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.
Here’s what I do when starting over and looking for a new contractor for our rehabs:
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 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.
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.
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.
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.
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:
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.
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.Next: Online Lead Generation Part 3: Pay Per Click for Real Estate Investors
You are awesome Danny! I really appreciate you taking the time to help us all!!
Thanks alot, Pat.
If I’m ever in your area, we must get together!!!
Great. Let me know if you ever are.
[…] Here is the post I wrote concerning the process: Finding and Interviewing Contractors for Your Flip Houses […]
This is a great and valuable article! “Waiting for things to improve” GUILTY! Thanks so much for sharing!
Another great tip I heard: make sure you are added to the contractors insurance as “additional insured”. That way if he skips out, you can file a claim.
I wish I could say that I have never waiting for things to improve. This is one of the things I constantly struggle with. It tends to happen more because there are certain aspects of the business that I’d rather tend to (namely buying more houses) and tough things like this just get put on the back burner.
Thanks for the tip on the additional insured.
Danny – You’re spot on. I had a contractor that wanted me to pay for materials up front, which I thought was reasonable. This was only to find out that he later claimed that someone stole his wallet at a bar and he doesn’t have the money to buy anything. Really – you had $2k in your wallet at a bar?? He keeps telling me that he feels bad and will pay me once he gets money (or screws someone else over), but I’ve already started legal procedures. I wish this was the exception with contractors but they never seem to amaze me!
I think the most critical point that you made is to have a contract with ALL contractors (no matter how much the job costs). In my opinion, it is worth the additional cost of having an attorney draft one because in the case that a contract breachs the scope of work, which will happen at least once, you have the legal backing to fix the problem and reduce the chance of them leaving the job.
I would also recommend to start the contractor search before you buy a property – this way your not making a quick decision on a contractor due to timing constraints, but you are selecting them because they prove they are the right fit. Some other places you may be able to find contractors are on AngieList.org & bidclerk.com. I haven’t used them but I hear other people have had some good finds.
Although I’ve only been through one flip, I’ve learned a lot and can tell you that finding a contractor(s) is a very difficult part in the REI game. Make sure you do your due diligence.
Thanks again for the post Danny!
Great points you make here.
I don’t know how many crazy stories I’ve heard. You always want to give them the benefit of the doubt, but we all know what has really happened.
I once had a contractor tell me that he went to a gas station to get cigarettes. This was in the worst part of town and he said he left the truck running while he ran in to get the smokes. WHO IN THEIR RIGHT MIND DOES THAT? The story could have ended there, but no, he had to take it further. It is amazing what people will tell you when you remain silent and let them talk and talk.
His story got really elaborate. The guys that stole the truck took it to the Corpus Christi (on the coast) and ditched it. The police found it and found cocaine in it. The police then started accusing my contractor of having the cocaine. You can see what was trying to be explained here.
May we (I) have a copy of your contractors contract. I have every intention of having a lawyer draft one, but having your contract for a comparison would be helpful.
I’v been away from your post for awhile working on finding investors, now that my PPM is finally ready. I am in my 7th month preparing to buy houses, and I just finish my first two investor seminars with 35 attendees. With no background in residential properties, so I had to do a lot of research. If I knew it was going to take so much time, maybe I would be doing something different as my funds are limited. I am in RE now and I really have to make this work. Your blog gives me peace of mind, especially on sleepless nights.
I’m glad the blog is helping you through the tough part, get started and over all of those first hurdles that seem insurmountable.
The contract I use is actually from a course and I modified it slightly but not enough to be able to give out without copyright infringement. I plan on creating a new one and sharing that one.
Did you find any interested lenders from your seminars?
Yes, most said they would like to learn more. I feel like I will have 4 to 5 investors for every 2 seminars. I ask for a email address for anyone that had an interest. I plan on sending them infomation, starting with my Executive Summary, until they opt out.
I will keep you posted with a little more detail, if you like.
Sure. I’d like to see how it works out. I would think 4 or 5 investors for every 2 seminars is not bad at all if they have the funds to lend on several deals.
Another great insight!
Danny, I just sent you a email with a contractor question before I saw this article…thx jeff
[…] Finding and Interviewing Contractors for Your Flip Houses […]
Hi Danny. I’m new to the site and I’m loving it so far. Lot a great content here! I had a question about rehab costs…how do you estimate your repair costs of your deals? Do you have a system? Software program? Or just experience? Thanks
I estimate repairs based on experience. I just focus on the cost of the bigger items and then add a little cushion.
The best way to do this is take a contractor that is recommended by another investor (to make sure they are giving investor prices for the work) over to a couple ugly houses and have them go over the main items with you. Ask them how much to replace cabinets, refinish cabinets (paint), paint inside and outside, sheetrock repairs, window replacement, water heater replacement, HVAC replacement, cost for roof replacement (per square), flooring installation prices, toilet, vanities, etc. Write all of this down. Take a trip to home depot and write down SKUs and prices of items you would want to put into the rehabs (do not choose expensive items that you would want in your house, this is for an investment – best looking stuff for lowest price).
You don’t need to go in and figure out how many linear feet of baseboard etc you will need. Just round your estimate up to accommodate items missed. Hopefully you will buy the house right and any surprises shouldn’t be able to wipe out all profit.
I typically add about a grand or two (for rehabs under 20 grand) for fudge factor.
Hope this helps.
Great help; who knew that letting us follow you weekly would be a no-brainier 🙂
I have never done any construction, so going to Home Depot seems a bit disconcerting for me if I have to select the different lumber, framing stuff…I used to work for HD in Hawaii but do you have a separate category that teaches us how to select the particulars? or do you just select your ‘go to’ guy and have them walk thru with you to let them show you the items they like and then decide if it works? sorry for the long post and I don’t know if I am able to make sense? thanks.
For the ‘particulars’, my wife and I just plan a trip to HD and look for the best looking materials at the lowest costs. So we decide on brushed nickel fixtures and find the cheapest ones that look like they are worth more. We don’t go for cheap fixtures that look cheap.
It’s funny because we actually went to Lowe’s and Home Depot doing this. It had been a while and we want to make a current rehab really shine.
[…] Here is the post I wrote concerning the process: Finding and Interviewing Contractors for Your Flip Houses […]
[…] are members of your house flipping team and as such, you’ve got to regard them with as much respect as you do a real estate attorney […]
It seems that one of biggies is getting them to complete the job on time…. Since carrying costs can be significant. I see you have a penilty. Can you eloborate? Do you offer a bounus if they finish ahead of schedule?
My penalty is written into the contract as (I change it up sometimes) about $75 per day for every working day they are late on completing the job. I am fair about this though. If they have a crew working there every day, all day, I usually don’t enforce it. Likewise, if the weather keeps them from completing something, I don’t deduct the penalty from what is owed them. If they are not showing up to the job, I quickly make a call and remind them that they will be charged if they don’t finish on time.
I’ve found that one of the main reasons contractors drag a job out is that they’ve been paid more than what they should have for the work they’ve completed. So this is our fault. When we allow them to get upside down in the job is when things go bad quickly. NEVER pay for more than they’ve already done. When there isn’t a whole lot of pay left for your job, they tend to start other jobs where they can get more money more quickly and yours takes a back seat.
What is the going rate for hard money loans these days?
Any investors located in the Nashville Tennessee area on this site?
You know I haven’t really looked in a while. I’m pretty sure something like 12-15% interest and 1-2 points is common.
Thank you. I am considering setting up as a hard money lender here in Nashville Tennessee.
No problem, Jim.
So it’s my first flip. Wish I had found you before I started. A local Realtor recommend I check out your site. Love it.
My question. Really liked the contractor recommended to me. As soon as he got his second draw he stopped work and communication. Won’t return calls or texts. His contract said he had insurance but I have no copy of said insurance. Job should have been finished two weeks ago. I figure I’m behind about $3,000. Lawyer time or chalk it up to experience? Thanks.
Sorry to hear about the situation, James.
This is very typical. New investors are always making this mistake.
I’m sure you’ve learned the lesson but NEVER EVER allow the contractor to be ahead on the deal. ONLY PAY FOR WORK THAT HAS BEEN DONE.
Whether to lawyer up is your call. If it is worth it to you to spend your time dealing with it and the stress associated. You could go to the contractors house or office and talk with them. If they are not willing to finish your job, you can let them know that your next step is contacting the local news channel. You know, the one that loves doing stories on contractors that rip people off. That should make him think twice. He probably wouldn’t want to see news cameras showing up at his house.
Great post. 2 questions: 1. What do you when contractors give you the old “it’s common practice in _____ to pay 1/2 upfront.” ? 2. What is the biggest thing a starting investor can do to get the respect of contractors??
Also can you email me a copy of the contract.
Thanks in advance
1. When they say, ‘it’s common practice’, I just tell them I don’t care. If they aren’t willing to do it the way I want it (which is fair by the way), I don’t want to work with them.
2. The biggest thing to get respect for a new investor is to not act like you are willing to do or believe everything they say. If you don’t specify how things are supposed to happen, you are setting your self up to get run over. The worse thing to do is to immediately get all buddy-buddy. You are not trying to win a popularity contest. I’m not say to be rude, just be direct in what you expect and don’t let them walk all over you.
Hey Danny, any update on a contractors agreement you could share with the group? Looking at doing my first rehab on a rental property we are picking up and want to make sure we keep the contractor accountable.
I will contact you via email.
Great info on this site. I am a newbie in the field but I am very interested. I would like to find contractor partner to team up with me and start flippin. Also, I would like to lend hard money for the right individuals in DFW area.
Thanks, Mr. Mainali.
Great post. I wish I read this before hire my GC for my first flip. on October 2011 respond in this blog you mentioned you will post a copy of your contract with contractor( YES, I KNOW. I READ ALL THE RESPONDS!!). can I get a copy of it? I’m currently going back and forth to Home Improvement commissioner’s office after I file a complaints against the contractor that I overpaid ( Total of 4 draw for $90k work) and need to have a great contract for my upcoming(2nd) Flip. Thanks
I had considered sharing that but the one I am using was one that I slightly modified from a course I had gotten a while back. I’m sure there are copyright issues if I do that.
I need to come up with an original one to share that covers all the same bases.
Hi Danny, great article. I just found your site yesterday after hearing about you on bigger pockets and have already finished your book and the interview with a REO realtor. Both were very informative. I am currently going through my first flip and am in the process of searching for contractors. This post had a lot of excellent information. What is the latest on that contractor agreement?
Sorry, I can’t share the contractor agreement I’ve been using because it is derived from a course I bought years ago. I meant to create my own separate one to share but just haven’t ever gotten around to it. This would be a great idea for a post though. I could write up what a good agreement contains. Thanks.
I started reading your site recently and I am finding it very interesting. Thanks for the useful article. I totally agree on the guy who talks too much – most of the time they are the worst!
Would you be able to elaborate on what goes into your scope of works? Or maybe you have already in some article and I haven’t seen it? I am finding difficulty with this. Most of the time quotes are given including materials but using lower quality materials obviously lowers the price, which is not what I want. When I ask for specific materials to be stated in the quote (eg. brand or model) many seem to avoid giving this out. This also makes it hard to compare quotes. Do you include these details in the contract or ask for it in the scope of works? Or do you always get quotes for works only and buy the materials yourself?
Excellent questions. I type up my own scope of works to include every single thing I want done to the house…in extreme detail. The last thing you want is to be vague and then have the contractor tell you he didn’t understand something.
The key is to break it down. I have a section for interior and a section for exterior. Then I break it down by room with each repair needed in each room.
Regarding the materials….It’s very important to do some information gathering at home depot and lowes or wherever else you will be getting materials from and write down/take pictures of all items you would plan to use along with their prices and SKU numbers. Then, when an item in your scope of work requires materials beyond wood/drywall/etc, include a mention of the materials name, price and SKU number.
This way you and your contractor (or potential contractor if you are getting bids) are on the exact same page. They actually prefer this because they know it will eliminate arguments.
Hope this helps.
Danny—I’ve lost sleep over hiring the right GC. Thanks for this article. I have typed up a “checklist for DUMMIES” based on your article and will be happy to send it to anyone who would like to use it. I read in the comments that some readers have requested a GC contract. Do you have one to share yet? Thanks again for your insight.
Hey Lisa. Good to hear from you. Hope Mark and you are doing great.
That would be awesome. Please send to me at danny at flipping junkie com
I’ll need to check with Melissa about the contractor contract. The one we use is from a course we got a long time ago. Not sure about copyright issues. Melissa was going to create a new one with the same items.
This was very helpful thank you very much!
Thank you, Wonda! Glad you liked it.
This was very helpful. Thank you so much.
You are welcome.
Danny, great article! Is there a section on your site that has some documents (scope of work checklist or GC contract) to create our own template from? Starting from scratch sometimes can seem overwhelming… LOL. Love the information I have learned so far from Seller Lead Hacks as well as the value from LeadPropeller for my website. Thanks for all of your help Danny! **BTW – your support staff have been awesome, have talked to Josh and Tyler and they have been great! **
There are some repair checklists and other resources here: https://flippingjunkie.com/house-flipping-resources/
I’m going to let the team know you’re very happy with their help. 🙂