask them for referrals. Tell them you are looking for a handyman or contractor that can do everything. Contractors that are there regularly develop friendships with the people that work the pro desk. It's a good way to find friendlier contractors. They might not be the cheapest though.
I tend to avoid the yellow pages because a lot of the contractors that advertise are bigger companies with a lot more overhead. These tend to be the guys that show up in the giant Hummer and expensive Italian leather shoes. Ok, maybe I'm exaggerating a little. You really want someone that is either doing the work or hiring subs directly beneath them to do the work with their direct supervision.
It's best to also avoid craigslist. I don't think I've ever found anybody worth a darn on craigslist. Seriously, one guy was trying to just quickly get $20 from me. Weird. And from the looks of him, I'm sure it was for drugs. That's just my experience though. It's not to say that you can't find a good contractor there.
Questions To Ask
It is usually easier to find someone that has done work for another investor. This is mainly because they will likely understand that you are not looking for regular homeowner prices. You bring them the benefit or more jobs and more work. You help them by providing a way for them to avoid having to constantly find more work and compete for jobs.
Ask if they've done any work for anyone else that is flipping houses or is a real estate investor. If they have, ask how many jobs they've done for them. Get their name and number if you can. Ask what they liked about working with them and if they'd like to work for other house flippers.
Ask how long they've been doing this line of work.
Ask if they do the work themselves with helpers or whether they just sub everything out (more expensive but not necessarily something to avoid).
Ask how many people they have working for them. If they don't or just have one or two guys, it may be difficult for them to handle big rehabs and definitely will be difficult if you have more than one rehab going at a time.
Ask if there is anything they don't do. Do they do foundation work? Do they do minor electrical or plumbing? Do they do roofing? What about framing? Some guys really only want to do minor things like drywall and painting. Ask if there is anything they don't like to do. In this business, it is best to find someone that can do it all or hire people that can fill in the gaps.
Ask if they are currently busy with work. If so, ask when they think they might be free. You don't really want to wait 3 months for someone to start your job. Trust me.
Ask whether or not they are licensed. This one is up to you. They don't have to be to do general work and light rehabs. Some will not be licensed but will be able to have friends or associates pull permits for them when they are needed. You really should have licensed contractors for specialized work like electrical, plumbing, hvac, roofing etc.
Ask if they are insured. This one is very important.
Bad Signs To Watch Out For
If they seem like they need the work really bad and will give you a super low price that is far below any other bid, be careful. Sometimes, especially if they have been out of work for a while, they need your job so they can pay their past due bills, other people they owe, or finish previously started jobs. This happens a lot and you need to be careful. Many times, unscrupulous contractors will tell you that they don't have enough money to finish your job and that they need another draw. The problem is that you had already paid the money for the job, but it did not go to your job. They will dig themselves a hole and ask you to help them dig it, WITH YOU IN IT! Ask me how I know.
Sometimes they will try to play to your soft side and give you a sob story and beg that you help them out by giving them the job. Feeling bad for them, you will be tempted to go ahead and do it even though your gut is likely screaming at you to run the other way. Trust your gut.
Be careful to avoid the guy that smells like alcohol. I don't just mean the guy that has beer breath either. I'm talking about the guy that smells like alcohol is coming out of his pores. Some of these guys may do perfectly fine, but more than likely they have some serious issues. Don't even think about hiring one that doesn't have insurance.
Avoid the guy that says he has to have half of the cost of the job up front. Geez. I don't know how many times I've heard of people paying a contractor half or more up front and then complain that they are not showing up and when they do it is only because they nagged them to death for several days. Sometimes they won't ever show up. Have fun getting your money back. People should get paid for work AFTER THEY DO IT. Novel idea, I know.
You might also want to avoid the guy that talks too much. This might sound a little strange, but I've found it to be true several times. The ones that are constantly and repeatedly telling you about how awesome they are and how professional they are, are usually just the opposite. If they need to work so hard to convince you, something is wrong. The ones that only speak when necessary are usually the better contractors. Sometimes all of that blabbering is just to butter you up for the outrageous bid they are planning to throw in your face. If you can't get a word in edgewise, walk away.
Filter The Prospects
Once you've talked with several contractor prospects, you'll want to filter them and only invite the ones you feel best about to bid on your job (or look at the flip house that you intend to make an offer on). You really don't want to waste your time with the ones that you did not have a good feeling about. It takes time to walk through a house with someone going over a scope of work for a rehab.
You should be asking for AND CALLING the references. Sometimes this is hard to do. It can be hard to get ahold of people. It is well worth it though. References should be recent and should not be for people that are friends or are related to the contractor. Ask the reference what the extent of the work was that was done for them. How was the contractor's professionalism? Were they there every day? Were they there working early and staying late? Did they ask for draws before they were due? Did they quickly and happily correct mistakes?
Ask for the address of a job they are currently working and show up there unexpectedly. This is a great way to see how they really work and how good of a job they do. Pay attention to detail and ask questions. Try to spend some time just focusing on the work. You can get hung up in talking and not really paying attention to the work they've done. Don't let your time there be wasted. Ask how long they have been on the job and how much longer they expect it to take to finish it. Pay attention to everyone's attitude. You don't want people that are rude and unfriendly. This is not super important but can really make the difference in your wanting to visit your job site on a regular basis, which of course, you should do.
Let Them Know How You Work, Up Front
When you meet your selected contractors at a job (separately is preferable of course), it is important to talk to them about what you expect from them. It is best to get this out in the open so that they know what to expect. This is very important because it puts you in a position to control the situation. You are the one with the work and you want them to know that it will have to be on your terms.
This does not mean to dictate unfair and crazy terms. Don't be a jerk.
The things that I want to make sure they understand are:
- I expect wholesale prices, not single-job, homeowner prices.
- They will be independent contractors, not employees.
- I pay draws based on job milestones, not just every Friday afternoon (I hate going to job sites on Friday afternoons!).
- I want quality work and a constantly clean job site.
- We will be using my contract.
- When starting with a new contractor, there will be more draws for each job (smaller payments).
- There is a penalty for exceeding the job completion date.
- Any additional work or change orders will be approved for time and cost in writing before the additional work is started.
- Their work must be warrantied for at least a year.
- There will be no smoking in the house after painting has started.
- It will be their responsibility to make sure the house is secured properly every day.
If they give you grief for any of these items (if you feel they are important to you as well), you might want to reconsider hiring them.
Wait for the bids to come in and try to avoid playing games. Some contractors will try to pry and find out what the other guys are bidding or just ask you to name your price. Try to avoid this and have each of them supply their bids. It's important to have a scope of work drawn up that details exactly what you want to be done so that you are comparing apples to apples.
I usually throw out the ridiculous ones, on the high and the low side. Take the remaining ones and determine who you liked the most and felt the best about while weighing the cost of each. If you impressed on them that you will be giving them a lot of work, the bids shouldn't be too far off from what they are willing to do the work for. Try to negotiate with each of them, even if you like the price and see how that goes. You should always negotiate, even if it just for a small amount. Don't leave the other side feeling like they left money on the table.
Evaluate The Job
Once you've selected your new 'go-to' guy and have them do a job, be ever mindful of anything that doesn't leave you with a good feeling. Sometimes people will do an amazing act to get the job and then almost immediately do the opposite of what they promised.
This is a very important point. Pay close attention.
DO NOT BE AFRAID TO FIRE A CONTRACTOR.
If they are in default of your agreement, you have every right. Do not put up with problems just to avoid confrontation. Some contractors are pros at knowing how much they can get away with and will push and push and take and take all the while knowing that you are not going to do anything about it because you want to avoid the confrontation. You have to lay down the law when things are not going well. Do not wait and hope that things will improve. They rarely do. Stand up and set the job back on the right course by demanding that it be corrected. This can be hard and I've struggled with it in the past, but it something that must be done and done from the first sign of problems.
I hope this post on finding and interviewing contractors for your house flips helps you in your efforts to find a contractor that you can build a relationship with and work with for many years. That really is the nice thing about all of this. Once you work hard to find the right one, things will become a lot easier and you will find that flipping houses becomes a lot easier.