I have flipped over 150 houses in my career, including 26 last year. I have worked with many contractors over the years and done the work on flips myself as well. I have learned a lot, but I am still learning and tweaking how I repair my houses. Even though I have done this for many years, I had to recently fire a contractor who had been working with me for three years. When doing over 20 flips per year plus remodeling rentals, I have to find new contractors all the time. I wish there was an easy button I could use to find and manage contractors, but it is one of the toughest parts of flipping houses. In this article, I will go over what I have learned, how I have improved things, some good experiences, and some bad.
What makes repairing house flips difficult?
It is really easy to spend a lot of money repairing a house. It is much more difficult making a house look nice without spending a lot of money. One of the most important parts of house flipping is being economical with what and how you repair things. A lot of people comment on my YouTube videos, saying I should have taken out certain walls, changed the floor plan, added a bathroom, added more landscaping, or staged a house. I would love to be able to make every single repair on a flip, but it does not make sense financially to do so. I also run into appraisal problems all the time when a house I fix up does not appraise for the price a buyer is willing to pay. The nicer I make a house, the more a buyer is willing to pay, and the better chance there is the house will not appraise.
Here are some guidelines I adhere to when flipping:
- Do not over improve a house for the neighborhood it is in.
- Make a house safe, but try to avoid major remodels and changes.
- Try to make the changes as neutral as possible.
- Constantly look at other houses that are selling to see what needs to be done and what does not need to be done in order to sell.
How hard is it to find contractors to work on house flips?
The other issue that goes along with repairing houses economically is finding decent contractors. There are a lot of contractors who will do good work but charge so much that you will have no profit left over. Many contractors make their living working for homeowners who don’t know how much things should cost or are willing to pay much more than flippers. It is really easy to spend $50,000 on a kitchen remodel, but you can get almost the same look for $15,000 or less if you take the time to find the right contractors and materials.
I could have a remodel job that I think is going to take $30,000. If I were to get bids on this job, they may range from $25,000 to $50,000 depending on the contractor. You have to shop around with contractors as many will be too expensive for flippers to use. The price will also differ based on how much work the contractor will be doing. If he is managing everything, only doing certain jobs, if he does the actual work himself or herself, or if everything is subbed out. I usually do not pick the absolute cheapest contractor either. Many times, they are not as skilled, do not know how to bid on a job, or are biting off more than they can chew.
Learning how much a job will cost takes experience and time. I created a video that shows what we might pay for a job, but prices can vary based on the materials, the contractor, and your location. Labor will cost more in San Francisco than it will be in Memphis.
How do you pay for materials on flips?
How you pay for materials also has a big impact on paying contractors and how much a job will cost. If I hire a contractor and tell them to buy all the materials, it is going to be more expensive than if I buy them myself. Why?
- Many contractors will not shop around to get the best price. They will work with whatever supplier they like or whatever is easiest for them. They know the cost is passed on to the consumer, so they are not worried about material prices. There have been many cases where a contractor insisted on using his supplier for materials. I asked them to compare prices with my supplier, and my supplier is almost always cheaper.
- Some contractors will mark up the cost of materials so they can make more money on a job.
- Some contractors will use the cost of materials to get more money up front. Some contractors will require money up front to start a job. Many times, they say they have to have money to pay for materials. Well if I am paying for and picking out materials, they can no longer use that reason to charge more up front.
- I also rarely trust contractors to pick finish materials. Once in a while, we let one pick something out if we are in a bind, and we are usually disappointed with what they choose.
I have a Home Depot managed Pro account, which saves me a ton of money on materials. I have complete control over who is buying what materials. I can use text to confirm and easily approve purchases.
How do I pay my contractors on house flips?
The way we pay contractors has evolved over the years. We used to only have a couple of flips going at once and one contractor we used for everything. They would not want to be paid until the job was done, and it was really easy to work with them. Those contractors quit the business, and it gets much tougher when you have up to 22 flips going at one time. We also have an amazing economy in Colorado right now, where it is tough to find great contractors for reasonable prices. We almost always have to pay our contractors up front for bigger jobs. Here is what I usually do:
- Get a bid from my contractor. I sometimes negotiate if the price is not where I think it should be.
- If I approve the bid, I pay 25% up front to contractors I know and trust.
- I pay 25% at the halfway point.
- I pay the rest of the 50% after the house is completely finished. This includes going back to blue-tape things that need to be fixed after the contractor says they are done. If you pay a contractor everything they are owed before the work is done, it can be very tough to get things finished.
- With some contractors who I have used many times, I will pay them weekly for work they do. Before they start, I get a bid for how many weeks it will take them.
- I pay for almost all the materials myself, and their bids are strictly for labor on most jobs.
If I am using a brand new contractor, I do my best not to start them on a huge remodel job. I will start them on a small job or part of a larger job. I go through a lot of work screening potential contractors, but I never know how they will do until they start working. The best way to get burned in this business is to use a new contractor on a huge job and pay them a lot of money up front.
How do I find new contractors?
While I have been in this business for quite some time, I still need to find new contractors. Contractors quit, move, or decide they don’t want to work with me. Sometimes, I decided I do not want to work with them anymore due to performance or quality. Most contractors like working with me because they have steady work, know what to expect, can work whatever hours they like, and they do not have to spend money on marketing. We find new contractors through Craigslist, Thumbtack, Angieslist, Facebook, Home Depot, networking, and many other sources. When we find new contractors, we put them through quite a bit before we hire them.
- Email them a questionnaire to fill out.
- Meet them in person at my office.
- Meet them at a house to get a bid.
- Review the bid, and if everything works out, give them a small job.
I do not want to start out with a brand new contractor on a huge job. They may have great intentions but may not know what they are getting themselves into. A small job will show me how fast they are, their quality of work, and if they can finish. Once they do a good job on small things, I may work them up to larger projects.
When should you fire a contractor?
Sometimes things do not work out. I had to fire a contractor who had been working with me for three years two weeks ago. He had done great on other jobs but fell apart working on my new office. I usually will give people a couple of chances, and since I had worked with this guy on many projects, I was lenient with him. But he repeatedly showed he did not care about the work. It had taken them over 7 weeks to finish painting! I had a few talks with him, and he admitted his crew was not going a good job and he would fix it. But things never got better. He then had the nerve to tell my project manager Nikki that he did not care about the job because he had other more important clients. I told him to pull his crew that day. We got another crew on the job that same day, and I am never going to use him again. After he left, he talked bad about me to anyone he could find, even his own workers. Ironically, one of his workers quit and is now working for me.
Although I try to give people multiple chances after they mess up, it rarely works out. If you sense there are problems, lies, or things aren’t being done as they should, there is a problem. The ultimate way to find out if there is a problem is if the work is being done, if it is being done right, and if the project is on budget. One or all of those things can easily happen on a project, even with a good contractor. But if you sense other problems or that the contractor is not being straight up with you, that is a reason to be concerned. I am up front and tell my contractors when I am concerned about their work. If they are honest with me, I usually work with them. If they are hiding things, I will usually get rid of them sooner rather than later.
There is a lot that goes into finding, hiring, paying, and keeping track of contractors. I could not do everything I do without help, and my project manager Nikki does an amazing job. If you want to do a lot of projects at once, you may need help to keep track of it all. I have also worked hard to find many subcontractors and even my own employees. For more information on my business, check out this podcast I did on working with contractors. How I manage my contractors.