Ordering of finding a contractor vs making offers?

[Reece Teramoto]

I've read David's great book on long distance real estate investing, but there was a catch-22 that I couldn't quite figure out. It comes down to finding a contractor vs making an offer on a property.

Here are two of takeaways from David's book:

1. To find a good contractor, start off with a couple of them, have them each submit an itemized list of rehab line items for your property
2. A good rule-of-thumb for analyzing properties (with the BRRRR method) is the following formula: (Purchase Price + Rehab Costs) * 0.75 < ARV

How does one go about doing both? It seems that in order to make an offer on a property, you'll already need to know the rehab costs, meaning you've already settled on a contractor. In order to have multiple contractors submit an itemized rehab list, you'll already need to have secured the property. If either of these statements are incorrect, please let me know. 

So for someone just starting off with long distance real estate investing, it seems like the best option would be to find a property that seems like it could be BRRRR'd, have multiple contractors do a walk-through and give you an itemized rehab list, then based on the their costs, figure out what can be offered for the property for the numbers to make sense. However, if you have a list of contractors, it seems like this process might take a while (or maybe you can have all contractors visit on the same day and submit itemized bids--please let me know if this has been the case for you!).

After all contractors get back to you with their bids, I envision one of the following scenarios happening:

1. It's taken too long and the seller of the property has chosen another offer. 
2. You've determined that the rehab costs will be too high and it doesn't make sense to purchase this property unless you make a much lower offer that might not be accepted.

In both of those scenarios, would I would risk severing ties since in both of the scenarios, I'd have to find another property and repeat the process with all contractors? Or are contractors used to putting in bids and then having the investor not close on the property, but then asking them to submit a bid for another property? 

I mainly want to make sure I can find a good contractor but still be respectful of everyone's time. If anyone could provide guidance on the ordering of how one can go about finding a contractor but also putting an offer on a property, please let me know! Any advice would be greatly appreciated! 

[Aaron W.]

@Reece Teramoto When it comes to building a team, the million dollar question is in what order do you build the team.

To answer your question about the contractor, we typically make an offer based upon estimated rehab and capital expenditures on a property based upon an initial walkthrough by our agent or property manager. After we go under contract, we hire the best home inspector we can to walk the property and thoroughly document the condition of the property. It is during the inspection that we may hire a contractor to walk the property with the inspector that way the contractor can also see the issues as they are being discovered. From there, I can come up with a scope of work and go back to re-negotiate the price or ask for concessions.

Many sellers won't allow you to walk the property without a signed contract. We always ensure we have an inspection contingency in place that gives us an out if we feel the rehab is going to be too extensive for our liking.

Good luck!