Contractor estimate for Investor...Newbie

[Stephen I.]

Hi All, 

I am a newbie from Westminster, MD. I have done quite some research and read a lot about REI and i am ready to get my first investment property.

As part of my research on learning how Contractors charge investors as opposed to retail, i met a contractor whom i seem to like and if i'm told on here that he's fair, i'll keep him. 

He told me he works with other investors and he charges them 15% of renovation cost. i.e; He bills for Materials and Labor and he charges 15% on total of both. My question is; isn't Labor part of his profit? Also, i am sure he would've marked up Material cost.

[Casity Kao]

@Stephen I.  You are likely dealing with a general contractor meaning you are paying this guy to manage other contractors.  This is less work for you because they manage the deals but the difficulty is the manager now has an incentive on his structure to get more expensive labor and materials to charge you more.  Also I would not use a general contractor to manage your deals until you know what is fair market on the labor that is being charged.  We self manage the deals to control costs and will utilize of our contractors that does a significant amount of the work in the home to oversee the others.  So for example if my contractor is on site that does carpentry, tile, installation of cabinets and flooring is there all the time we will simply shoot him a text to spot check the carpet installation, roof install, plumbing or electrical so we may not have to be on site to approve another contractors work.  At the end of the job this one contractor we will typically give a bonus on how much we make on the property so he feels vested.  The more hands on you are the more efficient you can be, and as you scale you can put more systems in place but the most efficient systems involve ownership, so maybe offer to give equity in the deal in place of just paying a management fee so the general contractor has an incentive to keep the budget down.