Contractor Contractor Contractor........

[Kumud Shrestha]

I have been watching interviews, listening to podcasts and reading articles after articles and books after books on Real Estate Investing. However, I can't seem to find anything on contractors. 

Brandon is awesome, I have read all his books and watched lots of interviews. I think he is a real smart guy with ton of experience. But I wish he would talk more about contractors and the problem people have with them and how they tackle these problems. 

In my humble opinion, no matter you are doing the flip or BRRRR, it all boils down to Contractor and how well you manage them.

Find deals, no problem, finding finance no problem, But finding good reasonable contractor ...PROBLEM yes huge problem, at least that had been my biggest problem for last two projects. 

So, I had this awesome deal through MLS. Purchase price $150,0000 ARV at $250,000.00. You are talking $100,000.0 to play with. In the beginning I though I could easily make $30,0000.00.

Here is my analysis and calculation:

Purchase price : $150,000.00

ARV: $250,000.00

Holding Cost : $6000.00 ( for six months- 4 months for Rehab and 2 months for sell)

Rehab Cost: $40,000.00

Closing cost at both end : $5000.00

Commission: $12,500.00

You look at these numbers,, They look great right ? Well I thought so too..

HOWEVER... Nothing went according to plan.. 

After 8 contractors and 10 months I was looking at taking a loss.. But the deal as I said was so good that I made only few thousand dollars  on this deal. 

And I also realized that each time you fire and hire a new contractor you lose money because the payment to previous contractor is gone and the new guys wants money. 

So, the moral of the story is Contractor can  make or break your project. 

I would appreciate if anyone can give me feed back as to how they find the contractor and day to day how they deal with them, I would certainly appreciate it very much. And yes, Brandon and David if you guys happen to read this please talk more about this issue that nobody wants to talk about. 

[Will Barnard]

Your $150k purchase plus $40k rehab with an exit of $250k is a 76% deal. Not bad but nothing to get overly excited about either, especially at that exit price. 
bottom line, either you underestimated the rehab costs or had bad luck hiring your contractors. Your written contract with any contractor is one of the most important aspects of that transaction, make sure you protect yourself in that contract and have penalties for delays, and bonus money for early completion. Time is your enemy in a flip. Time is your friend in a long term hold.

Finding good contractors is not easy as you have to weed through 80% of the crap to get the 20% worth their salt. Referrals from other developers and builders, flippers, investors in your area, etc is a good start.