Podcast 141: How to Find and Manage Great Contractors

InvestFourMore Real-Time Stats (as of 7/16/18)
17 flips currently in progress. 155 flips completed. 19 rentals properties.
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When I am completing up to 22 flips at once, having great contractors and a system to keep track of them is vital to my business. It has taken some time, mistakes, and multiple people, but I have things running relatively smoothly now. On this episode of The InvestFourMore Real Estate Podcast, I go over exactly how I have developed my contractor system, how I hire contractors, how I find them, how I pay them, and how I use subcontractors.

You can listen to the full episode by clicking the green button below

How has my flipping business evolved with contractors?

When I first started flipping houses, I was working with my father. We flipped 3 or 4 houses per year and had one contractor who did most of the work. He was fantastic, charged reasonable prices, was fast, and was dependable. I did not know how good I had it! We were able to use him for years with no issues since we were not flipping that many houses. Toward the end of my partnership with my father, we flipped more and more houses. We had to hire more contractors, and we started to run into problems. I learned you have to spend a lot of time hiring and keeping track of your contractors. I bought out my dad in 2013 and also ramped up the flipping business. I was doing 7 or more flips at a time and needed more contractors. I was not good at keeping track of things and ran into multiple problems that I talk about on the podcast.

Eventually, I hired a project manager, who did not help at all. We butted heads as he did not do what I thought he should be doing, and houses did not get repaired any quicker than when I was doing everything on my own. I fired that project manager. I was doing all the work on my own again when I tried out a couple of people who were already on my team to help out with the flips. Nikki, my current project manager did an awesome job and is still my project manager today. Once I had the right person in place, everything got better. She helps hire contractors, works with subcontractors, keeps track of invoicing, designs houses, and helps me decide what to buy.

How hiring and delegating will improve your business.

How do we find contractors?

We use a number of techniques to find contractors:

  • Craigslist
  • Angieslist
  • Thumbtack
  • Home Advisor
  • Home Depot
  • Friends and Family
  • Other agents and investors

In the past, we would waste a lot of time meeting contractors at houses and waiting for bids from them. Half the contractors never gave us a bid, and it was very frustrating. Now, we screen our contractors before we meet with them. We send them an email with some questions about their work, what they are looking for, and give them background on us. Most of the contractors do not reply to the email, and we eliminate them. If they respond to the email and we like what they say, we interview them in our office. If we like that interview, we meet them at a house and get a bid from them.

We always give new contractors a small job to see how they perform before we give them a big job. We find that the more work one contractor does, the more problems that come up. It usually costs more money to have your contractor do everything as well.

How to Find a Great contractor.

How do we keep track of and pay our contractors?

Some of my biggest problems have come from paying a contractor before they completed all the work. I have accidentally paid a contractor for work they did not do and paid subs before work was all the way done. The best way to get a contractor to stop doing work midway through a project is to pay them in full. I pay contractors 25% up front, 25% when the job is halfway done, and the rest when they complete the work. I want the job to be completed. I go through and blue-tape anything that needs touched up and do not pay them until that is done as well. Nothing is more frustrating than having a house 99% done, but it takes the contractor three weeks to come back and touch up things.

We also have a managed Home Depot Pro account. We pay for all the materials and get huge discounts from Home Depot. By paying for the materials, we save money, and the contractors cannot complain about needing money for materials they purchased. We stop by each active project at least once a week to make sure the contractors are working and things are progressing as we want them to.

How to make sure your contractor is doing a good job.

What else do we do to make sure our houses are being fixed fast?

Along with what we already discussed, we:

  • Have full-time employees who help with repairing houses.
  • Use as many subcontractors as we can to speed up the process.
  • Created a checklist for our contractors so they know what we expect.

I have many more resources on my blog for finding contractors and many videos on YouTube as well that show before and after videos of the work we do. You can find the playlist below:

Fix and Flip Before and After Playlist

If you want to get notified on new videos, be sure to subscribe to my channel. I also post a lot of educational videos.

To learn how to fix and flip houses, you can also check out my book: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.

 

EPISODE 141 

 

[INTRODUCTION] 

 

[0:00:14.0] MF: Welcome to the Invest Four More Real Estate Podcast. My name is Mark Ferguson and I am your host. I’m an active real estate investor in today’s market, having done over 140 flips. I flip from 15 to 30 houses a year. I buy residential and commercial rental properties. I’m an agent with a team behind me who have sold thousands of houses over the years. On this show, I talk about myself, my career, an advice, as well as interview other amazing agents, wholesalers, landlords, flippers and the companies that help those people succeed. 

 

Before we get started, if you’re interested in help from me, I’ve got discounts on my coaching products just for podcast listeners. Head on over to investfourmore.com\discount. That’s investF-O-U-R-M-O-R-E.com\discount. You’ll see coupon codes for my coaching products. I have video training series on flipping, on getting great deals, training for agents, training for rental properties as well and many of those come with personal coaching from me. 

 

I hope you enjoy it. I hope you enjoy the show and let’s get started. 

 

[EPISODE] 

 

[0:01:34.2] MF: Hey, it’s Mark and we’re back for another podcast. Today, I’m going to talk about contractors. I know a few weeks ago I talked about what to repair on a house, what to look for when flipping, renting and today I’m going to go into detail on how we used contractors; how we pay them, how we find them, how we keep track of them and hopefully that can help a lot of you out there who have problems with contractors. 

 

I know I’ve had a lot of problems with contractors in my past. I also want to go over the history of how I’ve evolved with using contractors to show you how we got to where we are today. I’ve made a lot of mistakes, learned a lot over the years and I feel like we have a pretty good system going right now. There is always room for improvement, always things I want to keep changing and keep doing differently, but for the most part I’m really happy the way things are going right now. 

 

All right, now I have a lot more resources on investfourmore.com. If you want to check them out, tons of articles on contractors. I also have a lot of videos on my YouTube channel of before and after flips, even some podcast-like videos where I did some educational things about contractors. Check that out. You can search for Mark Ferguson or Invest Four More on YouTube and you’ll find my channel there. 

 

Yeah, let’s get started. I want to go back in time, I started flipping houses with my dad back in 2001. At that point, we would flip maybe three or four houses a year. Usually we had one or two going at the same time at the very most. My dad had used one contractor for every house. We had a really good guy who had a few people who worked with him. He was super fair on price, worked really hard, worked relatively quickly and knew how to do most everything. If he didn’t know how to do it, he had a ton of connections who could work things, fix things for us and he never upcharged us. 

 

I didn’t realize how good we had it, until later on in my career when I had to start finding more contractors looking for more people to help us. That was a super amazing setup. We paid him well. He worked well for us. We weren’t doing a whole lot of house at that time, so he could easily keep up with the work. We could get things done fairly quickly, move on to the next house, do one or two at a time. 

 

Well, as things progressed, we started doing a few more flips here and there. Then later, I started taking charge of the flipping business more and I want to ramp that up, flip more houses. We went to flipping seven or eight houses a year right before I bought out my dad and took over the entire business. 

 

At that point, we had to hire more contractors. The one guy we’re using we still used him, he’s still great, but he didn’t have the capacity to do two or three houses at one time. He can only do one house at a time. We had to expand how we found contractors where we looked. We used a number of different people, ex builders, recommendations from friends, family, other agents in the business. We had some good luck, some bad luck. 

 

Found for every couple people we tried, or three people we tried maybe one was good enough to use another project, the others had some problem or some issue going on. Still, it wasn’t too difficult when you had three, maybe four houses going at once. Well, when I took over the business in 2013, I ramped things up a lot. I think the most houses we ever flipped in one year with my dad was seven, maybe eight. 

I did 12 that first year, then I did 18, then I did 26. We got to a point where in this last year, I’ve had up to 22 flips going at one time. Not all of those are being worked on at once. Some are waiting to be worked on, some are in the process of being worked on, some are already finished and listed and ready to sell, or are just – are under contract and ready to close. 

 

We still have a good number of houses, sometimes 10 or more that are being worked on, or need worked on at once. That makes it really tough. That’s when the biggest challenges of my business, the flipping is finding the contractors managing all of that and making it work smoothly. When I took over everything, I was the project manager for the flips. I was hiring contractors, I was checking up on them, keeping track of what we paid them, approving bids, deciding what to fix, what not to fix. I was doing almost all of that. 

 

A lot of problem occurred with that, because I wasn’t keeping track of things as well as I should have. I wasn’t visiting properties as often as I should have and a lot of things fell through the cracks. I remember one project where I hired a contractor. He’d finished one flip for us already, done a decent job. This is a big flip he was doing. Every time he asked me to come check out the property, I’d show up, there’d be like six guys there working nonstop. I was like, “Wow, you got your whole crew here. This is great.” 

 

Things never seem to be progressing that fast. When I’d show up unannounced, there would be no one there, or one guy working and he is just putting on a show getting all those guys there when he knew I’d be there. When I wasn’t around, he was doing other jobs, other things. Not focusing on that project. 

 

That ended up being a nightmare project, where I accidentally paid him before the work was completely finished. I had paid him one of his draws and I submitted the invoice to my bookkeeper. She didn’t know I paid him. She paid him again, so ended up getting paid the full amount before he finished the job. As soon as that happened, the work basically stopped on the project. It was like pulling teeth to get him back out there, had to threaten to sue him, I filed complaints with the Better Business Bureau, I hammered every site I could on with bad reviews, because he wouldn’t do anything. 

 

Finally, he came back, finished the work for the most part, but took forever. Took like seven or eight months for him to end up finishing that job. It was a big job, but it definitely – I think he quoted me three months to finish it. 

 

What I learned from that experience and some other ones I’ve had is I was not doing a good job of keeping track of everything myself. I needed help. I ended up hiring a project manager, who actually was one of my other contractors. He had management experience in the corporate world. I thought he’d be perfect to handle this job of just managing contractors, hiring people, keeping track of what we’re paying people, trying to save money. 

 

I interviewed him a couple times. He seemed onboard, he seemed excited to do the job. We got started and things did not go super well. To start off with, he went on a trip to Africa for about a month right after I hired him and he did again like a couple months later. That’s great. I told him, “If you can get all your work done and everything set up right, or have people to help you, you’re okay to take some time off.” 

 

He didn’t do that. He didn’t get things set up right. It was fall in Colorado and he didn’t setup winterizations, or make sure the heat was on in their properties. Luckily, we didn’t have any problems or issues, but it was like I was running around driving to every property making sure we had heat, where the house was winterized. This is we had our first cold spell because he didn’t do any of that and he’s almost impossible to reach and to see what he had and hadn’t done. 

 

We gave him some more chances. Really the focus was to hire more good people, get houses done faster. That was my main goal. He just would not hire more people. He would not even try out new people. He had some friends and family actually working on some properties that he felt comfortable with and didn’t want to change that. I told him a number of times, “Hey, we’ve got to hire more people. We have to hire more people.” He would say, “Yeah, I understand. I got it. We’ll get on it.” 

 

Nothing would happen and then I’d ask him,” Well, we just had this long talk about hiring more people. What’s going on?” He said, “I don’t want to hire people, because I don’t think we have – what if we can’t get them enough work?” I was like, “Do you see the eight houses we have sitting here waiting to be worked on? Have you ever known me not to have work as long as we’ve done business together?” 

 

He said, “No.” I’m like, “Hire more people.” Again, he wouldn’t do it. We go through the same thing and he said the exact same thing. “Well, I just don’t think I can give enough work.” Obviously, that was not working out. 

 

There’s another situation where I had a rental property that needed maybe a weeks’ worth of work to get ready and it took him three months to get someone out there to work on it. I think he actually forgot about that property, so I don’t know. He didn’t have systems, or I didn’t train him well enough, or I just feel like it didn’t work out. 

 

I ended up getting rid of him. Then what I did to help with the process is I worked on him a little bit again myself. Realized again, I can’t do all that work with everything else going on. I decided to have two of my team members work on the flips with me. Prior to this, I’ve been doing a ton of REO work, foreclosure work for banks, listing properties for banks. 

 

At one point I was selling 200 houses a year. I had my team super busy with helping me with those, with contracts, with listings, with BPOs, with inspections. We were super busy all the time. Well, the REO inventory drastically decreased, because there are less foreclosures. My team didn’t have quite as much work as they would have otherwise. 

 

I said, “Hey, I’ll repurpose people and see how they do in a flip.” Nicky, who’s been on my team forever helped with some, another member of our team helped and they’re doing it together. After a couple of months I noticed – I don’t know if it’s a couple months, a month maybe. Nicky was doing a great job on top of everything and the other member was not quite as on top of his stuff getting things done, doing what he’s asked to. 

 

I said, “Hey, I’ll give Nicky the project manager job.” I’ll put the other person back to their old job and see how it goes. Nicky has done a fantastic job ever since then. She’s been on top of hiring contractors, managing job sites, picking – designing everything. Just been amazing, a super help and that’s what I had hoped for and wanted this whole time. It just took me a year to really get the right person in place. 

 

It showed me that well, it’s really frustrating to hire someone and have to network out and it can be very discouraging. You can’t give up. You just have to find the right person. It doesn’t mean that you shouldn’t hire someone. It doesn’t mean that you can do it better yourself, it just means you need to work harder to find the right person. Keep trying. Because when you do find that right person, it makes your life so much easier and things go so much smoother and freeze up so much of your time to do other things. 

 

There is no way I could do so many things with the podcast, the blog, my books, some of our coaching programs if I was doing all the work on the flips. It just be impossible. With Nicky, it gives me that time, it gives me the freedom to pursue other things, other adventures out there. 

 

To be able to do as many flips as we do, I have to have an amazing awesome team around me and we’ve worked really hard, do trial and error and different things to put that in place and get that working well. 

 

All right, so now that you see how I’ve progressed as far as management, hiring people, taking care of the contractors, how do we actually find the contractors, how do we actually pay them, how do we do all that, all right I will start with how we find our contractors. I mentioned before, I got really lucky my dad had a great contractor in the very beginning, but we had to add more people. 

 

First thing we did is ask people we already knew, people on our team, people on our office, friends, family if they had contractors who they liked or knew who were doing jobs. We hired a couple that way. Some worked out well, some worked out horrible. Some people, there was a ex builder who my broker referred me. Had all the qualifications in the world, had a crew, seemed like he just be fantastic for this job, perfect fit. 

 

We got some bids. They were reasonable. He started working on a job. Did fantastic on that job. Got done fairly well. I think it went smoothly. We were super happy. Then we gave him another job. It was farther away, it’s about 30 miles away from us, so we didn’t check up on it as much as I should. That’s one thing I’ve always learned is you have to check up on your contractors pretty much on a weekly basis, or someone has to to make sure they’re getting the stuff done. That’s one of the key things to do in this business. 

 

Anyway, so he’s working on this project and we talked like, “Yeah, it’s moving along. We should be done soon.” I think we waited six weeks before we drove down there for some reason to go look at it. This is back when I was working with my dad. We finally go down there and look at it, walk in the house, literally nothing had been done. Nothing. I mean, no demo, no work, it hadn’t been touched. 

 

We called the guy we’re like, “What’s going on?” I don’t know if he was lying, or he hadn’t been keeping track of his crew, but he said, “I thought –” he told us he thought the work was being done. His crew was lying to him or something. I lost all confidence and faith in him, because one, how can you not go to the property for six weeks where your crew is supposed to be working on it? If that is true, his crew was lying to him, what was his crew doing? What were they working on? I mean, I find it hard to believe that they were just not working at all and he thought they were. 

 

That did not work out well. We got on him. He got his crew out there and he finished that job for us, but we never used him again. My quote with that story is just because you got a great recommendation, someone looks like they’ll be perfect for the job, they have tons of experience, it doesn’t mean you can’t keep track of them, it doesn’t mean you just let them do their thing. You still have to treat everyone the same as far as management, doing things to make sure they are doing what they say they’ll do and keep track of them. We learned that the hard way. 

 

Otherwise, we found contractors through Home Depot. We have a managed pro account at Home Depot, which awesome. I’ll talk about that here soon. Home Depot is not supposed to recommend any contractors or tell you about any of them. However, we know them really well Home Depot, because I think we spent over $400,000 there last year, just the Home Depot and supplies. 

 

They’ll say, “Hey, here’s a contractor you might want to talk to if you happen to meet them at Home Depot.” They will drop hints or mention people without recommending them. We found contractors like that a few times. We have also found contractors from signs and yards where we call them up, but they say they’re painters, or trucks that drive by with numbers on them. We’ve asked other investors, which sometimes they’ll tell you, sometimes they won’t. 

 

If you ask me, I’ve had a number of people say, “Hey, can you recommend a contractor to help me and fix my house or other agents that have done that?” I am not super helpful. I’ll be like, “Sorry, our guys are busy.” That’s because we keep just about all of our contractors busy on our projects a 100% of the time. I don’t refer my contractors out to other people, unless they are free and they have time to do it. I’m not a very good resource for that, sorry. 

 

Back to finding the contractors, what we have also done lately is posted out in Craigslist, Angie’s List, Home Adviser, all types of ways to find contractors out there and something that we implemented recently, because you can get all types of people who respond to those ads, you can find all types of people who friends and family know, but a lot of them will not be very good. 

 

It’s not really difficult to be a contractor in Colorado. You don’t have to be licensed. You don’t have to really do any testing, or training, or anything. You have to make sure you’re hiring good people. On these ads when we get inquiries, we created a list of questions to ask them how much experience do you have, do you have your own tools, do you have a vehicle, how much time are you able to dedicate to this, do you have a price range of what you charge? 

 

We ask them some very broad general questions and then we give them information how we do business, about how we pay people, about what we work we do, how much work we have, things like that. We send that to them. If they don’t reply to those questions, we automatically eliminate them. If they don’t have time to reply to those questions, if they don’t have time to read our e-mail, or what if we send them, then that’s a huge red flag that they’re not going to listen to us on the job site, they’re not going to pay attention to us. Boom, eliminated right off the bat. 

 

Or they sign they don’t have their own tools, or they don’t have a car, or they can’t drive, which is also a huge no, no. Quick story, I had met with one contractor to do a job. This is back when I was doing everything myself on my own and I think he replied to me on Angie’s List. Sounded good, had experience, we met at the house to get a bid done. This is before I used my little questionnaire. I just meet contractors at houses, or meet them for lunch right away, that wasted a ton of time until we got our form in place. 

 

He goes to the house, seemed somewhat legitimate, knew his stuff. He’s like, “Oh, yeah. We’ll get you a bid.” Then as we were standing outside in the street, he’s next to his truck, I’m about to get to my car and we start talking a little bit and he’s like, “Boy, yeah. It should be great to work with an investors. I’m just burdened working with homeowners and they can be such a pain.” He’s like, “One lady called the police on me, because she said I’ve been drinking on the job and I ended up getting a DUI. Then I got another DUI a few months later. It just made it really hard, because I couldn’t drive.” 

 

I was just like, “What is wrong with you, first of all?” Apparently, you were drinking on the job. Because if she called the police and you got a DUI, you have to drink quite a bit to get a DUI. Isn’t that like one beer is most likely not going to get you a DUI, and why were you drinking on the job? Two, why in the world are you telling me this? Not a good way to get a job by telling me how many DUIs you have and how you were drinking on the job. That’s another big red sign if anyone tells you they’re drinking on the job, or have a bunch of DUIs, you might want to rethink about hiring them. That was an interesting one. 

 

Yeah, back to the questionnaire about hiring people. That eliminated a lot of that where I would go to meet people for lunch, go to meet them in the house, in a bid and they just would not show up sometimes, which is crazy. Or we’d walk through the house, he spent all this time there going through everything, I’m like, “Hey, give me a bid.” They’d never get me a bid. 

 

I’d say half of the contractors I meet who we asked to get us a bid after walking through it wouldn’t just ever send us a bid. They just didn’t take the time to do it. They didn’t want to do it. Maybe they didn’t like us for whatever reason. They just wouldn’t get us a bid. I asked doing some screening before we meet them, it eliminates a lot of those people who aren’t serious about it, won’t put the work in and saves us a lot of time. 

 

Once we got those questions back from contractors who respond to us, we can look at them, see what their answers are and see how detailed they are. Then we usually have a meeting in our office. We’ll have them come in, we can see if they have a truck, if they have a trailer, if they have tools, or if someone drops them off. It’s an interesting thing to pay attention to. 

 

We can sit down and talk to them about our jobs that we do, see what they say, get a feel for if we like them, we don’t like them. Sometimes we can get an idea of how much they charge, because we can’t pay top rates for contractors. It’s just not possible to make money flipping houses. We don’t pay the cheapest amount either, but there is a middle ground, where we pay decent amount, but it’s not crazy high to get these work done. 

 

Once we get a feel for that, then we’ll meet them at a house, get a bid from them and we try to bid a small job first. We rarely able to have a brand new contractor bid out a $30,000 rehab or $40,000 rehab. We want them to do a small job first, maybe as painting, maybe as doing a bathroom. Maybe it’s doing some landscaping, a fence, something like that, just to get an idea of how fast they work, the quality of work, if they finish the job, when they start, things like that. We want to do small jobs first before we’ll move them into a big full-blown rehab to see how they do. 

 

Now that’s how we do business. I know it’s not exactly easy for a lot of you to do it that way. If you’re doing one flip, that’s all the work you have and it’s either, “Hey, you do this $30,000 rehab or that’s it.” We can still do a lot of this due diligence though and still get a feeling for them. Or you can even have them do the job in chunks and be like, “Hey, I have this big job. If you can do this part of it in the kitchen. If you can rim all the kitchen, do this, do it well, [inaudible 0:22:13.8] for what you say, then we can give you the rest of the job, or something like that. 

 

If you demo everything for us, then we can see how you did, then we can give you the rest of the job. I takes more time that way. It might take a little longer to complete the work, but it might save you from the nightmare of hiring a bad contractor, which could cost you weeks, or months of time and a lot of money. Doing it in small chunks can often give you a really good idea of how well they’ll work before you give them the whole job. 

 

All right, so that’s how we’ve hired people, that’s how we found people. Often, we get recommendations from other contractors too, people who might need work sometimes. We’re always on the lookout, always trying to find new contractors, new people to help us out. Now how do we pay them and how do we make sure they’re doing their work? 

 

Like I said, we’ll get a bid on every job. There actually are some contractors we pay a little differently, but they’ve been working for us for years. We trust them. They have big crews. For the most part, we get bids from them on a job. We review the bids. I go through how much I think everything should cost, compare it to what they’re charging me. Sometimes if it’s reasonable, hey I’ll accept that bid right there. 

 

A lot of times, it’s not reasonable. The contractors are adding stuff in there, they’re doing extra stuff, or they’re just charging too much and I will negotiate with them. I get comments from contractors online about how they hate working with flippers, because they’re so cheap and won’t pay them. That is somewhat true. We can’t pay homeowner prices, because a lot of contractors will charge $80 a $100 an hour to work with homeowners, because homeowners don’t know any better. They don’t know what prices should be. 

 

We can’t pay that much, or we don’t make money. It makes no sense for me to be flipping houses and breakeven or lose money. We can’t pay top dollar. However, we offer a number of advantages to our contractors that homeowners don’t offer. There’s a reason why you should work with flippers for less money. One, like I said I can keep our contractors busy basically all year long on my own projects. 

 

That means they don’t have to market to anybody, they don’t have to advertise to anybody, they don’t have to go talk and bid out new jobs that they may or may not get. They know exactly what we’re looking for, our finishes, our paint, our fixtures, out kitchens, our counters, they know the quality of work we want, it makes their life much easier, saves them a lot of time. 

 

Like I said, we use Home Depot for all of our materials. We pay for those materials. Our contractors don’t have to pay for them. When we get a bid from a contractor that is straight labor from them, they don’t have to go figuring out how much materials will cost, what materials are going to be, what the homeowner wants. They don’t have to worry about any of that either which saves them even more time, more hassle. 

 

Now when we pay for the materials, like I said we have a managed Home Depot account that you have to sell or buy like a $100,000 or more of materials you already get the managed account. Basically anyone can do the pro account and you save a ton of money with that. Right off the bat with the managed account, we get half a percent cash back on everything we buy. 

 

I also have a membership with a local real estate investors club. It gets me 2% off everything we buy at Home Depot. Then because we have a pro account, we get discounts on everything we buy as a pro account, because it’s a managed pro account we have a special person who helps our account specifically and they’ll look at everything we buy to see what discounts they can give us. 

We save at least 10% across the board on materials we buy because of our managed pro account. We save a ton of money from doing that, from buying all the materials ourselves. That’s a huge advantage to the contractors. They don’t have to worry about paying for materials, finding those cost and that expense either, which is another reason. They should want to work with us. 

 

Something else we found with contractors is that if we let them buy materials, we let them handle all of that, they aren’t going to go around looking for the cheapest place or the best deal. They’re going to go to the easiest place, the place they’re most comfortable with. A lot of time, they’ll go to lumber yards or specialty shops, or smaller places where they know the people, but they’re paying 20% more, 30% more for materials. They don’t care, because I’m paying for those materials in the end, so why should they spend time searching for it. That’s how we can save money too on materials is by controlling that process, paying for them ourselves. 

 

I should mention as well, I put every material I buy on my Capital One credit card. I get 2% cash back on that credit card on everything I buy. There’s another 2% I save on materials, because I do that as well. 

 

All right, so back to the advantages of contractors within a small tangent there; they don’t have to bid work, they don’t have to advertise, they don’t have to pay for materials, we can give them almost fulltime jobs and they know that we’re going to pay them as well. We have very strict agreement on how we pay them. We pay them 25% upfront, we pay them 25% when the job is halfway done. We pay them the other 50% when the job is completely done. 

 

If there are extras, things added on, things that weren’t in the bid, a lot times we’ll pay those intermittently if ever expensive so they’re carrying all those cost. They know how they’re paid upfront, they know we’re going to pay them, they won’t have to chase us down for bills or place a judgment on a house because they’re not getting paid. There are a lot of reasons why contractors should want to work with flippers. 

 

Do you know how much time contractors [inaudible 0:27:49.4] marketing, bidding for jobs, looking for work, or they might go weeks without having any jobs, because things are slow. That’s why we expect contractors to work a little less for us than they would other jobs. That’s how we pay them. 

 

I should also mention we have three well – now two full-time employees who work hourly for us. They are handymen. We pay them about $20 an hour. They can do dry wall, paint, kitchens, baths, all kinds of minor things. They don’t really do electrical or plumbing or anything like that. They can do a little bit, but we have subs for that. They are awesome. I love them. I want to have more full-time employees, because they’re much cheaper than contractors. We know they’re working for us full-time not doing other jobs. 

 

We can send them wherever we want to do rental property work, or maintenance or help someone finish something on a flip without worrying about the bids and all that. Awesome resource. I want to keep hiring more employees like that if I can. It’s hard to find people who are trustworthy, but really looking for that. 

 

Finally, along with the contractors, we have many sub-contractors we use. Like I said, we don’t – it’s’ not always wise to give a contractor a $40,000 job in the beginning and have them do everything. We rarely do that now. We don’t hire a general contractor who manages the whole project for us. That’s Nicky’s job and what my job was. I’m the general contractor. I tell them what to fix, what materials to use, what paint to use, what stuff we want done, we’re managing the project. 

 

Along with that, we have a lot of subs we use to keep out time shorter and our cost down. We will use electrician, we’ll use a plumber, we’ll use a roofer, we’ll use a foundation guy, we’ll use a landscaper, sometimes we use painters, HBAC; we have a sub for that. While the contractor is in there replacing doors, replacing windows, replacing the kitchen, maybe replacing the bath, we’ll have our electrician in there working alongside them. We’ll have our plumber in there working alongside them. We’ll have the roof done. We’ll have foundation work done. 

 

By having our subs go in there while the contractor is working, it makes the job go faster. A lot of times I’ve had a contractor say he can handle the whole thing, he wants to manage the whole thing, he wants to hire his own subs, he wants to do all of it, it almost always takes them longer. They have more – too much to manage, too many things going on, almost always takes longer if I let the contractor do it themselves and almost always costs more as well, because again they’re not looking for the cheapest subs, they’re not – 

 

Sometimes they even markup what the subs charge, so by me handling the sub, I know who I’ve worked with, I trust them and I know they’ll give me a fair price. I use them all the time, so they can give me a deal there too as well. I know they’ll be fast and I’m managing it, so I know it will get done when it’s supposed to get done. 

 

Using as many subs as we can has been a fantastic way to cut down on cost and the time it takes to complete a project. We find subs the same way we do as contractors, referrals, Craigslist, Angie’s List, go through the same process we do with our contractors. Once we find good people, we try to keep them busy, pay them decent and keep them happy. 

 

We’ve used the same plumber for 10 years. We’ve used the same HBAC guy for a number of years. We just had to change roofers. That’s one thing you will find with subs is some will be great for years, other times they will get too busy, they’ll grow their business and say raise their prices because again, hey no fault to them, I don’t blame them at all. If they’re so busy, they can raise their prices and keep making – doing the same amount of work, that’s great for them. But doesn’t work well for me, because I still have to keep my costs down. A lot of times we’ll have to switch roofing companies, when one roofer gets too big and start charging more. We just did that recently. 

 

Sometimes it happens with electricians or painters, but it’s okay. I mean, it happens. Just have to deal with it and it’s continuously changing business. It’s not like you get your flip business set up and you can use the same people forever. There’s always new challenges and new things coming up. 

 

All right, so I’m trying to think if that’s everything. We went over how my businesses progressed and managing contractors. We went over how we find contractors. We went over how we pay them. We went over why they should work for us. We went over sub-contractors, employees. I think that is about everything I wanted to talk about on this podcast. 

 

I have no problem paying people for work, or paying them fair, but as a flipper you have to be very conscious of what people pay you, what their rates are and you have to be very conscious of the contractors you hire, that they’re doing what they said they’re doing and you’re checking up on them. 

 

The most important things you can do are visit properties routinely and you also have to make sure they do a good work. That’s one thing I forgot about, positively one of the most important is do not pay your contractors, do not pay your subs the full amount until they finish their job. 

 

I had a recent instance where we had some tree work done, a lot of tree work done. The guy sent us some pictures of the job and said, “Hey, we’re almost done. Can I get paid?” We saw the pictures like, “Okay, yeah.” Nicky wrote them out a check. We went to the property a little bit later and he had sent us pictures of the part of the job that was done, but he did not finish the full job. There were trees stumps and tree branches laying everywhere. He never did finish that job. He claimed he had truck problems, he claimed his business was bad, he claimed he had no money, excuse after excuse after excuse. 

 

He never finished the job. We had to hire someone else to come in and take care of it for him. Don’t pay your people before they’re finished. If we have a contractor tell us he’s done, we go to the property with our roll of blue tape, we look in every room for paint, flooring, trim, doors, windows, everything, to make sure it’s done right. We mark anything that needs fixed, we don’t pay until they come back and fix everything. 

 

A couple times I paid people, they said, “Hey, we’re done.” We’ll pay them, then we go and blue tape them and then it takes them two weeks to come back and finish those corrections. That cost me a ton of money if I have to wait two weeks to list a house. Make sure you’re not paying them all the way until everything’s done. 

 

All right, I think I’m done now. That’s all I’ve got to say. Thank you guys for listening. I really appreciate it. Again, I have a ton of resources on contractors on my blog investfourmore.com. I’ll try and include a bunch of those in the show notes on the site, so make sure you check that out. I have a ton of videos on my flips and rental properties showing the work we’ve done.  

 

Then also, I’ve had a lot of requests from people about doing longer videos, about going over the whole process of flipping a house, or buying a rental. I am going to try to do that soon. I’m going to try and go through how we buy it, how we finance it, how we get the bids from the contractors, all of that. It’s going to take a lot of work for me. There are going to probably be some super long videos and I may have to get an editor to help me do it all. 

 

I’m going to try and do that. I’ve had a few people approach me for house flipping shows in the past and nothing really came of it. Then my wife is like, “Hey, come on. You just make your own house flipping show.” I’m like, “Huh? That might be an awesome idea.” We’ll see how this turn out and hopefully they can help you guys out as well. 

 

Again, please give me a review if you like this podcast, a thumbs up, love to get the word out there to as many people as I can. All right, we’ll be back next week and thanks again for listening. 

 

[END] 

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4 Comments

  1. Tim June 27, 2018
    • Mark Ferguson June 28, 2018
  2. Dan March 8, 2018
    • Mark Ferguson March 9, 2018

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