Contractors

What it is

Managing contractors is nothing like your corporate job. There’s a whole different set of rules and I learned that the hard way when I left the corporate environment. It’s more like prison rules.

There are really three types of contractors on a rehab. Specific job contractors — these are the people you find on billboards. They do one specific job and do it well. There is a time and place, but they are going to be overpriced because they’re paying for marketing and passing that to you.

All-arounders are the guys you actually want. They can put in cabinets, do floors, do paint, take out the trash. They put a crew on the project and they keep working until it’s done. They’re not the best at any one item but they’ll line up for weeks on your job. That’s the safety net they want.

Laborers are hourly guys who don’t have a lot of skills. You have to tell them exactly what to do. High bandwidth, less useful for a solo operator.

Why it matters

Contractors are the single biggest line in most flip budgets and the single biggest source of schedule slip. But here’s the thing I had to learn: construction basically just costs what it costs. Trying to get a $60,000 job done for $45,000 usually means either hiring cheap contractors who cut corners, or micromanaging the crap out of everything. With the cheap guys you usually end up paying the difference anyway — through fixing screwups or getting stuff stolen from you. Both have happened to me.

Think about construction like playing defense. It’s important to control it, but it doesn’t win the game. The offense is the acquisition price. The best move you can make is buying that house at $200K instead of $220K. That’s where the real money is. Construction is just about not losing.

The power is in the money, period. I don’t care how good your relationship is with these guys. The power is in the money because everybody has bills to pay, everybody has mouths to feed, and it’s a really tough business. So you never pay ahead. You pay fast after the work is done, but you never pay ahead. Somebody wants a down payment to do the work? Sorry, buddy. Gonna have to hire somebody else. Set up a Home Depot Pro account instead. I’ll pay for materials directly to Home Depot — not giving you a dime until we get to the first pay period.

How it shows up

The profiling goes like this: you want someone with a work truck or a work van. Not a rust bucket — if they’re on a shoestring that shoestring will break and you’ll pay for it. But also not a big jacked-up truck with logo wraps. If they’ve got huge tires and a wrapped logo, they are spending a lot of money on marketing and you are going to pay for it. A nice plain-Jane work truck, maybe a stick-on phone number. That’s the guy.

You want someone with a crew of two to four people they’re personally leading from the front. If you get bigger than that you start paying for the inefficiency of their management. And honestly, if they were stellar managers running multiple crews off-site, they probably wouldn’t be doing rehabs for real estate investors.

Find them at Home Depot, Lowe’s, gas stations near job sites, and suppliers. Go to a supplier in your area and ask who the top three to five buyers are. Those are the busy guys. Busy because they’re good. That’s where to start.

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