Slow Contractors | How to Frame Deal?

Question

Hey everyone,

My wife and I are looking to rent out our current SFH in Baltimore, and we want to move to another house nearby to BRRRR and do the same. I have an off market lead I got through networking on my block, and I was wondering if I could have some advice on how to land the deal and have both parties win.

The house was inherited from the parents of a family who own a remodeling business. They gutted it to flip, and over the past year I've only seen them a handful of times doing work to it because they said they didn't have time.

They said that they are looking to finish the flip and sell this summer (I don't think this is true given how long they've left it vacant so far), but they said that we could essentially sign a contract to buy, allowing us to choose finishes, cabinets, etc. Essentially, it would be like signing on to a new construction. The ARV and price they would want to sell it for us $300,000, which would be a good deal for this part of the city, but I wouldn't have enough equity in it to BRRRR.

I want to expedite the process if I can, and I would love to have equity in the deal so that we can BRRRR it and expand. How would you go about this to get a deal in place and start moving forward?

Thanks for reading!Brady

Corby Goade · Answer

Sounds like an interesting deal! I've had success cutting the contractor in on the profits- you can do that in many ways, but for example- they get a bonus for finishing on time and they get less for dragging it out- say $50 per day past the original completion date. Another option is potentially having them be your partner on the deal- they front the labor and materials and they get a % of the net profits based on either sale price or appraisal. That second method is definitely more advanced and you might wait until you have a great working relationship with a contractor, but it can be a great way to fund rehabs and motivate your GC.

Best of luck!

Cole Bennett · Answer

I agree with Corby. In the construction industry it is not unusual to write a contract with a penalty for failing to complete the project by a certain date. Corby's method turns that around into motivation rather than punishment, which could work better. Either way, it's always tricky nailing down what exactly "complete" means, so you should be as specific as possible.

Slow Contractors | How to Frame Deal?

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