Real Estate Success Is Cutthroat: The Hard Choices That Actually Move the Business

TLDR

I just had to fire a contractor off a job, and it is costing me way more than the unfinished work. The guts to fire someone is not the hard part. The real cost is what you pay to clean up the mess after, and most people never see it coming.

Table of Contents

• The Contractor Black Hole
• The Three Types of Contractors
• Issue One: 50 Percent of the Work Is Not 50 Percent of the Pay
• Issue Two: Bundled Accountability Falls Apart
• Issue Three: The Black Hole Burns Time and That Burns Money
• How I Actually Break Ties
• Why Relationship Capital Matters Most
• FAQ
• Related

The Contractor Black Hole

I have hired literally hundreds of contractors and I can count on one hand how many I have actually fired. Firing is rare because the real cost is way bigger than you think.

This situation is what I call the contractor black hole. That is why I had to fire this guy in the first place. Do not confuse it with a total ghosting. Ghosting means they just went away and you cannot get a hold of them. The black hole is worse. They are somewhat responsive, but they are not really getting anything done on your job site. They send somebody out to do a little bit of work, there is a tiny bit of progress, and every time you feel ready to pull the trigger, they do a little bit more. It is almost like they can feel it.

You get sucked in and it is really hard to get out.

The black hole exists because a little progress is enough to stall your decision.

The Three Types of Contractors

Before I get into the costs, you need to know what type of contractor this was. There are three types.

The allarounder is the foundation of the solo house flipper model. You group all the jobs together, which requires fewer touch points for you.

Issue One: 50 Percent of the Work Is Not 50 Percent of the Pay

You would tend to think that cutting ties is simple: figure out how much work got done, pay them that, move on. That makes sense. It is also wrong.

Look at the receptacles on this job. They got buried behind the drywall these guys put up. I did not find out until later. I have to go up and pay to fix that.

But the bigger issue is the order of the work. Every crew has unskilled laborers. You need those unskilled guys on your job because you do not want to make the skilled guys do all the crappy work all the time, like digging holes, crawling through crawl spaces, getting into attics. Most of the time a crew does not need those unskilled guys. So the beginning of these projects is always a great time to put the unskilled guys to work. They do the demo, they do the clean out, they do all the stuff like that. The skilled guys usually come in on the back half of the job.

So when I cut ties, all the unskilled stuff is already done. All the skilled labor is still to come.

When I go get a bid for the rest, the new contractor looks at the job and sees only skilled work. A bunch of punch list items. Little things instead of big jobs that produce. They give me a crappy bid, rightfully so.

The guy I fired does not see it this way. He thinks he did 50 percent of the scope, so he is owed 50 percent of the pay. I either tell him to pound sand, or I pay him and overpay.

The back half of a job is worth more than the front half. That is why cutting ties midproject always costs extra.

Issue Two: Bundled Accountability Falls Apart

When I hire contractors I am always trying to group as many jobs as I can. I get better pricing, fewer checkpoints for me, fewer pay periods. Not because I hate writing checks. Because I hate driving out to check work so I can justify writing the check.

Most importantly, I bundle accountability.

There is a hierarchy. A project is 123 Main Street. Inside that project are jobs: LVP flooring, hang the cabinets, do the trim, do the electrical. I want to group as many of those jobs as possible into what I call a subchunk and bid that to one contractor. That way I get better pricing and I bundle the accountability for the glue between jobs.

Because there is always a little bit of loose ends between every job. Whose responsibility is cleaning that up? Where does my responsibility end and the next guy’s begin? If you are micromanaging the crap out of things you catch all those loose ends. That takes a lot of bandwidth. Bundling hands the loose ends to one contractor.

When I cut ties halfway through, all those loose ends get found later in the project.

Common Mistake

Paying a final check before the final walkthrough. If you have already paid him, you have no way to get the trim painted, the touch up paint done, the flooring fixed, or the receptacles pulled out of the drywall. The final check is the only tool you have.

Issue Three: The Black Hole Burns Time and That Burns Money

This job took so long because I was in the black hole. Months. I had this guy on other projects too, and I really did not want to cut ties because that meant cutting ties everywhere.

Here is what happened in that time. The electrical panel I installed months ago, in the rough phase, well, I cannot find the breakers for it. On a normal job you put the box in at the rough end, then come back at final and put the breakers in the panel. I cannot find the parts. So I have to rip the whole panel out and put in a new one. That is probably another 1,500 bucks I would not have had to pay otherwise.

Part of that is on me. I took too long. I was always trying to save my bandwidth and it did not work out.

Time in the black hole is a hidden line item. Every month you let it run, costs you did not budget for start showing up.

How I Actually Break Ties

Once I am ready to take action, here is what I do. Simple.

I give them an ultimatum. But if you only have one project going on, the tendency is to get mad and give an ultimatum based on anger. You cannot do that. Be very reasonable. Extra reasonable.

Let’s say the thing they are working on is the LVP flooring. I will give them an extra reasonable timeline. Flooring should take a day or two. I give them ten days. I shoot them a text, or better yet a phone call, but in the black hole it is hard to get people on the phone. Text works because there is proof you sent it.

The message is something like: “Hey man, I am really sorry, but I have to get this project moving. I have loans on it. I have other contractors lined up to come in after you and I really do not want to mess with their timelines. I am going to have to cut ties if I cannot get this flooring in by ten days from now.”

That line about the other contractors is gold, by the way, because contractors sympathize with another contractor not wanting their schedule pushed around.

If they want to keep working with you, they absolutely get it done. Once it is done, you open the line to talk about speeding up the other jobs on the project.

If they do not make the timeline, no matter what excuses they give you, cut ties and move on.

Pro Tip

Do not negotiate the ultimatum. If you set ten days and they ask for fifteen, you already lost. The whole point is that ten is extra reasonable. Fifteen is negotiation, and a contractor who needs to negotiate your extra reasonable deadline is not going to hit fifteen either.

Why Relationship Capital Matters Most

The key in this game is relationship capital. If you have to go find new contractors for every project you do, your bandwidth gets sucked dry.

What you actually need to be out there doing is focusing on getting better deals, or living your life and spending time with your family. You did not become a one man house flipping business to chase contractors down all the time.

Build relationship capital with guys who understand your system. They know your routines. They know the things you like on projects. You do way less once you have worked with a guy for three or four projects.

There is intrinsic value here too. This is why I like house flipping so much. Flipping to sell or to rent. You are using construction to add value. You take a house that is not livable and you make it nice. You give jobs to hardworking people putting food on their families’ plates. That is what entrepreneurs do.

Relationship capital is the real asset. Fire someone only when you have tried everything, because rebuilding takes longer than the job you are mad about.

FAQ

When do you know it is time to fire a contractor?

When the ultimatum is the only tool left, and you have already given them a reasonable timeline that they missed. Not out of anger. Out of math. The project cannot move forward and every week they stay in the black hole is costing you money on loans, time, and parts that go missing.

How do you pay a contractor you just fired?

Case by case. You are never going to agree on 50 percent of the pay for 50 percent of the work, because the back half of the job is worth more than the front half. I try to negotiate something that accounts for the fact that I am going to pay more to the next guy to finish punch list items. Sometimes you just eat it and move on.

I am starting out and I do not have a stable of contractors. Where do I start?

Hire an allarounder. One guy or one crew that can do floors, trim, paint, cabinets, demo. Bundle the jobs. You will pay a little more than hiring specific trades, but you trade money for bandwidth, and bandwidth is the thing you do not have when you are solo.

What is the difference between the black hole and ghosting?

Ghosting means they disappeared. You cannot reach them. Black hole means they keep responding just enough, send a guy to do a little bit of work, and give you just enough progress that you do not pull the trigger to fire them. The black hole is worse because it pulls you along for months.

Does this apply to small projects too?

Yes. In fact it hurts more on small projects because there is less margin to absorb the overpayment. On a big rehab you can eat an extra 1,500 for a new panel. On a small lipstick flip that kind of extra blows up your profit.