Contractor Advice

[Jeremy Scott]

Hello,

I am finished with my first rehab and the home is now under contract. Thankfully, we will make some profit but I have learned something about contractors: they always OVERpromise, and they UNDERdeliver.

In our specific case, we selected our general contractor after various quotes and interviews. We were sold on the fact that he prides himself in doing the job "under budget" and within 6 weeks or less. To total the time, the rehab took him 4 months. He was doing 6 projects at one time and it was apparent he could not handle the situation. On top of that, he said our house cost him $4,000 more than what he originally anticipated, which was over 20% of our contract price. We ended up halving that and forked over an additional $2,000. I understand if things unforseen come about, but he had his own guys check the plumbing and electricity and said his number was on the high side to be safe, and he was confident he could come in less.

To be fair, his craftmanship was excellent and the finished product has been pleasing. My question to anyone willing to share wisdom on the subject is this: is there any way to legally word a contract in order to prevent another $4,000 "overcharge"? I feel like if the contract was worded in a way that it could not exceed a certain percentage cap of the agreed upon contract price, then the contractor would say it cost that percentage over budget every single time to add profit for himself. Any advice is greatly appreciated.

[James Hamling]

So here is the question, WHAT DID YOU LEARN AND HOW WILL YOU PUT IT INTO POSITIVE FUTURE ACTION???

Unfortunately what I heard in the post was a lot of ignorance and not recognizing the key deficiency as responsibility was deferred unto this GC you hired, which he dosnt hold any responsibility, you do.

The primary and 1st mistake was the entire premise for hiring your GC, selecting your flip GC by lowest $$$ alone, come on really think that thru. When choosing a car do you make the primary decision factor by which is cheapest? if a car is 25% UNDER market price do you blindly jump on buying that car or do you hesitate and ask "huh, why is this car so much cheaper than it should be???".

I have been flipping homes since 2007 and I have literally lost count after the years, and there is absolutely zero chance I will work for free or do any kind of price competing, actually on the bidding side I am probably more expensive than 80% of others bidding, why, because I am the real deal and I am accurate, I actually deliver. 

If your out there seeking profits by rehabbing for ridiculously under market prices than your not an investor, your a cheap skate penny pincer trying to slum your way to profits, and while that truth may hurt and you may not like it its still the truth all the same. I may profit by rehabbing because I (a) am a licensed GC (b) own a full retail renovation company that creates a volume i can (c) leverage with manufacturers for direct supply and volume discounting and by which (d) I have the full management and operational team at my disposal to perform on my properties at cost. The very notion that a person is going to find and hire a GC to provide and do all of this without costs incurred on the investor is lunacy. There for the #1 primary decision factor for hiring a rehab GC should be (1) How many flips have you done before (2) how did those perform (3) when problems arose how did you handle them (4) how is your performance vs projected on time and costs (5) how do you perform vs others, whats special about you

Notice $$$ is not a decision maker, because its not. Good example I had an investor refereed to me as he was new. When I walked through I had to teach him how to be ready with a renovation plan and a detailed scope, which he didnt have, so each bid was what ever these cl hacks wanted to convince him to do, I instructed that market data and ROI rule all decisions, first figure out your selling competition and what the final product must be than the road there is self explanatory, so I fixed his scope. Than our bidding, 45k. A week later he asks me if we can come down to 20K because he very much wanted us but others bid less and the lowest was 20k. After a few questions it was clear he had told these other guys what he was hoping they would come in at and like magic wouldnt you know it they were at that or close, and all the important stuff he "assumed" they would be the same. 6 months into the project and at double the original bid he called me back asking if I could please take it over.

If you buy cheap you........ drum roll...... GET cheap. I know, earth shattering right. 

Don't blame a GC for hiring the wrong GC, if you say through your actions "tell me this and I will hire you" guess what, they will, and its the desperate you will be getting because those of us not desperate because we dont need to be, we told you the truth, and you didnt like it because Mr desperation said "oh, uhmmm, ok, i will do it for less, yeah less". 

Own the decision, learn from it, change direction and move forward. Paying more for a qualified experienced talented rehab GC will cost less by project completion and in most cases RETURN MORE MONEY, and in the end this isnt about paying little its about RETURNS.