Do you get rehab estimates from contractors before you offer?

Question

Hey y'all,

Looking at some BRRRR type properties and trying to figure out the best ways to get an idea on rehab cost from contractors.  Wondering what you wonderful folks on the forums do when you're looking at these types of properties and you don't already have a relationship with a contractor (I'm sure lots of folks on here already have that).

So I think my question is two fold:

a) When in the process do you start engaging a contractor?

b) How do you start to build contractor relationships before you have work for them?

Cheers,

Dan

Chris Mason · Answer

In my market, unless you pay by the hour, no GC is going to bid on a property you don't even have in escrow.

For b, not really sure how you can. Working together is how relationships are built. GCs don't want to waste time chatting with you when you've got no work for them.

Jim K. · Answer

For what it's worth, Dan, if I were you, I wouldn't go into a play like the one you're describing without a solid relationship with a contractor I've worked with before. That's the kind of crazy risk I do without in my property investing.

If you want a rehab estimate from any even close to being a reputable contractor, make sure you've agreed on a price for his time beforehand. You'll get blown off in my market, too.

This kind of perception that there are competent and dependable contractors out there just clamoring and eager to make investors rich is one of the big lies of guru REI advice. I would say the biggest challenge in any sort of rehab-oriented real estate investing is working with contractors. To go out on a high wire and do the kind of BRRRR investing with other people's money that is fully recaptured by the refinance portion of the process...I really don't think that's realistic for people just starting out, and even less so at this point in the business cycle, where so many contractors are booked solid for months on months in advance.

Bryan Devitt · Answer

Any good contractor doesn't have time right now to give you bids. I haven't used it but there is a book this forum sells on estimating rehab pricing that might be a good enough reference. Having them do something small beforehand is unrealistic IMO. Any contractor willing to do small work right now isn't the same one you're going to want to hire for a rehab unless you hit the lottery with a lipstick job. So really, I think you're in the position right now where you're going to have to take your best guess with a bunch of research and asking questions, base numbers off %, not $. Some people will say a bathroom cost $20k and kitchen costs $40k, 8 people might say that, but they might all be in the same kind of market and price ranges. If you're looking at $40k houses those numbers won't work, if you're doing $1M houses, those numbers won't work. So find % numbers to work off of and hope they're right. Also, be prepared to take a bath on your first 1 or 2 because most people do.

Dean Letfus · Answer

Obviously you have to start from zero but what I do as a system now is get my property manager/rehabber to go through and give me pretty much a fixed price bid to get it rent ready. I generally do that after I have it under contract as one of my rules is I never spend any time or money on a deal I may not get.

Daniel Norber · Answer

Thanks y’all - this is really great advice.  Thanks for being available and so willing to help!

Hope everyone has a nice holiday weekend!

D

Scott P. · Answer

For b) I'd say that you'll need to work with them in a small way.  For example, hire them to do something small on your own house.  You'll be able to see how reliable they are and they will learn if you are reasonable or impossible to please and if you pay on time.

For 1) I'd say that if you haven't built or flipped or remodel or hired contractors before it would be hard to get them to engage before you have a deposit on the property, or a property in escrow, or a property purchased.  If you're in that situation, I believe you'll need to offer to pay them to bid.  Paying for a proposal is not common in my area but I believe here that would be a price of entry if a person had zero network to draw on to get pricing.

If I was completely new with no experience and had no contacts with anyone who knew any contractors, I'd get 3 prices from 3 general contractors, with outstanding online reputations or reputations from my home insurance company.  I would offer to pay each of them.  To rehab in my area I would guess that $500-$1000 would be the cost for each.  They may or may not take me up on that offer.  To be safe, I would do this before buying by taking the contractors on 3 separate walk throughs with a "buyer's" real estate agent.  To do that though, you also need to convince the real estate agent that it is worth their time for 3 showings.

Getting a good, quality, accurate price should be your goal or you could get into a large financial bind by buying a property that is more expensive to rehab that you thought it would be.  Also, keep in mind that contractors do not have x-ray vision and can't price for surprises they are not aware of.

Theresa Harris · Answer

If you aren't able to do a ballpark estimate of the repairs, but think it is doable, put an offer in conditional upon inspection.  You will likely have to pay a contractor to give an estimate.  They can do this during the inspection period.  Make sure you've talked to a contractor ahead of time to see if they are able to do this and work with you.

Do you get rehab estimates from contractors before you offer?

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