All Forum Posts by: Alex R.

I completely agree with Steven and disagree with what John Mireles said here.
First of all, you should always do the homework and research enough before making a deal with anybody. For me it’s not only about a deal itself but more importantly what person (or company) I am dealing with. So if a person with no or bad reputation offers me the best deal in the world, he certainly is not going to earn my business no matter what he is going to offer.

On the other hand, we are living at the age of communications and information “flows”. One maybe able to screw the first client, or even the second one but it wouldn’t be long before he messes up his reputation so bad that nobody will do business with him anymore.

Google the name or address of a business and most of the time something comes up that gives you an idea of what type of people they are. And if no information is available, then perhaps that is a red flag right which indicates they may not be the right choice for your project.

Also to say that “It's once you get near the end that it's easy for the contractor to move on to other jobs.” is relatively unwise. If you know how to play the game by the rules and play carefully nobody can mess with you. That’s why you should never pay them in full upfront and always subject the last pay to completion of the project. In that case even if they want to move to the next job before getting this one done (which is highly unlikely of a well-reputed business) then you still have a good portion of project complete and can assign the last part of the work to somebody else for a reasonable price.

" Be careful, some GC's can sense blood in the water and many times they don't have any motivation to control your project costs. Why would they? The more work they do the more money they get paid. "

Glenn

that is the whole point of my question. My thinking here is first you do a Thorough investigation of what renovation / repairs are necessary and then invite the well-established conbtractors to bid.

And then you finalize a list of repairs with details, schedule, …. For a “FIXED amount” and also a late fee.

This way you make it crystal clear for them that “what needs to be done”, in “what frame of time”, the reward “how much they will be paid for “ and also the potential penalty “how much they will lose for any day of unfinished job over the deadline.

I think this is a fair and balance approach for both the contractor as well as the investor.

I am not sure if anybody is doing a flip this way though.

Thank you John. These are really some good resources. I have also posted another topic which needs more input.

http://www.biggerpockets.com/forums/67/topics/81347

Thank you for your reply Page.

A link to those spreadsheets will be helpful

[b]this is exactly what I mean J.

So the GC is soneone who manages the entire renovation project .

If he is going to do a good job, i think that extra 7-20% of the total renovation costs is well worth it.

its a 3 bedroom house in bakersfield in a very good neighborhood.

the numbers are good but a little bit too good be true. What is wrong in this picture ?

Mortgage: 489
Rent: 1376
HOA Dues: $0

Additional Expenses
Est. Property Taxes*: $151
Est. Home Insurance*: $29

Net Profit: $ 707 / Month

here is a link to property:

http://www.ziprealty.com/property/8221-WILLOWGLEN-DR-BAKERSFIELD-CA-93311/4873898/detail

thank you for your response Chris.

Turnkey contracts mean contractor will provide materials, labor, transportation ,.... and finish the entire job within a deadline.

----------------------------------------------------------
here are more details:

A turnkey contract is a business arrangement in which a project is delivered in a completed state. Rather than contracting with an owner to develop a project in stages, the developer is hired to finish the entire project without owner input. The builder or developer is separate from the final owner or operator, and the project is turned over only once it is fully operational. In effect, the developer is finishing the project and “turning the key” over to the new owner.

This type of arrangement is commonly used for construction projects ranging from single buildings to large-scale developments. Under a traditional lump-sum contract, the owner agrees to pay the developer to complete a project that is built to the owner's specifications. The owner is given many opportunities to make decisions throughout the project, and to make changes as needed. In a turnkey contract, the owner is generally left out of the building process entirely as the developer handles all decisions and problems related to construction.

A turnkey contract may also be used in the residential home building industry. With a turnkey agreement, a builder or developer completes both the construction and the finishes in the home before turning it over to the homeowner. The homeowner is often offered a chance to select finishes, including curtains, paint colors and carpeting.

Turnkey contracts offer many advantages over traditional building contracts. Because the developer still owns the building until the project is complete, he has financial motivation to complete the job as quickly and efficiently as possible. A turnkey contract also provides more time for an owner to seek financing and investors before he is required to pay for a completed project. These agreements also save inexperienced owners from making difficult construction decisions, leaving these decisions in the hands of the developer or builder.

Before choosing a turnkey contract for your project, it's important to understand the potential drawbacks of this type of agreement. The primary drawback is the lack of control the owner maintains over design and construction decisions. For some owners, this may mean the project is not perfectly suited to their needs once it is complete. For others, this drawback may be canceled out by the potential for cost savings and shorter construction schedules.

Some owners may choose a turnkey-plus contract, which leaves the developer with some financial long-term interest in the project. For example, a builder will construct a retail establishment for an owner, and the builder will receive a percentage of the gross receipts for a specific period of time. This may encourage the builder or developer to make construction decisions based on the long-term needs of the project, rather than just the short-term decisions needed to get the job done.

http://www.wisegeek.com/what-is-a-turnkey-contract.htm

Hello Guys

I am a new member to this forum and new to real estate too. I have a question about the flip projects.

Is that possible (or common) to sign a turnkey agreement with a contractor for the flip? So that they will provide all the materials and labors and get the project done for a certain amount with a specified deadline. If so what are advantages or disadvantages of this approach?

I think this will make it much easier for investor to know how much exactly his expenses will be and also saves him lots of hassles and expenses.
Also you can put a late fee penalty in the contract that if flip is not complete within deadline, for every day of delay there will be a fee that contractor will be charged.

What do you think about the whole thing? Is this good? Will contractors accept this type of contracts?