All Forum Posts by: Sean Carroll

@Manolo D.  Yes, that works perfectly if you are managing the job yourself and seems more like your business is a project manager for clients instead we are the contractor who deals directly with the client. But I wasn't clear in the title and was referring to a General Contractor who will manage and complete the entire project, with you, the owner of the house, just writing checks. So we structured it on weekly payments since our goal is to move fast and keep cost down as much as possible. So we could say send out multiple invoices out for each specific job or we can send out one weekly labor invoice and one itemized materials invoice instead. This works for us because we have some amazing employees who can do every aspect of a job minus HVAC and plumbing. When we bring in a subcontractor such as a plumber then we use the same method you use.

@Andre Crabb Hey Andrew, check out some of my blog posts about working with a general contractor to maybe give you some more insight on that aspect.

If you go with a GC and not managing the entire project on your own I would say during the flip you should spend no more than 1 hour a week if you have a good GC and you prepared properly and nothing major goes wrong with the project. I would say leading up to that before I built my systems I would spend approx. 

3-5 hours a week looking for a deal and analyzing it.

15 minutes submitting an offer.

1 hour submitting for hard money loans

2 hours writing my scope of work and choosing my finishes.

1-2 days bringing in contractors and subcontractors.

Now I have 4 interior and 4 exterior concepts that I just plug into my scope so now I would say my average scope of work takes 1 hour to write. Another hour to write up the schedule for the order I want the work to be completed and what subcontractors we are going to have to bring in. About 30 minutes to 1-hour filing for permits and 15 minutes to schedule the dumpster. I am still about 1 hour for lender paperwork and discussing the project with them. My time dramatically got cut down when I partnered with a good contractor to create a general contracting business.

I invest out of state so I spend no time on site unless I am out in Cincinnati for another reason.

I will not do a project unless I can refinance all my money out and cash flow positively. Or profit a minimum of 20K 

Depending on the route you go you will have to pay for all utilities, insurance, contractors, materials, lender fees, and loan payments. 

@James Wise Oh man, that is horrible, I can only imagine the smell. Where there any red flags on their application?

So the big question for a lot of newer investors and some experienced investors is how to make sure you keep a good contractor as well as your investment and personal interests safe? Well, there are a few different ways to do this, with each way being a better fit depending on multiple variables such as risk tolerance, available time to run a project, the interest in running the project, and emotional grit. You have to ask yourself exactly how you envision your real estate investing to go; do you want to be apart of every little detail or would you prefer to take updates and write checks and enjoy your life with family and friends or doing the hobbies you love to do?

So the first question is, how do you make sure your contractor doesn't run off with your money? Well first off do not hire the cheapest contractor out there, they are cheap for a reason. You can start by asking them a serious of questions to vet them, see my other blog post https://www.biggerpockets.com/blogs/9607/71901-things-to-ask-your-general-contractor?created=1

The next serious is taking the time to prep for your project rather you are using individual subcontractors or using a general contractor. A detailed scope of work is needed no matter what, this ensures you get what you want to be done at a fair price. We have run into multiple investors who are just not prepared for their project and do not have a scope of work. This scope of work should act as your contract for your contractors to hold them accountable to their bid so there are no questions on what was or wasn't said during the walkthrough.

After that, I recommend hiring a contractor that has their own contracts for you to sign. If they do not have any then they are not that serious about their business and this is a huge red flag for me personally. If they do have their contracts in order then you know they mean business and care about their work and reputation.

I suggest either writing up a schedule to have your contractors follow or ask your general contractor for a schedule. This allows you to set up a weekly payment plan and ensure you contractors can eat and you can sleep easy knowing the work was done and there is not a bunch of your money in someone else's bank account that might not show up next week.

Now for materials, I recommend having your contractor buy them or put together a list of materials they need for the upcoming week. I suggest they do it so you get materials that they like to work with, every contractor has a preference of brand. In order to prevent you contractor from having to front your project cost, we like to use phone orders or we put the list together the week prior to tell you exactly what we plan to buy so you can deposit just that amount. This again allows you to maintain control and have transparency with where your money is going.

To wrap everything up I will give an example of what Gear'd Development does.

1. walk through with client and review of the scope of work. We do not go out to bids without a scope of work emailed to us. This prevents us from working with fly by the night clients as well as wasting our time and preventing any miss communication.

2. Review the architectural drawings if the project needs them.

3. We transfer the client's scope of work onto our own template, this serves as the contract for the project. It includes the work to be done by us and the subcontractors such as HVAC, the price, and basic weekly schedule.

4. Our master contract and the project contract are signed with a start date in place and payment schedule.

5. A small deposit is collected to secure the client on our schedule. This is to ensure our schedule stays full and the client does not disappear come start time for the project.

6. We do weekly payments for labor. We invoice Friday evening for the work that was completed. The payment must be in our account Wednesday at the latest or work will be stopped and you will be taken off the schedule. This ensures we are not put into financial dismay because the investor was not truly ready to invest or we are not fronting the costs for your projects. That would be like working as an accountant and waiting for the client to get their return months later in order to be paid, it just is not fair to the professional.

7. Materials are done via phone order after we pick them out at HD for the week Monday morning or we put together a materials list and bill you

8. Every Monday you will get an update on your project with photos and what was done and what the plan is this upcoming week.

Now again how each contractor and investor handles payment is up to her or him, but this is what I personally do and how we at Gear'd Development handle our projects. This is a middle of the road solution. What do you do with your contractor? How do you pay them? What documents do you two sign?

@Laith Ali there are numerous ways to protect yourself from a bad contractor, now remember that not all contractors are bad. 

One of the big things investors run into with bad contractors is they go with the cheapest option. We hear horror stories of contractors smoking inside projects or using the cheapest grade of materials and have been called to correct another contractors work (more expensive than our original bid). So first thing is to not go with the cheapest option. 

Look at the contractor's own contracts, if he or she does not have their own contracts then they are not truly serious about their business and is a red flag to me.

If you do want to take the risk of using a cheap general contractor or using cheap subcontractors then I would develop your own master agreement for your contractors and have them sign it in order to let them know what the standard is. I would also have them sign a detailed scope of work that lays out exactly you want in as much detail as possible. We have one client who demo scope of work usually entails about 2-3 pages it is so detailed.

The next item is asking the right questions and get multiple references. I wrote a blog post on this. 

https://www.biggerpockets.com/blogs/9607/71901-thi...

Now as far as payment goes there are many ways to handle this. If you are a bit of a control freak like I am you could write up a schedule that is sensible and done by the week and have your contractor sign it agreeing to it. This one once that weeks work is done you pay them. This keeps you safe and your contractor happy. The next issue is materials now you should only be buying materials not tools so there are a few ways to implement this. You could request you contractor put together a materials list and you pay for it, have your contractor go get the supplies for the week that they need and pay for it over the phone when they are at the checkout stand are some options.

In order to check they are competent, you can do this one of three ways or all three ways. You could visit the site daily or weekly, you could require them to send pictures at the end of the day, or you could have a third party inspect their work.

@Michael J. Beasley Before I developed my team out in Cincinnati I would have to fly out there so it was a big pain. I would fly out to view, then fly out again to get bids from contractors and set up a lockbox.

Now I view properties online via Redfin, determine if I want the property and what I want to do with it, then I pay my General Contractor to go out and view the property and take a complete walkthrough inside and out video and send me a report of what needs repair and the cost to do so. Then if I go with him he refunds the $100 off the last draw.

Now if it is a house that is rent ready I then ask my agent to go view it real quick to make sure I am not missing anything. 

Both of these take a good team and trust. I still fly out once a quarter because I am a little bit of a control freak and I like to take them out to dinner after the projects for that quarter are complete as a thank you and develop both a personal professional relationship with them.

The big thing I want to make sure is that they know I am not taking advantage of them and what they are doing for me is greatly appreciated and that as long as they help me grow I will do everything I can to help them grow as well. 

@Chris Wiedeman I will PM you. But this is done in Pleasant Ridge neighborhood!

as far as your DIY questions I recommend youtube, there are a ton of great videos by professionals on there

When handling taxes because interest is deductible I would consult a CPA because I'm not sure if you could deduct the interest paid if it's not under the LLC's name. But yes I would do the indivual returns other wise

@Franco Epifania yes investment property loans interests rates are usually higher then an owner-occupied property. 5.375 seems average but I would also shop around. Maybe post a questions asking for recommendations for banks in you area