Solving the Investor/Contractor Relationship with Jeff Thorman of HomeRenovisionDIY

Brandon:
This is BiggerPockets podcast show 399.

Jeff:
There’s always going to be a renter who’s gotten money who wants a nice place, who isn’t leaving anytime soon because life has just done that to them, right? If you’re a real estate investor, that’s who you want to live in there.

Speaker 1:
You’re listening to BiggerPockets Radio, simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.

Speaker 1:
Stay tuned, and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online.

Brandon:
What’s going on everyone. It’s Brandon Turner, host of the BiggerPockets podcast, here with my cohost, Mr. David Green. Welcome David once again. How are you doing, man?

David:
Thank you Brandon. It’s still going good, selling homes, pushing things forward, helping people build wealth. And today we have a fantastic show, and I do not say that lightly, about a topic that is very rarely covered but often asked about, remodeling and construction methods.

Brandon:
Yeah, I know a lot of people who are listening right now are like wait, remodeling, construction. I want to know how to buy a duplex. I want to know about the house tech and I want to do the bird strategy.

Brandon:
Here’s the thing, the topic… The stuff we cover today is everything you’re going to need to know to be successful at any type of renovation you’re going to do in your future. Everything from how to find good contractors, we talk about how to… I mean, his advice on referrals, is something I’d never thought about before.

Brandon:
Just spot on when you’re getting referrals from other contractors… About contractors. Why flipping? He talks about integrity and flipping, something we’ve not talked about on the show before. How to be the ideal client for a contractor.

Brandon:
How do you find them and how do you make sure that they come back to you over and over and over and want to work with you? His advice, it’s one of those things that the stuff you learn today is going to benefit you on every project you ever do forever.

Brandon:
Flipping, landlording, [wholesaling 00:01:48] , doesn’t matter, this stuff is solid. So either-

David:
How to pay your contractor, that’s a big one. We have some really good advice on how simply you can set up payments so it works for both people.

Brandon:
Yeah, so good. So anyway, that’s the show today with Jeff Thorman. It was so good. But before we get to that, let’s get today’s quick tip.

David:
Quick tip.

Brandon:
Your quick tip today is, did you know BiggerPockets has a rehab estimation calculator? I think it’s called the rehab estimator. It’s over at biggerpockets.com/calc, C-A-L-C. Basically, it allows you to break down your property rehab into categories, which the category is actually straight out of J. Scott’s book, The Book on Estimating Rehab Costs.

Brandon:
And it breaks them into categories, and then you can basically track whether it’s cost per square foot or whether it’s a total job or whatever, the time and material.

Brandon:
You can track it in those different ways and it adds them all up at the end, and it `prints it out in a nice PDF report that then you can give to your contractor. Or you can take his numbers, put it in there if you’d rather, or you can do it… It’s awesome.

Brandon:
I think you’ll like it. Really, we put a lot of work into making this thing awesome. So check it out. Again, biggerpockets.com/calc. Did I say BiggerPockets right? I think I messed up on that. BiggerPockets, it’s the company that we are podcasting with right now.com/calc, C-A-L-C.

Brandon:
I think we’re about ready to get into the show. It’s an awesome show. Lots of great content with Jeff Thorman. And he is actually a famous… I’m not even going to go famous. He’s got a huge YouTube channel, a lot bigger than BiggerPockets, on home renovation.

Brandon:
And his show is called Home RenoVision DIY. You can find that on YouTube. You might even be a subscriber because he’s got millions of subscribers. He’s a big deal in the home renovation space.

Brandon:
So again, we are super honored to have Jeff here today, and I think we might as well just jump into it. You’re ready David?

David:
Let’s bring him in.

Brandon:
All right, Jeff, welcome to the BiggerPockets podcast man. Good to have you here.

Jeff:
Yeah. Cheers, Brandon. Great to be here man.

Brandon:
So today is a different type of a show as we mentioned in the introduction, because Jeff, we’re not talking to you about how to buy a duplex or how to buy an apartment complex or how to buy a mobile home park.

Brandon:
We’re talking to you about how to fix things when they go wrong in that duplex or in that mobile home park or in that apartment complex or whatever, whether you’re flipping houses or whatever.

Brandon:
We thought it would be good to just really dive in deep into the world of repairs and maintenance, whether you want to do your own work yourself, like DIY style, which I started doing all my own work. Or you want to be like David Green over here and just hire everything out from the beginning.

Brandon:
It doesn’t matter, we still need to understand how the world of construction, contracting, handyman stuff works so that we can benefit everyone. We’re not taking advantage of the contractor. Contractor is not taking advantage of us.

Brandon:
Everything gets done responsibly and well. So yeah, it should be a fun time.

Jeff:
There you go, that’s well said.

Brandon:
All right, with that said, why don’t we just get a quick background on you? I mean, who are you? What do you do? What’s your story? And then we’ll get into some contracting questions.

Jeff:
Yeah. I’m just a guy from Canada that ended up getting married way too young and had to find a way to make a living. So I got into the contracting world and spent a few years being proficient at a trade and then moving onto the next one with the ultimate goal of being a GC, running a big firm.

Jeff:
And somewhere along the way, over the last couple years, we got into the world of YouTube so that we could create a pension plan for myself, oddly enough. And now here I am, I’m out of the contracting world. I’m 100% YouTube.

Jeff:
Absolutely digging the lifestyle of helping people become independent and renovate their own houses.

Brandon:
Yeah, that’s cool. And so is there something that you specialize in more of or that you are really good at? Like you were the flooring guy or did you really just do, over your career, do almost everything?

Jeff:
Wow, that’s a tough thing. I guess, I think my specialty is century homes, the older the better. Really, I grew up in an area where the average home was 80 years old and so I spent a lot of time with real old houses.

Jeff:
As a result, problem solving is probably my best gift because there’s no such thing as a standard when we started with these old houses. And so to bring them up to a standard required a really good understanding of all the building practices and what technique blends with another one and doesn’t cause another problem.

Jeff:
So that’s kind of where I am. I mean, by trade, I’m mostly a finisher. But as a contractor, the phone always rang, hey, I’ve got this unique problem, how do I solve?

David:
Do you mind sharing an example of how, what you just mentioned, how one technique can blend in with another one or it can kind of butt against it?

Jeff:
Yeah, sure. Like plumbing for instance, right? If you have steel pipes in your house that goes way back before copper, the thread sizes on steel pipe are still compatible with copper threads today.

Jeff:
So if you don’t know that an you open up an old house and you’ve got nothing but steel, you wouldn’t realize how easy it is to tie into an existing line to convert from one to another system. And it’s more like Lego than a big problem.

Jeff:
The other example would be basements used to be there to facilitate your waste line getting below the frost line, that’s it. It was structure. It was a room for mechanical not designed to be finished. And to be honest with you, they’re not really designed to be finished until almost 1990.

Jeff:
Up until that point, there’s still just a mold and mildew trap. So you can’t just watch a show today and see them finishing a brand new basement and think you’ve got the technology and just go do it. You’re just going to run into nothing but hurt and waste all your money.

David:
That’s actually incredibly useful tip because you saying basements weren’t designed to be used, to be finished, meaning it could be a livid space until after 1990.

David:
So if you know you’re trying to house sack and you want to buy something that you could finish the basement, you set your search to 1990 and newer and you save yourself a lot of time.

Jeff:
You can, yeah. The rule I use is if your basement has a rough-in bathroom, the plumbing is sitting there coming out of the ground, then the entire basement was designed to be a finished space.

Jeff:
If it doesn’t have rough-in plumbing, you’ve got a lot more prep work to do on your foundation and your waterproofing and everything else.

David:
And by rough-in we mean, if the infrastructure has been run to the area, but they haven’t actually developed a bathroom or a kitchen or something.

Jeff:
Yeah.

Brandon:
Yeah, that’s good. All right, so while we’re on top of basements, I want to start there because one of the things that freaks me out most is a real estate investor. So I find a house and it’s got a basement.

Brandon:
There’s such unknown there, right? I don’t know if it’s going to be an $800,000 fix or if it’s going to be a $12 fix if I get water, right? How does somebody know? First of all, I mean, how do you know how bad water in a basement is when that happens, and whether or not the thing is water?

Brandon:
And what do you do? I mean, if there’s water in your basement, how do you deal with that?

Jeff:
Well, I guess I break it down into two areas. You either are prone to water events, which is a lot of water at a particular time for a particular reason. Or you have insufficient vapor and water protection technology in your basement and you always have a high relative humidity in the basement.

Jeff:
Those are two different issues. That has to deal a lot with climate, soil conditions, what’s the grading around the house. A lot of that stuff can be dealt with from outside, not letting the water get to the foundation wall. And that’s usually the cheapest way to fix, right?

Jeff:
Grade the property, put in French drains, make sure you’ve got good work and eavesdrops, clean them. All these little things that keep the water from coming down the foundation wall. And remember that every foundation, other than stack stone has a footing.

Jeff:
They let it dry and then they build the wall. So there’s a place there where the water can infiltrate underneath the wall. So you’re looking for effervescence, that salt crystallization that’ll tell you water’s coming through.

Jeff:
You’re looking for cracks if it’s a block wall on the upper third. Is there discoloration in the mortar joint? You can even look at the history on the building, find out if there were insurance claims made against it or the building permits ever pulled for a basement work that’s already existing.

Jeff:
But really when it comes down to water, the best plan is to just take pictures, take all the information you can and then ask somebody who knows better. Because I can’t even tell you right now if you were to give me a particular house you want to know about, I can’t give you the answer that I’ve seen in pictures.

Jeff:
Which is way too much that goes into the formula, right? So over the years, the building industry has tried to come up with these clever little two by two foot panels to solve a lot of issues. But even at that, I mean, you could still be just building everything to have it go to garbage.

Brandon:
It’s the point being… And I’m glad you brought this up is, at some point, especially things like basement, and we’re going to get to more issues today I want to talk through as well.

Brandon:
But especially things like basements, that’s something… It’s okay to take pictures and call up a contractor and explain, I have this problem. I mean, when are you taking advantage of the contractor?

Brandon:
When do you call them and ask those questions? Are they going to answer their phone and be able to help you with this stuff without getting paid for it? I mean, how do you see that arrangement working between an investor and a contractor for an issue like a basement or if it’s another larger issue?

Jeff:
Well, that is going to be an issue of relationship. So if you have a contractor that you’re working with regular and you’re part of his meal plan, I like to say, where he knows there’s a certain amount of work coming every year from you, that phone call is going to get answered.

Jeff:
You’re going to get an honest answer from him. You guys are going to be working together to solve problems. But like you said earlier, if you’re somebody new in the business, you don’t have an advocate.

Jeff:
Contractors are going to hold that information tight to the chest because those are opportunities in their mind of a one-off opportunity to make some money, right? Because if the guy’s asking a question, it means he has nobody else to go to because he’s asking a perfect stranger. And that’s where you make yourself vulnerable.

Brandon:
So what do you advise? Especially a new investor or somebody trying to… Not a new investor, but just a new… A person meeting a new contractor. How do you set yourself out?

Brandon:
How do you show that you’re not just a one-off necessarily, that you’re worth talking with? Are there things that you find as an ideal client when they’re new?

Jeff:
Wow. This is one of those things where you’ve really got to know your own business, right? If you’re going to get into the real estate business and you’re going to own rental properties, that rehab budget better be spent on things that you have a clue about.

Jeff:
Or you’re just taking your car to the auto mechanics saying it’s making a noise and saying fix it, I don’t care what it costs. And they’re happy to help you. Now, I have a rule Brandon, and my rule is this most guys in the business, they want to just do good work, go home at the end of the day, get paid and be happy, right?

Jeff:
Contracting is not a get rich quick scheme. The average guy out there is making 50 to $70,000 a year. They’re not getting rich on this business. They’re not looking for ways to get rich. They took this job because they’re good with their hands. They enjoy building. They like fixing things.

Jeff:
They like being able to have steady work and enough money to live comfortable life, go home and play with their kids and just be happy. So as long as you go into any kind of understanding and negotiation with that attitude, you should be okay.

Jeff:
But if you go in thinking everyone’s out to get you, man, you’re just… You’re going to lose so much sleep. It’s just not right. But understand, I mean, if you need information, get it before you call the contractor.

Jeff:
Don’t let him be your educator, and then you can protect yourself from bad advice.

Brandon:
Yeah, that’s really good. So for example, check out YouTube videos. I mean, that’s how I learn almost everything.

Jeff:
Yeah, I don’t want to push myself all day long here, but yeah.

Brandon:
No, please. When I got started, that’s what I would do. I would be like, well, how do you lay laminate flooring? I was like, I don’t even know what that is. I go on YouTube and like laminate flooring, and you figure something out.

Brandon:
You don’t even have to lay the laminate. You can still call a contractor to do it but at least you have an idea of what you’re doing. You can get general costs, you can get ideas, do a little bit of research upfront, which we could spend a whole hour talking about why people don’t do that.

Brandon:
They want to take the easy way out and just have somebody else solve their problems for them. But that is basic. If you’re going to get into the rehab business as a real estate investor, know your business, have an idea of what you’re doing.

Jeff:
And the other side of it is if you’re going to be in the rehab business as a real estate investor and you don’t have confidence that what you’re going to do is going to hold up longterm. And I use longterm, the 50 year plan.

Jeff:
Is when I hire a structural engineer, they’re working on a 50 year building model. And the idea is if it’ll last 50 years, it’ll last 100, and that’s the mentality. So when you’re renovating a basement into an apartment suite, you might be doing practices that will only get you 20 to 25 years, that are still decent practices.

Jeff:
But do you want to hold that unit for 25 years and then try to sell it? Because someone else is going to have to walk in there with a rehab budget and you might be shooting yourself in the foot.

Jeff:
So maybe a good time to hold that would be 10 or 15 because you know what you’ve done isn’t going to last the 50 year mark. And that doesn’t make you a bad person. It just means that you’re wise to the fact that basements are tricky.

Jeff:
Maybe holding a longterm, there’s a comfortable cutoff there where you’re not screwing anybody over and at the same time, you’re maximizing your return.

Brandon:
This reminds me of a situation early on in my investing. My very first property, it was my duplex that I lived in half of it, rented the half out. And I had to remodel it and I was doing it on a super cheap, as low as I could.

Brandon:
I go to Home Depot or whatever it was and I buy the faucet. And the faucet, I get the cheapest one there is $19, right? And it’s all plastic, plastic bottoms, plastic parts, everything plastic about it. And I’m like, why would some moron pay $100 for a faucet when you can pay $20 and $19?

Brandon:
So I put the $19 one and it lasted me, I think, six months and then I had to go put another plastic one in. And so I did that, right? It took me a couple of years to be like, am I investing for the next six months or the next six years or the next 60 years?

Brandon:
Do I want the contingency plan to own this property forever? And if so, I need to start treating my business with materials and products that are going to last a long period of time. And so just shifting my perspective on how long I’m going to own property for.

Brandon:
Now again, I might not own them for 50 years, but I might. And so I was like I want to make sure that I’m buying the material. Now, what’s the difference though? Do you actually notice a big difference between those, like the $250 faucet and the $100 one? Is it big of a difference between 20 and 100 as it is between 100, and two, three, 400?

Jeff:
And the answer is yes and no.

Brandon:
[inaudible 00:16:12] of course.

Jeff:
I’ve had experiences all over the board. There are lots of high quality $600 kitchen faucets out there that have plastic parks that move in the handle and the cartridge. And you’ve just got to shake your head and go, why?

Jeff:
Nobody puts plastic wheels on a train, right? And at the same time, if you’re limiting your shopping experience to Home Depot, then you’re only buying what they’re making available to you out of the tens of thousands of faucets that are on the market.

Jeff:
And that’s because that’s got the largest margin for them. And every time there’s an increase in price point, they’ve done the science that if you’re not going to buy the 20, you’ll go to 50.

Jeff:
So don’t put a 30 on the table, right? At the same time, every product that’s on the market can be available through different suppliers that most people don’t even know exist. And they’re always available from the same manufacturer, almost the same exact look and model but in the solid metal version.

Jeff:
So you can get a $20 plastic faucet from the same company made in metal that’s going to cost you 50 bucks and you don’t have to buy the expensive $50 plastic from Home Depot. So there’s options out there where you can get quality for a much lower price, but you’ve got to invest time to research your suppliers, open up some cash accounts, right?

Jeff:
Or credit accounts if you want to get into that world. But I’ve been preaching that for years. I know contractors who shop at Home Depot religiously, and they’re throwing away 30 to 40, 50 points on everything they buy and giving it to the local variety store of home renovation.

David:
Is that something that makes sense for your average do-it-yourself as opposed to a contractor to go and find some of these suppliers you’re talking about?

Jeff:
That’s the million dollar question. If you’re a do-it-yourself and you’re doing new siding and windows on your house, yes. Go spend 20 minutes, sit in a chair, answer a couple of questions, open a cash account because your windows are 70% off retail price as a contractor.

Jeff:
Your siding is 60% off retail price as a contractor, all right? So instead of spending 30,000 on material, you’re down to eight, seven. That’s money in the bank.

Brandon:
And you’re saying you’re not going to get that from the big buck stores. That you’ve got to go-

Jeff:
No, you won’t get that from your contractor either because you’re paying full retail when you let him go shop for you. And that’s where he’s going. Think about that one.

David:
That’s something I think I talk about in long distance investing. As I mentioned, when I’m working with a new contractor, I don’t know if this person’s on the up and up yet because we haven’t done business.

David:
I will pay for the materials. I will have them delivered to the job site and I will have them just quote me on the labor. That way I don’t have to worry about, are they cooking anything extra into the materials? Is that the same principle that you’re getting at here?

Jeff:
Yeah, it’s the concept. Plus when you hire a contractor you don’t know for material and labor, they generally want the material money upfront to go shop with it.

Jeff:
And that’s the one place as a new relationship where it’s like, okay, now I’ve got to give this guy enough money that he can go on a three or four week bender and hopefully he comes to work tomorrow, right? That’s the million dollar question, right?

David:
Like maybe $5,000 off of a guy you found on Craigslist that said he’s a good dude that may or may not be in Washington.

Brandon:
Yeah, this is what happened to me Jeff. I’ve told this on the podcast before, but I had this contractor I found on Craigslist. He shows up, and I like to joke that he had the hat, he had the truck, he had the, I mean, matching outfit.

Brandon:
We don’t even get that where I’m from very often. I was like, wow, this guy’s impressive, right? So he shows up and he gives me a bid on windows and he says, I need $5,000 for just the… It was only a few windows or whatever, I don’t know, a dozen windows.

Brandon:
One of the material costs will half down 5,000 bucks. So I give him the $5,000 and he leaves and he never shows up again, just disappears. I tracked him down later. I found his house and I put a lien against it. I ended up getting paid back years later, but-

David:
That was a lot of work.

Brandon:
It was a tone of work. What an annoying situation to go through. Now at the same time, I understand in the shoes of a contractor, because I was a contractor for a short… A minute, back when I was younger.

Brandon:
I got my GC license and I went and did people’s decks and whatever. So I remember not having any money. And so I can’t… I couldn’t just go and buy my own material necessarily. I needed the material money.

Brandon:
So how do we balance that? How does the average investor balance the investor needs, the material costs up front, but I don’t want them to just walk off with it? Should I just do what David said, just buy the material myself then until I have a relationship?

Jeff:
Yeah, I think so. I think that’s probably the wisest way to go about it. Now when it comes to getting a contractor, we can’t just use the word contractor. That just means a guy that’s doing a certain amount of work for a certain amount of money.

Jeff:
There’s a lot of different business models there that someone new in the business needs to be able to discern between. Is the person you’re talking to an actual business or is it just a guy who’s swapping his own time for money and hiring a helper?

Jeff:
That’s a major difference because if you’re hiring a business, it’s going to be more expensive. It’s a lot less stress because if somebody gets sick or somebody… The crew leader’s wife leaves him and he comes up to work the next day and he’s a wreck, you call the company and they replace that individual on the job, right?

Jeff:
If you hire an individual who’s pretending to be a company and he’s got two or three employees and he’s got a sweet looking website, he’s got some referrals and his wife leaves him, you’re in deep trouble.

Jeff:
We’ve all been there, right? Now at the same time, there’s a lot of guys out there who end up in contracting for a lot of different reasons who do good work, who don’t have enough money behind them that they can say, yeah, I’ll take this job and at the end of the job you can pay me, okay?

Jeff:
If you hire anybody in the HVAC, electrical, plumbing world, generally speaking, these guys are big enough and they have enough money in the bank that they can get paid when it’s done. And their business model is to do that on purpose because when it’s done, if you don’t pay them, it’s worth it for them to go after you, right?

Jeff:
A lot of guys like to pay contractors a little bit at a time. Well, if at the end of the job there’s only another thousand bucks on the table, maybe they don’t finish, right? Maybe you don’t pay them. That’s the other side. As the contractor you’re going to get screwed, right?

Jeff:
So there’s all these different formulas. For me the best formula is this, if you’re going to hire a guy, you ask him anything under a month, I think any tradesman in the world should be able to do the job and get paid when it’s finished.

Jeff:
If he can’t afford to do that, now you know he’s broke. So you hire him, you buy the materials, you pay him weekly, right? You get a schedule and make sure he’s on it, but you pay him weekly. It doesn’t mean he’s a bad contractor. It just means he’s in a rough place.

Jeff:
And you can generally negotiate a better price there, but don’t try to take advantage of him because he’ll just be gone as soon as somebody better comes along. There’s no commitment to you.

Jeff:
So again, there’s the one-off situation, getting the best deal. There’s, are you going to do this over and over and over again, looking for good relationship, make sure you pay the guy decent wage? Google for your area, what is the average guy getting paid, right?

Jeff:
I mean, you might be in LA and then move to the Midwest. Well, don’t be paying LA prices for contractors out there.

David:
You made a point earlier that I really liked when you said the average guy doing this job is good with his hands. He wants to make a decent living and get paid a fair wage, and have a good life, play with his kids.

David:
They’re not business people with entrepreneurs that want to grow and scale a huge thing. Like you could be Jeff and I am and Brandon is, and many of our listeners are. They’re here because they want to learn, how do I build a big portfolio of houses so that I can have an awesome life.

David:
And what I learned is that when I was first dealing with contractors, my assumption is you’re like me. You’re going to be professional. You want to scale. If you do a good job, I’m going to give you more business.

David:
So you’re going to be approaching this like, oh, I want to do a great job and maybe get a tip or a bonus. And I learned that is not the case. This isn’t a dig against people that think this way. But if you’re good with your hands, you probably value that, you probably don’t value how to run a profit and loss statement.

David:
How to hire employees, how to make sure that you have insurance, how to have skill with finding the people to go do these jobs for you to be organized, right? It’s very rare that you find someone that’s good at managing the cash flows of a business like this.

David:
Money’s coming in, money’s going out. They’re paying wages, they’re paying materials. So they frequently run themselves into we have no money and my guy’s asking to get paid and I don’t have it because I went and bought materials on the last four jobs and haven’t been paid yet.

David:
Now I’ve got to ask David to pay me to pay these guys when they’re on someone else’s job. And if David’s already paid me and that person hasn’t and I need money, well guess where the person’s going, right?

Jeff:
Right.

David:
There’s nothing wrong with having some wisdom as an investor and understanding the person you’re dealing with, and like you said Jeff, structuring the relationship to incentivize them to take care of you.

David:
It’s much better than just getting pissed and saying, okay, well I won’t pay you at all. And now you’re in this big legal battle where everybody loses when that happens. And that was something I’ve learned.

David:
Like you guys said earlier and I think Brandon mentioned it, know who you’re working with. You should know how appraisers work. You should know how contractors work. You’re going to be working with these guys all the time.

David:
Do you have anything you want to comment on what you’ve seen? Because you can kind of see both sides of this argument, both the investors who follow you and the contractors who are learning to do their trade better.

Jeff:
Yeah, wow. So let’s assume for a second that everybody in the investment real estate business is also a standup citizen, right? And it’s always the contractor that’s the problem.

David:
Yes, definitely. That’s a very good point. That’s a very, very good point.

Jeff:
Right? Okay, so on the other side of the scale is the contractor who usually, by the way, brings the contract to the party. And I would say 90% of them don’t have a sweet clue about contracting.

Jeff:
Sorry guys, but you didn’t pay 40 grand to get your contract written up. So when you go to court, you lose. That’s just the way it is. As a contractor to protect yourself, you want to make sure that the old days are gone, right?

Jeff:
We used to be able to just do the job. If we didn’t get paid, we were actually getting payment while standing in the front room of the guy’s house with our hammer in our hand. And if you didn’t pay, no problem. I’ll take my kitchen back, thanks.

Jeff:
And as soon as that hammer goes in the air, the guy’s got money all of a sudden, right? But now that’s illegal. God, I don’t know if it is in California.

David:
[crosstalk 00:26:50]. The answer is yes, it is illegal in California no matter what the question is.

Jeff:
What society has decided is that the courts are the best place for us to solve these problems. And as soon as they did that, they…

Jeff:
…problems, and as soon as they did that, they also allowed the courts to be biased against contractors. So, we’re kind of screwed on that end of the stick now. If you want to do business with somebody you’ve never done business with before, you got to make sure that their money is good. So you don’t take checks. E-transfer.

David:
Don’t take checks.

Jeff:
No. E-transfer is a wonderful way to pay a bill. Don’t go home from work on Friday until the bill’s paid. If you don’t know, clean up all your tools every day after work. Make sure, at least have your tools of the trade with you. Never invest more than a week without getting money because you’re only going to run in to one of these guys once a year.

David:
I love what you’re saying, the whole weekly thing, because what you’re doing is you’re getting both sides to invest a little bit at a time. I will give you a week of work-

Jeff:
It’s sharing risks, eh?

David:
Yes. You’re sharing risks. That’s exactly right. And as each side gets more committed, trust slowly gets built. The person says, well, I’ve already paid this much. The contractor says, well, they paid me this often. I should keep going. And you get to that point where both sides can feel good. I really, really like that. It also is much closer to how the mind of a normal person is used to working. Because at W2 job you show up for a week or two, you get a paycheck, right? It’s the rhythm that we’re used to.

Brandon:
Mm-hmm (affirmative). Can I be honest? I agree a hundred percent that you want to pay regularly, right? I’m a big fan of that. You don’t want to have them go a month or two without getting any money. At the same time one of the biggest mistakes I’ve made as an investor is paying people, whether it’s contractors or anybody, employees, it doesn’t matter, for time spent versus-

David:
You’re results.

Brandon:
…the results. Right. And there’s definitely a time for time and material. Definitely, I do that still for occasional. But I did a rehab one time on a property and I mean, I was thinking it’d be around 75 grand. But it was an up in the air project because there was a lot behind the walls, we didn’t know what we were getting in to. So we just said, “`Hey, let’s just work it out.”, it was $65 an hour, “I’ll just pay you every Friday. We’ll be fine.”. Well, $140,000 later, we finally wrap this project up where, when I look back, I’m like… Now I’m not saying he ripped me off. He was not dishonest at all, but I know that people think and act and live differently when they’re paid by a job versus being paid by a thing.

Brandon:
So the way I’ve married these two together is, what I do is I typically will sit down with the contractor and we’ll say, okay, this is the project it’s expected to take four weeks. Let’s divide this into four phases, at the end of each phase, which you should be about at every week, you get paid. And what’s amazing is when they know they’re going to get that $2,000 check on Friday, they will sometimes spend Thursday until midnight working on the project just so they can wrap up Friday. Or if they get done early, they get paid on Thursday, because the projects done, they won’t even show up Friday. I don’t care. I already paid them for that thing that they did. And then I make sure that the, not the bulk maybe, but at least a sizable percentage is at the very end. Because one of the biggest things I’ve also noticed with contractors is, and myself as a contractor and just the DIY guy, the end of projects tend to trickle.

Brandon:
Right? Because at the very end of the project you’re getting paid by the hour. It’s like, well, I got to go put those outlet plate covers back on, but I got this other job that’s going to pay me a lot of money. I’m going to go do that. I don’t want to go put annoying outlet plate covers on or go caulk the line on top of a whatever. So by having a sizable chunk at the very end, now everyone’s incentivized to finish the project and get on with it quickly. And they can earn a higher dollar per hour wage by just working faster and be more efficient. You agree with all that?

Jeff:
Yeah. I guess there’s two differences. If you’re going to get in a project, man, you can renovate just about anything in four weeks. Right? Most people get bills once a month.

Brandon:
Tell that to the guy who took nine months to finish that project.

Jeff:
Tackle that project. Yeah, right?

Brandon:
Yeah.

Jeff:
I’ve seen those.

Brandon:
A two bedroom apartment. Yeah. It was a while.

Jeff:
But the reality is, if you’re going to renovate, most experiences are going to be inside the month and the guy that’s working for you. Their bills come once a month. So, that’s where they need the big chunk. Right? Start your project on the first, wrap it up by the end of the month, you don’t want it going into another month anyway, because now you’ve got overhead and carry on cost. You want that rent?

David:
That’s good. Psychological hacks.

Jeff:
Focus on the [crosstalk 00:31:07] three week period, put an amount of money that’s punch list, right? So that they can stay focused on getting to three weeks. And if they don’t finish punch list, dear God, grab a paintbrush and a screwdriver and do it yourself. You’ve got a whole week, right? Or hire a handyman. If they want to walk away from that money, that’s their business. But understand that the punch list payment should be the biggest part because that’s the one they need to pay their bills.

David:
Yeah. That’s really similar to how I do other things in business as well. So let’s say that I have a house that needs to be renovated. And I’m going to say to the contractor, because they know more than me what has to be done, what do you have to do to renovate this house? And they’re going to say, “Well, first I got to demo. I got to rip it all apart. You got to haul everything off. Then I’m going to have to fix the infrastructure, rerun some plumbing, fix some electrical. I got to see if there’s a problem with this or with that, maybe some of the windows need to be replaced. Then I can put it all together, more or less.”. Okay? When we’re choosing materials, that usually only happens in the ‘put it all together’ phase. What finishes do you want? What kind of flooring?

David:
Okay. The demo part, I can easily say, what do you need to do that? I need a dumpster. We’re going to have to make some runs to the dump. What does that cost you? They can show me this information. So what I like to do is split it into those three chunks and say, “Okay, how long will it take you to do phase one, the demo? This long? How many guys are you going to need to do it?”, they tell me. I look and I see, okay, I could pay you this much money to do that part. Now, if he does all the demo and then I pay him and he walks off the job, I can still hire someone to finish phases two and three. And so, I’m only going to pay him for phase one. And only when phase one is done, is he going to get that chunk of money?

David:
And then I repeat that with phase two. And then again with phase three. And I found that as odd as this is. They like it more when I come up with that system because they didn’t think like that. Their brain thinks what do I have to do to get it done? Right? And do I have the manpower? They don’t have that vision of how to construct this. So, it’s almost a relief to a lot of the contractors when I simplify-

Jeff:
I find that, too. Yeah.

David:
…it to say, here’s how it’s going to work. Now, another thing I want to ask you, Jeff, is this is something I’ve noticed, when you go shopping at Home Depot. And you’re like, well, that tiles $2 a square foot. And that one’s $5 a square foot. I’m clearly going to buy the $2 tile. Okay? Your brain is looking at that thinking it’s 40% as much money, so I’m saving 60%. But when you look at the actual cost to get the job done, more of it is going to be labor than it is material. Okay? You’re not saving 60% on the job. You’re saving 60% of a smaller piece. So when I asked them, give me the quote on labor and materials. And I see labor doesn’t change whether I bought the $2 tile or the $5 tile. Okay.

David:
It completely changes the formula that you’re thinking of in your mind, that’s helping you make the decision. Can you comment a little on how people step over dollars to save pennies when it comes to picking these $20 faucets? Because what I was thinking when Brandon said that is, when I got to pay the plumber or whoever to put it in, he’s charging me the same, right? Every time he goes out there that is so much more money than the extra $40 that I saved on the faucet, because I’m going to pay him $200, right? What sense did that make?

Jeff:
All you got to do is [inaudible 00:34:10] plastic for one turn or you’re done. Well, here’s my thing. I did tile setting for three years, professionally, really proficient. And every time I had a client say, “Oh, I’m buying the tile.”. I’d say, “Where are you shopping?”. And if they said Home Depot, I said, “Well, I have to change the contract price.”. And they go, “Why?”. I said, “Because you’re buying cheap ceramic and every tile is a different size. You just added eight hours of labor to my job. Why don’t you go down the street to a tile supplier, who’s selling the $5 a square foot tile, right? Because it’s rectified porcelain, and you’re going to have a sexier look and then it’ll be a lot cheaper and I can install in two hours.”.

David:
Yeah. And even if it is a little more expensive, it’s not 60% more expensive [crosstalk 00:34:57].

Jeff:
Right? A 70 square feet for a tub surround and if it’s $3 a square foot, it’s $200. But if I got to spend a whole day fussing around with it versus two hours, you’re actually going to be a lot better ahead.

David:
Yeah. Let’s say that tub surround you’re doing, what would the labor be on an average deal? How much would a tile person charged to put that together?

Jeff:
Yeah. Good luck. You’re not going to get a square foot price from a tile guy.

David:
Well, just come up with the number of hours.

Jeff:
He’s going to charge you half a day minimum, probably charge you the full day.

David:
So how much would that be?

Jeff:
You’re probably in the six to $800 for a tub surround.

David:
So that’s what I wanted to get at.

Jeff:
Just the tile, right? Yeah.

David:
Right. Let’s say he’s $800 of labor to do that tile and the tub. Does spending $200 on the tile instead of $400 on a tile to get something twice as nice, it doesn’t double the price. It takes you from a thousand to 1200, to get a way better look in the end. You’re only spending whatever that comes down to, 15% more, to get a much nicer thing. Because that labor price doesn’t change. And that’s the point I want to make. If the majority of the work is in the labor, spend more on the materials, make it look nicer, get a better ARV on your house.

Jeff:
Generally speaking materials are less than 25% of the whole cost of the project without even trying.

David:
I should have just let you say that in the beginning. That’s my point. Thank you.

Jeff:
Anywhere you look, right, if you cheap out, you’re saving 10% of the cost of project, the unit looks like it, nobody wants to pay top dollar to be there.

David:
Yeah. You’re saving 50% of the 25%. So congratulations, you gained 12.5%.

Jeff:
That just explained about 400 TV shows. Right? Make it sexy, they’ll pay top dollar.

Brandon:
Yes. They will.

David:
Even if it only lasts 20 years, because you did it in a basement.

Brandon:
And this applies to rent, as well. A lot of landlords, they put the cheapest thing possible in their unit because, and I hate this phrase, it’s just a rental. All right I hate that phrase. And I hate when contractors say, “Well, it’s just a rental”, because people have this thought, I mean investors say it, contractors say it, it’s just a rental. And it’s this idea that because it is a rental property, we can do worse quality. I can have cheaper material and I don’t need to worry about the looks of it as much. And I think that’s such misguided because when I spend the time, I mean, sometimes it doesn’t even cost more money, you’re literally trying to find out what paint Joanna Gaines is using and using that versus white or whatever color they have on stock.

Brandon:
That little shift of doing a nicer job gets me way more rent, attracts a way higher quality tenant, who then stays way longer. And then they don’t damage stuff when you do the higher quality stuff, because they’re just there. So here’s my question for you, I’m wondering what do you see as trends in the industry, right now, that are, I don’t want to call it tenant proof, I don’t like to say tenant proof. Or in other words, they’re long lasting. What things are you installing? Are you guys seeing people install right now? They’re like, Oh yeah. We gave a good example earlier, metal versus plastic faucets. We should be using metal faucets, the more metal parts in there the better. Yeah. What other things do you notice that are just really beneficial for landlords?

Jeff:
All right. So number one, stay away from the cheap floating floors.

Brandon:
What do you mean by that? Like the cheap laminate?

Jeff:
Laminate and vinyl [crosstalk 00:38:09].

Brandon:
Yeah. Okay.

Jeff:
Okay. Now vinyl is relatively resistant to a lot of different problems, but the one problem it has as a click floor, is if the floor isn’t perfectly flat, okay, it’ll open up it. It doesn’t stretch to meet the contour of the floor. So if you have a wooden sub floor system, don’t use vinyl there unless you’ve poured floor leveler, reinforced for the beam in, `underneath or there’s something. There’s a new product coming on the market called a floating engineered hardwood plank. I don’t know if you’ve seen it yet. It’s coming brand new. Yeah. You’ll see it later this year hit the market, but it’s engineered flooring. So you get hardwood floor, it goes over top of a sound deadening underpad, right? So you get the beautiful separation from tenants above and below, but you get to sell your unit as a hardwood floor and it installs in an hour and a half.

David:
Wow. That’s cool.

Brandon:
Almost the same as laminate where it clicks together?

Jeff:
Click flooring, hardwood floating floor.

David:
That’s cool.

Jeff:
Yeah. So it’s just like a laminate plank. Only, it’s a lot bigger and it’s a finished hardwood. So that is going to be huge for real estate investing because now you’d get a quick, easy floor. It’s a DIY project price point, it’s just a couple bucks more. But like you said, there’s always going to be a renter who’s got money. Right? Who wants a nice place? Who isn’t leaving anytime soon, because life has just done that to them. Right? That’s who you want livin’ there. Right? If you’re a real estate investor, to me, the idea of making a living on the rent of people who are struggling to survive is insanity. Make a living on people who’ve chosen to rent, for whatever reason, outside of survival, get yourself into that price point. That’s where you want to be. So, that’s a huge product. The next thing is going to be open concept. I mean, every time you open something up, it seems dirty, it seems like it takes a lot of energy, but there’s less materials to finish everything else.

David:
Yeah. That’s a good point. Yeah. I’m a big fan of opening up that kitchen to the living room or kitchen to the dining room. The more you can expand there.

Jeff:
Yeah.

David:
Yeah. People love that, stuff like that.

Jeff:
Well A, as soon as you go open concept on the kitchen, now you don’t have the third wall, so you don’t have to buy a custom kitchen. You can buy RTA cabinets, it always fits because there’s no wall. You can save a fortune, you can design everything. So you’re never buying extra material you’re not going to use. If you’re into natural stone, design your kitchen to be one slab size. That’s it. Right? Don’t go 1.3% of a slab because they’re going to make you buy two slabs to make your countertop. Little tips like this that go along. I mean, whenever possible, buy materials from your contractor pricing. Right. And you guys are in the game of return on investment. And if you want, you can put everything on credit and pay all the materials back over time, too.

Brandon:
Yeah. I got my, all my first flip started with that Home Depot, six months, no interest, no payment, credit thing. I did a ton of that. And then I ended up not selling-

Jeff:
That’s a hell of a way to start, eh?

Brandon:
It was. It was a great way to, yeah, finance it. You then ended up not selling those houses. I ended up with a ton of credit card debt. That’s a whole different story, but yeah-

Jeff:
I’ve got one other quick thought, when you’re designing your kitchen, stay away from upper cabinets.

Brandon:
Mm-hmm (affirmative). I’ve been doing the same thing. I put shelves, now.

Jeff:
Most people who rent don’t have 12 boxes of kitchen gear going around town with them. Right. And the open space is a lot more attractive than upper cabinets and upper cabinets cost twice as much as lower cabinets and have half the capacity. So it’s insanity really when we think about it.

David:
So you use lower cabinets and then floating shelves up above?

Jeff:
Just for decoration.

David:
Yeah.

Brandon:
Yeah.

Jeff:
If you put in open concept kitchen, your base cabinets, that’s all you need. Right. What else do you need? Throw maybe a floor to ceiling pantry cabinet or even better yet, build in a pantry and throw a barn door on it. Now you’re all the rage. Oh, I got a pantry and a barn door. How sexy, [crosstalk 00:42:17] so cheap. Right?

David:
Just add shiplap and you hit the whole trilogy of-

Jeff:
God, right?

David:
…trendiness.

Jeff:
Shiplap, yeah. You know, the best thing I guess for trends now is big bathrooms.

David:
Yeah.

Jeff:
Right? If you’re looking to rent a bathroom, do a flip, rent it out. Okay. So, here’s my bathroom design. Ready? You go tile floor. You go shower pan, not custom shower floor because almost 95% of your risk of water damages is delimitated. Right? The bottom line is in the tile world-

Brandon:
Can you explain-

Jeff:
Go ahead.

Brandon:
For those who don’t know what that is. Can you explain shower pan versus custom? What does that mean?

Jeff:
You buy an acrylic base for $150.

David:
As opposed to making a tile or [crosstalk 00:43:06] a stone or something? Yeah.

Jeff:
Here’s the thing. The tile industry is a little bit sketchy. There are only really two actually approved methods for building a shower in North America. According to that tile setters manual, 90% of the showers in North America, and I’ll include Canada in this, actually fall short of the installation guidelines. And if you were to take you’re builder to court, you’d win every time if you held up that tile book, because these guys are licensed, their trade pros, they have a standard they have to meet, but nobody builds that way. So if you use a shower pan, it has an integrated wall, piece of tile flange, but an inch and a half high.

Jeff:
Your tile comes down to meet that all your water is going down the drain, right? So you put a fan on with the light as a renter. So the fans always going, you put it on a timer if you want to, or you put a humidistat fan in, so it doesn’t turn off until the air humidity meets a certain standard. But for $150, you got a pan, $200 you can tile the wall with subway tile. It looks great. It’s still all the rage, right? You buy a good quality shower system and you’re rocking it. I mean, it’s just a no brainer, right? You can put in a glass door system for that shower for less money than waterproofing a shower floor. And you never have to have a risk.

Brandon:
Yeah.

Jeff:
Right?

Brandon:
That’s so good. And I wish more investors thought this way, because there are ways to make things look really nice. You don’t have to go with crap shower. That would look really nice. We talked about earlier, the cost if material, right? You could buy a cheap $5 shower head or $10 shower head for your shower or you can spend $80 or $100 on a nice rain shower, a couple hundred bucks, maybe something nice. Now your tenant loves that shower. And they’re not thinking, what is this cheap, crappy landlord who put up this $5 plastic shower head. And it doesn’t cost them that much more in the long run. You’ll recoup your cost just by-

Jeff:
Definitely.

Brandon:
…happiness of tenants.

Jeff:
One of the best tricks out there is, if you have an old tub shower combo, don’t rip out the tub just reglaze it.

David:
Yeah. That functions similar to a shower pan.

Jeff:
Right? Same as the shower pan. Let’s say you live in a place where you’ve got weird water or somebody was using hair colored dye shampoo, and God help you, the pan turns pink over time. When you go to get a new renter in there, you’re going to have a reglaze and it looks brand new again. Couple hundred bucks.

David:
Yeah.

Jeff:
It’s brilliant.

Brandon:
I tried to do it myself one time, they sell a kit at the Home Depot, a re-glazing kit.

Jeff:
That’s not the same deal.

Brandon:
Yeah, you can tell how this ended up. It was awful. It was awful.

Jeff:
Home Depot’s awesome for that. You can always go there to solve a problem that makes you spend even more money next week.

Brandon:
Yeah. I had to rip that thing out and then put another bathtub in there. Hey, you mentioned cabinets. Let’s talk about them for a second because there’s a wide variety of qualities when it comes to cabinets. I mean, you could spend 50 grand on cabinets or you go to any big box store and they have them in stock there for 12 bucks. What are the best long lasting cabinets that are not going to cost you 50 grand, especially for an investor, but you want them to hold up for a long time? Do you see a certain type of cabinet that is better or worse?

Jeff:
Oi. Yeah. I mean, there’s all kinds of standards, right? I mean, wood is always better than particle board. Ikea makes a pretty decent particle board. I hate to say it but yeah, the thing about Ikea that I like, is their hardware systems hold up as long as their cabinets and panels do. A lot of the RTA cabinet systems that are out there or the stuff they would get off the shelf of the box store, it’s not the cabinet, per se, that’s the problem. It’s all the hardware and systems around it, that fail first. And you’ll never get the parts. Because they’re always changing their suppliers every five years. Right. They’re famous for that. So just about the same time you need to go back and get parts for it, they’ve gotten a different company on the shelf. Yeah. So at least with Ikea, it’s consistent longterm. So I like going there. I hate their feet, but the easiest thing to solve that problem is just to build a quick one by four box and put all the cabinets on top of it. Yep. Then you don’t have to worry about those stupid plastic feet.

Brandon:
The little feet at the bottom. Yeah.

Jeff:
Yeah.

David:
I want to jump in with a question for you here, Jeff, that I know a lot of our listeners are asking. Because it comes up with me all the time. We have something we call the BRRRR Method. It’s acronym, Brandon came up with that stands for ‘Buy, rehab, rent, refinance, repeat’. Part of doing this well, there’s really two things you got to get right. You got to buy a property under market value or with enough value add, that you can get your money out when you refinance it, which usually means you’re buying a fixer upper property. So this contract question come up all the time with the BRRRR Method. I wrote the BRRRR book on it, Brandon came up with the word, we talk about this a lot. It’s a great way for people to scale a portfolio without needing millions and millions of dollars.

Jeff:
Right.

David:
Where this comes up as a problem a lot, is you have to know what is it worth when I am done and how much do I have to spend to fix it up? Okay. You can’t help us with what’s it worth when I’m done, that’s an appraiser question, but you can help with the fix-up part of this. Every investor wants to bring a contractor with them to look at all 25 houses that they’re considering buying, have him walk the whole thing, give them an estimate of what it’s going to charge to fix it up. And then they decide, oh yeah I don’t think I’m ready. I’m not going to buy it yet.

David:
Can you share with us a reasonable system that you think is fair to all parties? As far as, when you bring a contractor, should you pay them for the estimate that you’re getting? What I usually tell people, because I’m a real estate broker I help people with buying is, we will take a video and pictures and send it to our contractor and we will get an idea what he thinks, a ballpark for ya. And then when it’s in contract, it makes sense to have that person now walk the job because they’re actually applying for a job. They’re not just helping you with your investing journey. And if you don’t buy the house, then you should pay them for their time. That way that they’ll actually come with you on the next one. Can you tell me if you have a different system that you think would work for both contractors and investors?

Jeff:
So what I do is I set that up as a consultant fee and that fee is paid regardless, as part of the contract and it’s included if I get the job.

David:
That’s cool.

Jeff:
It just makes sense. Now you’re not just asking me to do a job, you’re asking me to give you the sum total of all the value of my experience, right? So you’re not going to get me for 25 to 50 bucks an hour on that. Having said that, really, I’m going to sit down and use that as an opportunity to quote on a job with competition, then the job better be in the six figure range or it’s not worth our time and energy to do the quote lightweight, right? There’s lots of jobs out there in the $50,000 range. I don’t have to spend a half a day going through video and doing numbers and quoting.

Jeff:
Most contractors don’t really operate in that realm. They’re handy, they’re not doing that paperwork in the background.

David:
Yeah.

Jeff:
But there are systems that, with experience, you can apply to rehab that can save you a ton of money. I had a relationship with a contractor, I’d done a bunch of jobs for him. One of the things I used to show him is, when you get an old house, if you take apart the ceiling between one unit and another unit, now you’ve interrupted the effect of grandfathering in that ceiling as a fire separation from one unit to the next. And that’s one thing most guys in this business don’t understand is the cost of fire separation when you do these things properly. If you have an existing ceiling and you want to rewire the unit, strap the ceiling with two by fours, run all your wiring in between all those two by fours, rewire the building and then put a new sheet of drywall over top of that. If you don’t disturb the ceiling, you don’t have to do a fireproofing permit.

Brandon:
Interesting. Yeah. I never thought of that.

Jeff:
Okay? Leave that stuff alone. Electricians can drill a hole and put fire cocking around that hole and 120 year old plaster passes the inspection. Now I don’t know if LA is the same as over here and a lot of other jurisdictions. I know the West Coast of Canada, the Permit Officers have the ability to say, “I don’t like it, fix it”, but in most of the country, that’s not the way it works. Right?

David:
Yeah. Probably most of our stuff usually gets grandfathered in if it’s existing. It’s pretty common [crosstalk 00:24:33].

Jeff:
Yeah, yeah, yeah, yeah. So if you don’t open it up, and you’ll see this a lot, and you just find creative ways to go from an eight foot ceiling to a seven and a half, which doesn’t affect anybody, especially a renter. Then you can rehab without doing a lot of demo and save you a lot of time and energy in the process.

David:
On a related note, sometimes I’ll take properties that have a popcorn ceiling or something like that and now I might be dealing with asbestos. I’m not really sure, I don’t want to even dig into it. So I just take quarter inch drywall and just shove it up on top. And then, now we have a brand new ceiling and we don’t disturb anything. No demo involved.

Jeff:
That’s right. You just get that drywall lift. Then you just trowel on some drywall, at least some of the back of it and slap it up there. Right. Throw in some laminating screws and off you go to the races. Right?

David:
Yeah. And I know every time Brandon’s done that, because he has to get a haircut because he’s so tall that his head is now brushing on the top of that ceiling. Oh, he must’ve put in some drywall [crosstalk 00:25:26].

Brandon:
Well, it’s funny. Because my ceiling right now, if you look, I dry walled it, but I haven’t actually mudded and taped it yet in my [crosstalk 00:25:35].

David:
Some rapper’s going to put a song. Drop it like Brandon’s ceiling.

Brandon:
Yeah. Anyway, I have not yet done my ceiling yet, mud and taping, but I’ll get there eventually. All right. So here’s what I want to discuss for a second. The idea of, I’m going to call a contractor, I’m going to have them come up and meet me at a property that I don’t own, that I don’t even have under contract. I’m going to make them walk for two hours to do this property with me or an hour, tell me everything that they know. Because you know what, I might give them business some day they should be happy to work for me for free to do that. That’s the mindset a lot of investors have when it comes to contractors and agents and anybody. It’s like, you should be honored to work for with me.

Brandon:
The funny thing is, a lot of contractors hate working for investors. And a lot of agents hate working for investors because investors can just be jerk sometimes. Because I get this air of like, “I got a lot of money, I can give you a lot of business,” You know, it’s like-

Jeff:
Yeah. I’m the guy on top of the jungle gym at school.

Brandon:
Yeah. Exactly. So, I just want to encourage all of the investors listening right now, like you said earlier, contractors are real people, they want to have a good life and they’re not trying to rip you off. Most them are good, hardworking people. Just remember that. And their time is valuable and they do not need your business. Especially right now, contractors have the choice right now.

Jeff:
No, there’s a supply demand curve right now. They are on the other side of the scale, right?

David:
That’s the million dollar question that everyone who got used to operating that way in 2010, when those guys were begging for business.

David:
In that way in 2010, when those guys were begging for business, thinks they can still do it. And they’re all on the forum saying, “How come I can’t find a GC? Why are they so expensive? How do I get a good contractor? The last seven that I walked the house with I didn’t like, how do I get the good one?” The good one’s not going to work for you if you’re walking it with seven people. It’s probably not the contractors that are problem. The same goes for agents. Even on this podcast. We have made a habit, because during the downturn it was just fire off offers, 500 offers. 500 offers if that’s what it took to get a deal. And people will come to me now and say, Hey, David, I’m going to want you to write 40 offers a week. I don’t think I’ll get any of the houses, but eventually we’ll get one. I’ll be like, then you need to go find an agent that doesn’t have anyone to work with because that’s not how I work here.

David:
I’m going to look for a deal that you could actually get. I’m going to expect you to write the offer when we find it. I can promise a lot of people that aren’t having success are not looking in the mirror. Jeff has made some very good points, it’s not always the contractor’s fault. A lot of the time the people are being ridiculous. I’ve seen this. The person hires the painter that works for like a dollar fifty a square foot, and then goes and complains, look, I can see brush strokes. Your paint’s running there. And I’m like, the painter almost had to be running when he did this job to make money off what you paid him. He just stuck his thing on the wall and ran right through. Of course you’re going to have-

Jeff:
[inaudible 00:55:16] He just blew the paint can up in the middle of the room.

David:
There you go, right. That’s what you paid for. That’s not fair [inaudible 00:55:22] plain and ask that person to come back when they painted your whole house for $200 or something like that. It definitely pays to understand.

Jeff:
Managing those expectations is huge. I tell people, I say, you get a referral for a contractor. Step one, go see him on his job site right now. Is he organized? Is he clean? Is the client happy today? Is his crew happy? Those are things that you need to know today because the referrals that he’s got were maybe last week or the month before, and it doesn’t reflect his current condition. Like I said, if he’s not a business, he’s a guy or a girl and life happens. I’m not going to get down on anybody who’s going through it, but I don’t want you on my job.

David:
Jeff let me share. I want to say something. I want you to either give it your stamp of approval or not. Here’s the last three problems, significant problems I had with a contractor.

Jeff:
Okay.

David:
He broke up with his girlfriend who was the real estate agent that was referring him all the business. They had a nasty breakup. He stopped answering his phone, stopped working on the jobs. That was the first one that you mentioned, the personal problem.

David:
The next one was, they were unable to manage the stream of employees that they needed for the business that they had grown to. They started hiring people that ended up being addicted to meth who stole their tools, left the job, and would go on a bender for a week, and then when they needed money would come back and say, Hey, can I go back to work? He needed people so bad, he’s like, yeah, he’d go back on.

Jeff:
He would take them.

David:
Yes. He would take them. So the inconsistent results I got were the natural consequence of his inconsistent people that he had hired. And the third one was the cashflow problem I told you. He was doing good work but he did not manage money coming in versus money going out, that they really had no idea what they were doing at all. It was purely infrastructure, business principles that they weren’t able to follow.

David:
Is that similar to what you see?

Jeff:
It’s a real life thing. If you’re running your business on cashflow, if you’ve got to take a bunch of stuff that’s lying around back to Home Depot to go shopping for today’s material, you’re in trouble. And that’s real world. The second one I see contractors all the time. They go through the spring season of, I’m going to go sign a bunch of contracts and then I’ll solve the problem of where I’m going to find the labor to fulfill all those contracts. Well, God help us all. Because every time you talk to a contractor, almost inevitably, they’ll say the same thing. It’ll say paint and drywall on the truck. And you’ll say, do you do additions? Yes. Well, why the hell does your truck say paint and drywall if you do additions? Because those guys went through those lean years and they won’t turn a job down.

Jeff:
A good contractor has enough business sense to be able to adapt to the season. There’s a lot of guys out there who are still working for food because they haven’t adapted yet. They don’t realize that they’re valuable. Maybe we shouldn’t be telling everybody, but the point is if you can find nine guys to walk a property without a contract, you found all nine guys that don’t have something better to do with their time. What a pool to pick from. In today’s marketplace, you’re in trouble. If that was 2010, you might’ve had some of the most talented artisans in town in that group, but times have changed.

Jeff:
So you got to be able to be flexible to change with it. I want to throw in one thing real quick. The human aspect of hiring people.

Jeff:
When you get to the job site Friday afternoon to inspect their performance, are you on schedule? You already know because you were there the night before, or you were there that morning. You know if they’re going to hit their target. E-transfer the money before you walk through the door. And then when he turns to you and asks about it, oh no, no, it’s all taken care of. It’s already in your account. That guy will be the most loyal employee of your entire life, because you beat him to the punch on the money question, which is his only fear in life. He’s not afraid if he knows what he’s doing. He’s not afraid if he can get out of bed and go to work. He’s afraid if he’s going to get paid. And once you remove that from the equation, now you’ve got relationship. 10 minutes, solid, 10 minutes. You beat him to the punch by 10 minutes, and now you’ve got somebody you can work with the rest of your life, because it shows that you respect them.

Brandon:
In property management, for those people who are landlords out there or who own rental properties, if you’re dealing with a property management company, everyone I’ve ever dealt with, they do 30 day, 60 day, billions, sometimes… I know when I was a contractor for a while, I hated working for the property manager, because it would be two months before I got paid, if I got paid. I have to go hound a bunch of times. In our business with our rental properties, we make it a point to do exactly… We don’t do a lot of the electronic stuff, which I should do more of, but we will pay them before they ask or at least if we do a check with them, we’ll have a check ready for them right away or we’ll find a way to make it so that that’s the easiest thing for them. They never have to worry, am I going to go do this job for this company over there? Or am I going to go work for Brandon? Oh, I get paid immediately when I go work for Brandon, same day, it’s there quick. They will always come. They always come to me. Even if I give them less work, they want the stability. They want knowing that they can always rely on me.

Brandon:
Just have that reputation. Start building it now with your contractors that, I’m not going to take advantage of you. I’m going to try to nickel and dime every single bid that you give me. I want you to make money. I want to make money. If I need to pay a little bit more once in a while, that’s fine. The relationship is what matters because when that leak happens in the middle of the night, I want to know that that guy can call him and he’ll get out of bed and go fix that problem.

Jeff:
Is he the solution or… Because he knows what’s going on in that house. He knows if it’s his leak or not too.

Brandon:
Yeah, exactly.

Jeff:
It’s a very delicate balance of treating people with respect and holding them to account so that they don’t take advantage of it.

Brandon:
[inaudible 01:01:06] good.

Jeff:
You got to call them out if you see it. I’ll tell you this. I had a painter who trained me, and he had this one saying, you’re going to love this. Ready? There’s no such thing as a drip of paint that fell on somebody’s floor that the painter doesn’t know about.

Brandon:
True story. I hired this guy one time. We called him felon John, you can guess why. And felon John was a painter that lived out in the woods and we hired him for very cheap because I had a friend who had used him. Anyway, he came and painted an apartment for me, and it had a stairway up this apartment and it was the common area, the hallway. It was carpeted stairs. Rather than taping off the floor as you would normally do, he said, I don’t need to worry about that. So he just painted-

Jeff:
I’m an amazing painter.

Brandon:
But what’s funny is that he didn’t even try. He literally just sprayed the carpet on the way up the floor. It was continually sprayed. The floor had a two, three, four inch mark of carpet. And felon John, we stopped hiring him after that.

Brandon:
But he knew about it.

Jeff:
Because it’s much easier to replace the carpet.

Brandon:
I know. We had to actually hire someone else to go there, and they just scrubbed the paint and all of this stuff. Anyway, don’t hire felon John to do your work.

Brandon:
But at the same time, landlords don’t need to go hire the $200 an hour guy who does all the resorts down by the beach. There’s a whole variety. Where do you see the felon John and the $900 an hour guy who’s union or whatever. Where do you see that range? Where should people focus on? What kind of levels do you see there? I know that’s a very big, vague question, but I’m wondering, what have you seen in terms of quality and where do you get the best work?

Jeff:
I’ve done a lot of research and the hourly rate for a skilled trade, a guy with a license, they’re making 50,000 a year, 70 on the high side if they work their butt off. They can push to six figures if they hire a helper or two and can charge an hourly rate for them that gives them some buffer and they should. Because why would you hire somebody and not make money on them? You can make a good living. But you need to understand, I used to have this thing. I live in a government town. We have a lot of government employees. They got great benefits. They get good salary. And they had no idea of the cost that they were as an employee. They took their salary and they looked at everybody else and said, well, I can’t hire somebody to do labor and pay them more than I get paid. And then they didn’t realize that their average salary, that they had 40 year pension, they had 30 to $50,000 a year to have a desk. There’s all these other overhead costs. Businesses have costs too. I mean, you’ve got to understand. If a guy’s billing you out at a hundred bucks an hour, it’s because the government’s involved and he’s legit.

Brandon:
It’s true. The guy that’s working for 25 bucks an hour is usually not paying the government anything. He’s pocketing 25 an hour.

Jeff:
That’s not a relationship you want because he won’t be there next year. He’ll be in jail for tax evasion. Or some other reason, he’s in jail.

Brandon:
Living in the woods so he doesn’t get caught.

Jeff:
If you want a relationship with somebody, you could always find somebody to work by the hour. But man, that’s not a good, longterm success formula. Don’t be afraid to spend good money, because the guy who knows what he’s doing and he does good work, you’re going to get that return on investment. I mentioned before, to my members, there’s a great little thing online. It’s called the cost versus value report. What it is, it’s a national newspaper or magazine, but they do this annual report. It basically outlines different costs of different types of renovations and how much return investment that got them when you pay full market price. The irony is that almost everything to do with lots of sweat equity, not the technical trades, but the painters, the tile sets, the window installers, the vinyl siding guys, the fence guys, the deck and crews, they’re all getting 80 cents on the dollar return, right up front.

Jeff:
The painting guys are making you money. You get 5% return on your investment when you paint a house on the value of the property. That’s a great place to start. Holy cow. If you want to get into rehab and you don’t know anything about the business, you don’t want to go buy a century home and turn into a fourplex and learn the hard way. Start with something that’s ugly. That’s not too terrible, and then fix that up, even do a little DIY on it, and then you’ll have some appreciation for how much work it takes to do something right.

Jeff:
Maybe that’s part of it is the appreciation factor.

David:
Well, there’s a hidden cost to trying to save money all the time. And here’s what I’ve learned. If I go with the guy who’s a little more expensive, but I get a good experience I am more likely to do another deal, and ultimately looking back 30 years, the more deals I did, the more money I made, it’s that simple. If I own 30 homes, 30 years later, they’re worth four times what I paid for them. I will not even remember how much money I saved or spent when I had the contractor. I will just know I bought this house for 300 grand, now it’s worth 900 grand, because that’s what happens over a long period of time. If I skimp on the contractor or anywhere in there, and I get a bad experience, what that does is make me not want to buy my next house. That, when you look at the millions of dollars, you’re losing over long periods of time, because I had a bad experience, is so much more expensive than spending an extra five to 10 grand or something to hire the good one. No one thinks about that in the moment, but it is playing such a huge factor in wealth creation.

Jeff:
They see all that as a cost not an investment.

David:
There you go.

Brandon:
I wanted to shift subjects a little bit, I know we got to start wrapping things up pretty soon, but I’m wondering what makes a good investor client? For example, what’s the best working relationship you’ve ever had with an investor? What makes you go, I want to work for that person. I mean, besides they pay you early or on time. What other things make you value somebody? Because in this competitive market, it’s hard to find good contractors. I want to be the best investor I can to them so they come and work for me.

Jeff:
Nice. I like that question. So that every time you hire that same guy, he already knows your system. Expectations have already been established. It’s not reinventing the wheel. He doesn’t have to call you every two hours or wait until the end of the day to have a walkthrough, to get permission to do something else. He knows what you’re looking for.

Jeff:
Consistent work is nice. If you’re in the investor game and you’re constantly doing projects and you want a guy say, Hey, I’d like you to work for me on a regular basis, have that conversation. He might not want to have all of his eggs in your basket. He might want to do every other job. That makes a lot of sense too, from a contractor perspective.

Brandon:
To have different people you mean?

Jeff:
Because what if your life implodes? I always tell people as a contractor, I love the small jobs. Get me in and out of there in one day, make somebody happy. That referral is just as powerful as the one I spent six months on. And it’s only one referral. Two of those big jobs a year leaves you with two people who are talking about you.

Brandon:
That’s a really good point.

Jeff:
We used to like having, come and do my kitchen backsplash. Whip together a deck on the weekend. Because it was just a really quick way to get the word out about who you are and what you’re doing, and those long projects, it’s a nice plan. You’ve got that rehab of a two or three months project. It’s nice steady revenue. Especially at certain times of the year, you want to be indoors instead of outdoors.

David:
But on big projects, your likelihood for something to go wrong, exponentially increases. And that means unhappy people are more likely to come up. I’ve learned this in my business. If someone says, Hey, David sell my house, and it’s in a super hot market, and I go in there and I list it for a million and I sell it for 1.2 million and it took me 10 days. You are thrilled with me. And it took very little of my time. Just my skill. If I go in there and you have a house that a tough neighborhood to sell, that needs to be fully renovated, we can’t buy your next one until we sell this. You try to do it at the same time. You’re super stressed. It takes me four months. You hate me every day for stuff that isn’t my fault. Then we couldn’t get the loan. I did 20 times as much work. And you were one tenth as happy with me. It’s a recipe for disaster.

David:
That’s something I’ve learned. Those ones you can get in and get out quick. You make a happy person. That’s a referral partner for the future. I had a better experience. They had a better experience. The minute that they start throwing all these variables into the equation, I start to go, Oh God, no, there’s no way I’m making it out of this thing unscathed. Something’s going to go wrong. And I’m going to be the one that you’re yelling at. And I look for a way to get out of it. I think that’s a really good point that you mentioned.

Jeff:
It’s easy to have a first date.

David:
Yeah, there you go.

Jeff:
But being married is a different ball game. That’s why a contractor kind of likes to be able to come and go freely. Say, I like that job, I’ll take that one. No, I’m busy right now. He doesn’t want to be married. To another point though, as a contractor, when I go into a job, maybe it’s just because I’ve got such a broad range of experience, I don’t even put in the contract for unforeseens.

David:
What do you mean?

Jeff:
There’s no such thing.

David:
You’re saying you’ve seen it all already.

Jeff:
I’ve seen it all already. I can smell you from a mile away. I know exactly what happened to that house. I know exactly what I’m going to find when I open that up. It never surprises me. It’s always an excuse to charge money.

David:
It’s a big point of contention with the person paying for the job and the contractor who says, well, it’ll be this much unless I find something else. Because how do you know if you want to do it if the budget’s going to double?

Jeff:
What are unforeseens? Structural issues? If you have a structural issue, you can tell by the finish. If you don’t see that walking through, you shouldn’t be in the business messing with people’s structure because you don’t have a clue. You can have mechanical issues. Yeah, okay. I know the house has got 1970 decor. Poorly done. Boom. The guy did his own electrical. There’s hidden boxes everywhere. Big surprise. Throw it in the quote.

David:
Yeah. And then if you don’t have to do the work, maybe you take something off and the person’s thrilled. You came in under budget.

Jeff:
And as a contractor, if I’m surprised that it’s not as bad as I thought, and I go back to the guy and I say, listen, we’re going to take this off the bill at the end of the job because it never happened. I had contingencies that are already built in. It’s a lot easier. But that’s relationship.

David:
That’s such a better business model though. Because I look at what other business gets away with that? When I sell your house, do I get to say, you know what? The offers that came in, fell out of contract, it took me more time, the commission’s actually going to be 9%, not 6%. Or you go to a restaurant and, well, your steak’s going to be 50 bucks unless you make me fill up your water this many times, in which case it’s going to be $85 or something. No other industry gets away with it, but contractors go in there and they say, here’s my best case scenario. This is what you’re paying because it sounds really good, and you’ll do the job, and then once you’re hooked, I’m going to start adding stuff on, like you just said, Jeff. I’m so glad that you mentioned that there’s a better way to do it than that.

Jeff:
I had an experience with the company I was doing subcontract work for them years ago. They did a simple contract for bathroom in an unfinished basement. We get down there. We’re looking at the job. No problem. There’s nothing on the walls. That’s just skin back to concrete. I got plumbing line, got all the space I need. Looks like a dream.

Jeff:
I look at the plans and they hadn’t made an allowance for moving the plumbing off the wall so we could insulate in behind. In winter climate, if you don’t do that, your pipes burst because you now isolated the water in the copper where the freezing point is. It’s standard practice. It’s like you’re buying a car. You get four tires, not three. It’s that obvious. I call up the project manager from the company. He comes over and he has a conversation with the homeowner, we’ve got an unforeseen. I got to call the plumber in to move this copper line. What the hell do you mean unforeseen? It’s right there on the wall. Staring you in the face. Why wasn’t this addressed earlier? Next thing you know, 10 seconds later, this guy’s writing a $400 check to move a copper line. So when the plumber came in to do his job, he added 35 seconds to put on a fitting and an extension to the plumbing work he was going to do for the bathroom anyway. And the company was up 400 bucks the hell. What the hell is that? That’s just being a crook.

David:
But if you don’t know a contractor’s job as the person paying them to do it, you don’t know that that wasn’t unfair. I think that’s the problem. That’s why we’re telling people, understand what contractors do. Listen to Jeff on YouTube. Listen to this podcast because-

Jeff:
And here we are. We’re in the age of information. If you don’t know and you get taken, it’s because you chose not to invest your time to know.

David:
I love that.

Jeff:
No more excuses.

David:
There’s a story in the Bible about the queen of the South or Sheeba maybe was her name, traveling hundreds and hundreds or maybe thousands of miles to listen to Solomon talk because he was the wisest man that ever lived. And I can do that now in three seconds to open YouTube and go listen to someone who’s one of the smartest people that exist.

Jeff:
[inaudible 01:14:10].

David:
Here, we got to call our friend and say, Hey, what do you think we should do here? But we haven’t made any effort to learn it at all. It’s kind of amazing how much access we have in the palm of our hands and our phones and we won’t take an hour a day to listen to people talk, to educate ourselves.

Jeff:
That’s the fascinating part. If you’re in the business of being a professional athlete and you never train. Good luck with that.

David:
That’s such a good example, Jeff, because they watch hours and hours of film. They go do their job and then they go watch film and see, how could I do it better? As real estate investors, why would we not do the same? Why would I not talk to people that are going to be helping me to accomplish my goal? Whether they’re contractors or handymen or appraisers or property managers, or study the data. BiggerPockets now has a service called BP Insights where they go collect all the information on different markets and they share it. They say, here’s the trends that we see. Here’s what the data shows for where you should be investing. And people won’t even look at it.

Jeff:
Which is amazing, because the numbers don’t lie. When you compile information like that, and you’re not just talking to one real estate agent or just one market, the guy down the street. When you do comparables for trying to figure out your investment, how much should I put into rehab? Well, comparables exist. Don’t ask the contractor. The contractor is not [crosstalk 01:15:32]. If you say, Hey contractor, I want to get this fourplex. Let’s walk through this. The comparables are this one over here. This is what it looks like. Can you make this one look like that one for X number of dollars? I’ll give you an honest answer.

David:
But not which one of these comparables should I use.

Jeff:
But nobody ever wants to do that. They want to hold that card close to their chest and say, I can make 150 grand here, and I want him to do it for 60. And the 30,000 in you only got $10,000 of production [inaudible 01:16:00] gone. He’s off and on the rail somewhere. And now you’re starting from scratch with another contractor. That guy comes in and says, he didn’t’ know what he’s doing, I got to start from scratch. And what are you going to say to him? Because every contractor I know will say the same thing. No, I’m peeling it back, I’m starting over because I can’t trust what he did.

David:
That’s true.

Jeff:
So now you’re doing it twice.

David:
Don’t ask the dishwasher if you should get the rib eye or the filet mignon.

Jeff:
That’s another good piece of tip. If you’re getting your work done and you’re not on a permit, that’s exactly where you are. Starting from scratch every time you need another contractor. If you’re on a permit, then the permit officer comes in and says, yes, your structure is approved. Yes, your insulation’s approved. Yes, the wiring’s approved. Then you can get a contractor. And he says, I’ve got to start from the beginning. And you can say, well, that’s a load of crap because all of that’s approved. Just start from [inaudible 01:16:47]

Brandon:
That’s so true. Hey Jeff, before we go, two more quick questions for you that I have anyway. First of all, this is a quick one. Would you partner with a flipper? As a contractor would you partner with a flipper on a profit share instead of making money as a contractor? Is that something that we should be as flippers should be approaching contractors? Hey man, let’s just split it 50 50, but you do all the work and you’ll make more at the end of the day. Or is that a bad idea to align incentive like that?

Jeff:
Wow.

David:
Jeff, is part of what you’re trying to figure out, would a contractor have the capacity to run the numbers, to know if the deal makes sense because they just don’t think that way.

Jeff:
Are you appealing to the greedy side of the human nature? I guess the question is as a real estate investor, are you concerned that he’s just going to run the numbers up and I’m not going to get any money back anyway? So are you trying to protect yourself?

David:
I think what Brandon is thinking is, how do you get the contractor’s interest to align with yours so that they do a better job. That’s I think what he’s-

Brandon:
I’ve never done it, but I know I’m always tempted to split it with the contractor somehow. So they get it done faster and do it cheaper. They find a way to make it better because they are incentivized. The more money I make, the more money they make. But at the same time, I also know that they’re not in the business of that, and so I don’t want to… I’m not sure if it’s…

Jeff:
That’s so much like a marriage it’s not even funny. Because now he’s going to judge every time you do something he doesn’t like.

Brandon:
Yeah. Because it takes away from his pocket.

Jeff:
You’re going to get under each other’s skin. He’s going to go to a doctor’s appointment on Tuesday morning and you’re going to be like, where the hell are you?

Brandon:
You costed us money.

Jeff:
That sounds great. That sounds great. I want to see that invoice at the end. I noticed this and this and this. Listen, if you want to flip a house, that’s a different beast. That’s not investing. For me, it’s a different world because I don’t find enough integrity in flipping.

Brandon:
How so?

Jeff:
[inaudible 01:18:41] building anything.

David:
Oh you mean that they’ll cut corners when they know they’re flipping it.

Jeff:
It’s easy to make something look sexy. You can dress up any pig and put lipstick on, and a dress and have it ready for the dance. I’m doing an 1880 farmhouse right now on my YouTube channel. Half the work we’ve done in there, no one’s ever going to see. Because it was necessary to make sure that that house was going to last another a hundred years, not just 20. And no one’s going to understand that. And so, because I put all that work in and I’m going really nice on the finishing. I’m making sure that I’m bringing the value of that property up to the point where I can sell it and get the return for all the hard work. I find the flipper mentality is, I want top dollar, but I don’t want the hard work. Does that make any sense?

David:
It makes perfect.

Jeff:
It’s just a scary place. It takes a lot of integrity to do flipping well.

Brandon:
I have some friends that bought a property in Tacoma, Washington, I don’t know, 10 years ago. It was a flip. So they bought this flip from somebody and immediately, within the first two weeks, like water started coming in the basement and they started… That was the worst of it. But there was problem after problem after problem because all it was, was lipstick on a pig. And so this is encouragement for everyone who’s out there flipping houses right now. You are not just making money. The house that you’re fixing up is the house that some kid is going to live in, and that some young family is going to raise their family. It’s real people. It takes a legitimate amount of integrity to flip houses well, and not just do the quick lipstick that they have to deal with the rest, because they were never going to find it in inspection. They’re never going to find it before they buy it.

Jeff:
It’s so tough because I think everybody in this business, on every side of each fence has got an opinion about the other side of the fence.

David:
There you go.

Jeff:
And what’s wrong with their part of the business. I’m not a big champion of flippers because my experience has been poor. I know that if I was to flip a house, I could buy a house and flip it and I could do a spectacular job and make a ton of money, but that’s because it would be me buying it and flipping it, and I know exactly which one to buy, because I know how to get to the end from the beginning. I don’t have to do things twice. I’m not changing my mind halfway through. I’m not doing the traditional TV show and creating drama for myself.

Jeff:
In creating drama for myself. I mean, flipping a house should be pretty much limited to remodeling. Don’t change your mechanical systems. Don’t get into behind the walls, and if you can take something ugly that’s been treated poorly, especially if the outside of the house needs to be rehabbed, that’s brilliant because outside of the house is where a lot of your return investment is anyway, and it’s where it takes the least amount of skill. 10 gallons of paint and a rental paint sprayer, you’re good-

Brandon:
With the buyers I work with in the Bay area and Sacramento, they will almost, 80% of them will skew towards the beautiful house, amazing pictures, the same four freaking houses that everybody else in the Bay area wants to buy that are listed for 800 and are going to sell for a million because everyone goes there, and it feels-

Jeff:
That’s a tight market.

Brandon:
Half of my job is convincing people, it’s okay to look at the houses that are ugly, and these are people, mind you, that are coming with a quarter million dollars and they don’t need it all as a down payment. They have plenty of money to rehab a house, but it’s just so hard to convince them. You’re so much better to buy this house at a better price and then fix it up after you buy it, take a month, maybe 45 days to get it remodeled like what you just said. You know the work that was done, you pinned the materials that you wanted. There’s just something about human nature that loves the whole, I don’t have to do anything.

Brandon:
I can just move right in, but your point is really good, Jeff. That’s not necessarily true. You don’t know what you’re moving into. You move in and then you see the leaks that start to show up six to 12 months later that weren’t there originally. You see where there’s actually mold and mildew because like you mentioned, they put the shower in wrong or there was a problem with the basement. You just don’t know what you’re buying when you buy a house that somebody else has already fixed up.

Jeff:
No, that’s true, and we have a unique opportunity in the renovation market now because our mechanical systems have been pretty consistently standard since 1980, without thinking about it. Your power supply, anything after 1980, it’s going to be copper wiring. It’s going to have a ground. Okay. Problem solved. We don’t have to worry about the aluminum or a non grounded wire. Your plumbing and drain system, it’s going to be made out of a material that’s not degrading, whether it’s copper, ABS or CPVC. If you don’t get into tearing that out and starting over and moving it, it’s going to produce for you. It’s going to be solid.

Jeff:
The structure, we’ve had a huge advancement in the building code as far as structural awareness, and thermal systems and all that sort of thing. 1980’s a nice line. If you can buy between ’80 and ’85, 1990 even, you’re 30 to 40 years old, right? These things are ugly because they’re old, not because they’re broken, and so you really have the ability to go grab something like that and give it that facelift, and then now you’re not a flipper that’s renovated. You’re just making it what it could have been all along. Every house needs updates. So you buy one of those. You don’t even need a building permit. You can put in a brand new kitchen as long as you don’t move the sink.

Brandon:
Yeah. I love that you said 1980 because in my head, I’ve always kind of had the 1978 as a line, and partially because of the whole lead based paint thing, but it’s more of an arbitrary date. So ’78, that range. Older than that, I’m going to have more repairs and maintenance, more cap backs, and it gets worse as you go older. Newer than that, I’m just going to get better and better generally, and so yeah.

Jeff:
There are some great houses in 1978 too that had that really long linear stone multicolored look, and you spray paint that gray and trim out a hose.

Brandon:
A hundred percent good.

Jeff:
Man, I’ll tell you that looks freaking amazing. That looks like brand new ledge.

Brandon:
Yeah, I totally agree.

Jeff:
That’s a good look.

Brandon:
Yeah. I’m going to change the name on my social media accounts or my tagline too. I’m ugly because I’m old, not because I’m broken. I just need a facelift. I love that line because that’s about how old I am. I was born in the eighties. I’m ugly because I’m old, not because I’m broken.

Jeff:
I was born in ’70. I still got all the toxicity.

Brandon:
Jeff, do you think we’re going to look back 40 years from now at all these gray houses that we’ve made and people are going to wonder why we were so depressed, like how we look at the green shag carpet.

Jeff:
It’s not going to take that long.

Brandon:
20 years later, we’re going to say what’s your obsession with everything gray?

Jeff:
I’m going to tell you. I’m going to tell you right now, and here’s the weird thing. We’re building two neighborhoods and up the street from where I live. On the left hand side of the road, they’re doing all brand new thermal systems, zip wall, insulation exterior down the foundation, top of the line. It looks exactly like the house on the other side of the street that has none of that, and they’re all just these dark boxes, and so there’s a whole neighborhood that’s overpaid for their products, and they’re going to find out on resale that they don’t have as nice a house as they think, but all the dark, I think it’s just about, we like change. There’s always, the next generation wants something different than the last. So we’re going to end up changing that again and sooner or later, well here we are falling in love with pink toilets and blueberry sinks all over again.

Brandon:
That’s funny.

Jeff:
God help us all, but if you’ve got those old things, just to get them painted, like I said. Don’t change them.

Brandon:
Reglaze the bathtub.

Jeff:
Reglaze, and the secret with owning a house is if you have products on the exterior that can be painted, you are always able to change and be with the times. So when you’re out there shopping, vinyl siding is your enemy, you can’t paint that, but if you see an old house from late seventies with aluminum siding on it, dear God, you can modernize that in about an hour and a half. Same thing with stone brick.

Brandon:
I said I had two more questions for you, and then I gave you one, but now I actually have two more and we can just do this all day.

Jeff:
I’m not in a hurry so you can go as long as you like.

Brandon:
Okay good. All right. Here’s the question. The one that came to me was I want to ask you about how to find contractors and I’ll do in a second here. How to find a good one, but first, I want to know what are those things that you would recommend somebody who wants to be more handy, somebody like you or I? David doesn’t like to be as handy, right David? I’m not making fun of you. You literally would rather hire people.

David:
It’s a different part of the business curve. When you’re getting started with it, maybe you want to-

Brandon:
And I like that.

David:
Maybe you’ve got time and you want to learn and get dirty. Yeah.

Brandon:
What should they focus on? What are those things that you think are easier than most people expect or at least worth learning versus what are those things people should just, yeah, just go ahead and hire that out? It’s just best to have somebody who’s, he can do that. What are the newbie DIY things that people can take on?

Jeff:
Okay. So number one is learn how to pain, and if you learn how to paint, and you can watch our videos. I got a great teaching video for that. It’s not the fastest system in the world, but it’s the cleanest and it’ll get you a great result as a newbie. If you learn how to paint, you can finish any job. You can take care of transitioning from a unit who hasn’t taken care of it to the next unit without worrying about hiring contractors and the timeline. Gives you a lot of peace of mind. Anyone who knows how to finish a job can then take that experience to start contracting up until where they can take over if they want to. So if you learn how to paint and then you learn how to install flooring, now you need a contractor up to a certain point, you can take over and finish, and it’s an incredible amount of freedom to know that.

Jeff:
When I was in contracting, I didn’t bid on a job that I didn’t know how to do myself in case the people that worked for me quit or went to do something else. I didn’t want to be stuck in a place where I needed to hire somebody. I didn’t know what was going on. For DIY-ers, it’s the same thing. You don’t want to know. You don’t want to go like, ah, I’m going to be the electrician. Let’s pick on these guys for a minute. There’s a lot of skilled trades out there that want to be in the rental market. They want to be investors and they want to hire a contracting crew, and then they say, okay, now get out of the way because I’m going to come do the electrical.

Jeff:
Problem is for him, it’s a hobby, and maybe he doesn’t show up on the right day. Maybe he waits a couple more days and now the contract crew is mad because they’re being delayed. So if you’re going to get involved with the DIY aspect of this stuff, start at the end of the job and work your way backwards so that at least you can finish with your contractor, have a good experience, and then take over.

Brandon:
Great point. As a piece on that, one thing I used to do a lot is I would have the electrician come through and do the electrical work and then I would trim it out afterwards, and they always happen to have me do that because I feel like they always hated doing the outlet plate covers, but I could put my wife, my wife and I would just sit there and just put outlet plate covers on all day long, and some of the things that are real, I don’t need to pay a hundred dollars an hour to screw a plastic cover onto a light switch, and so that’s one way that we saved a lot of money is we would do all of that work at the end.

Jeff:
Right, [inaudible 01:29:52] our electrical inspection agency, they want to come through at the end and make sure all those plates are there, and if they aren’t, you get a deficiency. Well, now the electrician’s actually got a reason to come back and make sure. So our electricians wouldn’t do that, but if you had a relationship, maybe they’d let you do that as long as you had little, you could show them a picture or something.

Brandon:
Mine would always let me do that. Yeah, great. They hated doing that part. They would rather go on-

Jeff:
Nobody wants to come back. What they would do is they would come in and put the plates on and then they’d call for a final, whether you’re done painting or not, and then you’ve got to take them off and then put them back on again. Doesn’t make any sense.

Brandon:
Yeah. They’d rather just be done with it. So anything else you can think of? I know, for example, I don’t know if you agree. You probably don’t agree with maybe because you are a tile guy. I actually enjoy doing tile. I enjoy learning to do tile because tile guys were so rare and expensive 10 years ago, especially that I learned to just do tile and I wasn’t amazing at it, but I could tile a shower in an afternoon or in a day and I would save myself 800 bucks, and that was a good thing for me to learn. I don’t know what your thoughts are on that, but I liked that one.

Jeff:
Well, you know what? If you learn how to cut the tile, then you’re fine. If you don’t know how to cut tile, then you shouldn’t be installing it. Lots of people just don’t take the time to invest and learn how to do it properly and so they ended up making a huge mess, but tile is something. If you’re proficient at installing tile, not only are you saving time, but you can get creative. You can make a space look absolutely brilliant. It’s your own time that you’re investing, then you can go into your material price point. I start having a little bit of fun, but yeah. Tile is one of those things that even if you do poorly, it can still perform well. It’s the assembly that’s the trick. As long as it’s clean and dry, you’re in good shape. You don’t have to have a whole lot of skill. If you’re not sure or you’re unskilled, buy a better quality stone so it doesn’t break so easy and you’re good to go.

Brandon:
Yeah. Yeah. Cheap tiles.

David:
There’s a high margin of error when it comes to tile. This is why it’s a good place for people to get started.

Jeff:
That’s it. If you’re good at tile, you can put in ceramic and it’ll never crack. If you’re not good at tile, you better put in something like a really good rectified porcelain, or you’re going to run into trouble.

Brandon:
Good stuff, man. I always like tile, probably the reason I like it the most is because it was creative. You could actually have fun with it. It felt like an art project. I almost forgot I was working and I was just working on a cool art project in my house or some rental and I’m like, Oh yeah, that’s right. This is actually work, and it’s hard work. I get all crusty, mortar all over my hands, but it was enjoyable.

Jeff:
Well, I’ll tell you. The title industry, just so you get an idea, when we were doing new house tile job, we’d get our paperwork Tuesday at noon, drive across town to where the suppliers were loaded up from two different suppliers for a new house, drive across the other side of town again, back where the development was, usually about three or four o’clock by the time we get there. We’re only allowed to work until seven o’clock at night and on Thursday at seven o’clock at night, we needed to have three bathrooms, two front halls, plus the kitchen, the kitchen back splash, and it all had to be done. It was seven different tile, three different accents. That all had to be installed, finished, grouted, cleaned up and out of there because on Friday, the Hartford refinishing guys are coming in to stain the floor. So I had a two day workweek.

Brandon:
Awesome.

Jeff:
And we installed that stuff so fast. If anybody who wants to know why new home construction is a little sketchy with the tile it’s because, well, that’s the parameters they give the tile guy.

Brandon:
All right man. Last question from me for the day. How do you find a good contractor? It’s probably the number one question I get from new investors, or at least up there with how do you invest with no money and how do you find a good deal? It’s like, how do you find a good contractor that’s not going to rip you off, that does go to work, that isn’t going to disappear because the surf is so good and they run away to go surf? How do you find the good contractors?

Jeff:
I mean, it’s easy to find a contractor. A good one is the question. So it’s one that, and it’s different for everybody. Are you looking for someone who’s fast or cheap or amazing that’s talented at his project, and so you’ve got to discern that for yourself because you can’t get highest quality for the lowest price that’s super fast. You can’t get that mix, and I think unfortunately, a lot of people are disillusioned. Their expectation is I’m going to find a guy who’s so happy to have work. He’s going to almost do it for free. He’s going to be a great grandson of Picasso, and on top of that, he’s going to do it so fast. He’s going to be like HGTV. I’m going to drop him off, come back after getting coffee, and the job’s going to be done and if that’s your mentality, then the answer is, you’ll never find one. Your expectations are out of whack. So you got to decide, do you want somebody who’s fast, somebody who’s good, or somebody who’s cheap?

David:
I tell people, those are the three things you’re looking for. Pick two because the minute that they get the third one, they’re now too expensive for you to be able to say you’re cheap if they’re fast and they’re good. If they’re cheap and they’re fast, they’re going to get good because they’re all doing all this.

Jeff:
Well, if they’re cheap and they’re fast, the quality is probably down the toilet.

David:
Until they’ve done it enough times that their quality gets good, in which case, they would then be more expensive because they have good quality.

Jeff:
And this is where referrals come in because you can be cheap and fast and have average mediocre quality and have great referrals because you’ve lined up with people looking for that, but now if you say to your friend, Hey, you got a referral, check to see if your friend has the same expectations as you on the job because if you don’t want cheap and fast and your friend was happy with cheap and fast, you could be really disappointed.

Brandon:
Ask the question, why were they a good contractor, and they’d be like, Oh, they were amazing because they were so fast. I mean, the quality was pretty rough, but we needed that job done on a Thursday. It was done on a Wednesday. I mean, it got done a day early. He was awesome. I just, my tile cracked next week.

Jeff:
Listen. I did a job at a retirement home. They had a fire. One of the members that living there have serious issue with being displaced from her unit. Okay. They took her out of the unit. They came to me and they said, we need to move her back in tomorrow. They asked me to have it done in 12 hours so by tomorrow at noon basically, and I said, sure, I’ll have it done, and I worked all night and I had the unit put back together and she moved back in. Now I told them, I said, after this person is using that, when you’re finished and you’re ready for a new occupant, tear everything I did apart and fix it because I put lipstick on that pig. It wasn’t a good quality build, but it got her back on the unit, which was the goal.

Jeff:
So that’s just an example of how meeting a different expectation can be done. So that’s really the key. Now I tell my people, if you’re looking for a contractor, manage that expectation first and then go visit them onsite. Talk to the current client, and then just before they start your job, they should be done that other job. Go talk to that client again. Make sure it finished just as good as it was going when you visited the first time because you’d rather find out you got a dud the day before they start then after a week or two.

Brandon:
Great point.

Jeff:
That’s really all there is to it, and there’s the couple of simple rules. If a guy’s available tomorrow, there’s a reason for that. So if you’re running your life at max speed and you just got this unit, you’re going to flip it around and you want to get a contractor in there next week, be careful for the guys who are available for next week, especially in today’s economy. Oh, you don’t want to be that guy.

Brandon:
I wish I would have heard you say that 15 years ago.

Jeff:
You really want to start lining this stuff in advance.

Brandon:
If I would have heard that 15 years ago, my life would be very different today with contractors.

Jeff:
You wouldn’t have had that first experience.

Brandon:
Yeah, I wouldn’t have had a lot of those.

Jeff:
Yeah, yeah. But everything’s seasonal. It’s all ebb and flow. So it’s not 2010 anymore. Now it’s 2020. I have no idea what advice I’ll be giving in five years and maybe it’ll be different, but for right now, if you want a contractor, manage your own expectations and then expect them to be wanting to do a good job for you. Don’t be looking for a problem. There’s enough times that problems will happen in life. If you manage your own expectation and you’re willing to treat them fairly, you’re probably going to be just fine.

Brandon:
Yeah, good stuff. All right man. Well, this has been really, really good. Normally we end our shows with a section we call our famous four. We’re going to do kind of an abbreviated version of it here for Jeff since Jeff, you’re not necessarily, we’re not talking about real estate investing today specifically. So maybe we can skip the first question and just jump to the second. Is there a business book, whatever, but before I ask you that question, I will ask in a second, let’s hear what’s going on this week around the BiggerPockets podcast network.

Ashley:
Hey, it’s Ashley from the real estate rookie, and last week we had Marsay on the show. He is an engineer and pastor, and he’s made time to build a rental portfolio of 24 units. He’s put systems in place and talks about working on his business and not in his business. So makes you go back and listen to last week’s episode.

Brandon:
All right. And with that, any business book or entrepreneurship book or even a construction book that you recommend people get? Just any book recommendations on your shelf?

Jeff:
I don’t even read books.

Brandon:
How about this? Any YouTube channels you recommend other than your own?

Jeff:
Yeah. You know what? I do actually have a YouTube channel to recommend. I’m going to shout it out to Matt Risinger. I don’t know if you guys have ever seen him before. He’s a contractor out of Texas and he does everything best practice. So he’s kind of the other end of the spectrum from what I do. I’m a very practical, how to get it done without spending a fortune, and he’s on the other side of the spectrum. So having both of those experiences in your arsenal is a great way to learn because then you’ll know exactly how much money you could’ve spent and what a different marketplace is expecting from your performance. It’s just a really good both ends of the scale.

Brandon:
All right, David, do you have any final questions on the famous four, maybe the last two?

David:
Yeah. What are some of your hobbies when you’re not fixing up houses and making videos?

Jeff:
Right now, I have nothing. I like to eat. Yeah. I love to travel. So right now I have nothing.

David:
Yeah, now you can’t do either.

Jeff:
Yeah. I mean, I used to come home from contracting and then work on my own house. I’m an exciting guy, but I love to travel. My wife and I have been married 31 years now and we just like getting out and about.

Brandon:
That’s very cool.

Jeff:
Yeah. So it’s been a little bit crazy lately.

Brandon:
I hear you. All right. Last question of the day. Very last question of the day. I think I said that earlier, but last question from me anyway. What do you think separates all those people out there who are trying to do a rehab who succeed, get it on time, on budget, from those who fail, they give up, they never get started. They don’t even do a rehab because they’re so afraid of… What separates people who are successful when it comes to rehabs?

Jeff:
Okay. I think I know. Yeah. Common sense in our business is knowledge mixed with experience. Now, if you don’t have the right information and the right experience, you’re not going to have good common sense and you’ll fail because the most obvious mistake that you’re going to make isn’t going to be obvious to you. I always tell people, they ask me all the time, I want to get into business. How do I do that? I say, well, go work for somebody, and until you’re a lead hand for a couple of years, don’t even think about running your own show. You want to get into real estate investment, maybe go work with somebody and learn the business first. It’s not a book.

David:
That’s really good advice for so many different trades.

Jeff:
So many things.

David:
Right? Real estate agents, I get everyone that says, Hey David, how do I learn how to be an agent, and I just think that the amount of time it would take you to try to teach you that, you just need to go work for somebody for free who knows how to do it, or learn a trade or learn the business.

Jeff:
Anybody who’s ever been successful in life had a mentor and a discussion. I mean, for me, the greatest teacher I ever had was also the biggest jerk I ever worked for, but man, he knew his business and you learned, but if you don’t have that experience of someone that you can kind of glean from, then you’re going to have to learn everything the hard way. I mean, I tell people, our YouTube channel, we make videos showing DIY. I tell everybody on our YouTube channel that every time they watch a video, it’s like watching a few minute lecture of a topic of a course of a degree in your educational life, and you can’t just say, Oh, I learned something and go out and be a professional. It’s just too much to learn. So it’s best to glean, best to watch somebody who does it right before you try to learn how to make all your mistakes first.

David:
Yeah. That’s great, and don’t just say, can you be my mentor, teach me everything that you know. The people that I’ve noticed that got into Brandon’s world, [crosstalk 00:21:50]. Ryan flew to Hawaii and said, Brandon, I will take over running the stuff that you’re doing that you don’t like doing. Mike has showed up and said, Hey, I’m going to run your books for you and I’m going to handle all the detailed stuff that you don’t like. Those people work their way into a mentorship with Brandon, and they’re going to be making a lot of money in the future because they get to be around him all the time. That’s a much better method than just say, Hey, can you be my mentor is kind of saying, can you coach me without me paying you? That’s what that turns into. Figure out a way to work with them.

Jeff:
Mentorship should be you bring something to the table and you improve somebody’s life and then they’ll, in turn, pour into you.

David:
That’s exactly right.

Jeff:
Don’t just show up and be a leech.

David:
Yeah. Yeah. Great way to put it. In our business, we’re always training guys to be our competition, but that’s a good thing because the more guys that are out there and know how to do it, right, the more value we have.

Brandon:
Well, this has been an awesome discussion, and I think that a lot of us learned a lot about the whole world of rehab and contracting. For people that want to learn more or find out more about you, where can they find you?

Jeff:
We’re on YouTube. It’s pretty simple. You go Home RenoVision DIY. We got a lot of videos out there, product videos, specific skill trades, experience. I try to pour in as much as I can and we’re happy to help. That’s what we’re doing. We’re acting like a consumer advocate so we’re not in the business of taking money from people to make videos for them. So it’s a lot more fun, and if you need help with your own individual project, we have a membership program as well, and you can jump into that and we’ll give you an email and you can correspond and we can hopefully help you with some of that learning curve specific to your project.

Brandon:
Awesome. Well, thank you so much, Jeff. This has been fantastic. I really, really enjoyed learning from you today, and of course, everyone go check out his YouTube channel again. That’s RenoVision DIY. We’ll put that in the show notes at biggerpockets.com/show399 so you can check it out. Jeff, have a fantastic day.

Jeff:
Thanks for having me guys. It’s been a blast. Hopefully, we’re going to get a chance to do this again sometime.

Brandon:
Yeah, look forward to it.

David:
Thank you very much. This is David Green for Brandon drop it like a ceiling Turner signing off.

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