aligning incentives- How to structure a flip team

[Brett K.]

I don't have a handyman bone in my body and I have no interest in learning that side of the business.

I've found a great contractor and I'm trying to figure out how to align our interests for future projects.

He bid this job and I can tell he's knocking himself out keep costs down and do a terrific job. I want to keep him around and keep him happy. I prefer to work out a relationship where his interests are aligned with mine... that is keeping costs down, creating value, and maximizing my resale profits.

As it is, even a good GC (honest, talented, etc.) has to worry about his own profit incentive first.... then the property owner's .

I put this guy in business by loaning him the start up money. He does great work and knows how to think on his feet. Should I bring him in-house, that is make him an employee and pay him hourly/salary and give him a bonus when the property sells, or is there a good way to arrange a relationship with a GC to keep my profits in mind too?

Thanks
BK

[Michael Galloway]

Brett Kennedy,

This is a great question with no BEST answer. It's going to come down to preference.

We all go through this at some point in our careers. WE WANT TO KEEP GOOD, DEPENDABLE PEOPLE(WORKERS) IN OUR COMPANIES, at affordable prices. Let's lock'em up with the employment handcuffs. It's capitalistic and it is critical in the fix and flip business.

You could go the route of full employment but here in California you would have to pay the price for workers comp, ss, disability inusurance, unemployment insurance taxes, not to mention all the paper work and reporting the ss4, w4, ein, w2s, employee benefits, background checks, liability blah,blah,blah blah blah.

With that said, the old adage "a penny saved is a penny earned" you need to keep your business "lean and mean"

Here is what i do, and hopefully shed some insight on your challenge.

1) When i find someone who is really good at their trait, and at a decent price, i try to keep them as busy as possible. (i don't want them working anywhere else) But you can not stop them... if they are so busy with you, then they have little time for side jobs. In fact when projects get really slow or i have a permit issue etc. I might even have them come work at my own house just to keep them busy ;)

2) i have them bid the job. I do not pay by the hour, (too many people drag their feet and stretch out the project.) The incentive is that if they finish the job sooner the labor per hour goes up. THIS IS THE ONLY INCENTIVE I USE. I used to give bonuses when projects were backed up, but that seemed to work out to the same effect.

3) Always have a second crew bid the job as well to keep your main guy honest. And if they come in less and the quality is good. Ask your main guy to match the price.

3) GET a HOME DEPOT or LOWE'S PRO Card. All purchases are to be made with this card. When your worker is checking out you can have the card set up where HOME DEPOT has to call you before they charge. I even have them FAX me the receipt immediately.

Now that you have your Labor and Your materials under control. You need to continue to do what you do best ... find another deal.

Last but not least NEVER EVER give them a percentage of your profits! If you open this door, there is no going back, and they will never settle for less.

my $.02