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This video is about contractors as a rehabber, who has done over 500 rehab deals here in Arizona and other states, it has always been the bane of my existence. And I have my contractor here, Spencer here out of K 10. I made sure he knew how to market his company. He is the actual man that has made flipping again, for me easy, fun, enjoyable, and massively profitable. That’s why we’re all in flipping homes in the first place. As you can see, this beautiful day core is an actual mobile home that I am flipping it is my first mobile home in 13 years that I’ve flipped, and I call No Man’s venture here. But I want this video to be about you guys on how to find contractors hire contractors, what to look for what to be aware of how to pay contractors, we’re going to knock this out the best we can, so that you guys can be safe when hiring contractor. So thanks. Thanks for the time. Yeah, absolutely. So let’s just have a conversation about how we can help people find good contractors. Okay. And, you know, let me start by saying the reason why Spencer is a great contractor for me, is because he’s a good business owner, right? So he comes in on a budget that is affordable, but not only that, he shows me a line item bid. So I get an actual bid emailed to me on every single dollar I am spending on this rehab. Let’s talk about that. Because that in my opinion, is where people go wrong. They just they get quotes from contractors. And then they say, Okay, once 2117 I’m taking 17
right now, like even in the so I’ve built custom homes for years. And even in the custom custom home sector, the people that build a custom home, they get a bid from a contractor, it’s one page for a $2 million home, right, and they end up spending $400,000 and change orders, right crazy time after time after time I have multiple friends have had that happen. And it’s because there wasn’t any detail. Right? And so making sure that your contractor gives you what is your budget for flooring, or this is the flooring that you’re using. Right? That when it comes to the selections on the house, those are the where you can really get lost in the money. Yeah, right, for sure. And the problem is, is the contractor kind of has you over a barrel at that point? Yeah, they’ve already started your home. They’re already halfway into it. And they look at you go, yeah, I gave you $1 foot for tile. And you go really I can’t find anything that anybody likes for dollar foot. So you go spend $4 a foot? Yeah. And they mark it up. And there’s there’s your first change order. Right. And so making sure that whether it’s light fixtures or countertops, or what are the cabinetry that they’re using, are the cabinetry going to be 30 inches tall on the walls. 36 or 42. Is crown molding included. Yeah, so making sure that items are included in your bid instead of there might just be a line item says cabinetry and countertops and you Okay, good. That line items checked. Yep. What is it? Right? Is he buying it at Lowe’s? Is it a plywood box? Is it an MDF boxes? What are you getting?
So let’s talk about that. Because one thing I get a lot of people that are doing their first flip their second or third? Right? Do they need to know the cost of like, should they be going to Lowe’s Home Depot not least getting a general idea of cost? Or is that a little irrelevant? Because someone like you is going to be able to do it either drastically cheaper is or is there a reason they should be doing that? So they know if if if that contractors in the right ballpark or not? Right?
When you’re hiring your first contractor, you probably should meet with at least two? Yeah, I would recommend three, just some and then that’s where you’re going to be able to get a bearing on your prices. Yeah, because if you meet with three contractors, and they’re pretty consistent their pricing, or you can pick accordingly. It really doesn’t matter what it costs at Lowe’s, because you’re not going to go buy them and put them in yourself anyways. Right, right. And so you’re spinning your wheels are wasting your time, you need to find the contractor you like one that you can trust, talk to some references, a big thing in general contracting across the board. The biggest thing is people being able to finish. And so the number one thing that sets us apart from every other contractor, the reason that we’re with the biggest hitters in town, right, is because we know how to finish a property. That’s right. And that’s the that’s the key point you’ll we just took over with another investor right now they own 90 homes in the valley and their plan over the next four years is to flip them, right. But their current contractor couldn’t finish things. There’s one he was doing a $30,000 scope, and it’s been six months, right? And it’s because the little things he just can’t finish, right. And the reason that it’s not that contractors are bad. The problem that they have and the thing that sets us apart is that they’re subcontracting to everybody. That’s right, right. And so there’s sub contracting and the guy that they subcontracted to, is now getting a higher price from the other contractor so he doesn’t show up. Yeah, right. Or he gives him lip service says and set lip service and says I can do that when he can. Yeah, right. Because he doesn’t want to lose out on the work he does. Totally, and so you become a slave to your subcontractors. And so we’ve said, We don’t do that. And we just hired all our employees. So by making it in house, now we know what the talent is of this guy. And that guy, even though I have employees that will tell me they can do it. I never let give them the chance, because I know they can’t. Yeah, right. Yeah.
So let’s, let’s talk about two biggest mistakes I believe most investors make, which will be working with a non licensed GC now, right? For sure is they go to a handyman, and then try to remodel the whole house? How to avoid that what to look for doing your due diligence. And lastly, the pay structure. I believe most people miss pay their contractors because they pay so heavily upfront, because obviously contractors want the money. So let’s let’s dive into that really quick. Okay. Which one? Do you mean, first, let’s go with let’s go with the licensing. I mean, how important that is everything,
right? And it’s expensive. So you might come to me and say, hey, how much is this house? I say 25. Grand, right? You go and find the guy that’s on the corner or he has good advertising? Yeah, right, for sure. But he doesn’t have insurance. He doesn’t have any workers comp. So now when somebody comes into your house, and they’re doing work, and his subcontractor that also doesn’t have workers comp, and also doesn’t have insurance, he gets hurt. Guess who gets to cover that? That’s you? Oh, yeah. Right. Oh, yeah. And so we’ve had investors that they they said, Oh, I don’t have an umbrella policy, right. So most investors, they don’t have an umbrella policy. They don’t have something to cover it. They have homeowner’s policy. That’s right. on a on a rehab, rental investment property. Yeah. And so now somebody goes and gets hurt, and there’s nobody that can cover that guy. Yeah. But he broke his leg, and he can’t work the rest of his life. Right? Because he plans on getting up and down. And so that you might save a few dollars, but you’re taking a massive risk. And so I think sometimes that’s okay, as long as people understand the risk that they’re taking. totally right. And so as long as you know that you’re taking a risk, and that here’s my exposure, or that you can cover yourself accordingly. Make sure you have a good insurance agent that was gonna say, tell us about home flipping,
what insurance would you suggest? Obviously, you’re not an insurance agent, what would you suggest flippers like myself should carry? If they were going to go the route of a non licensed real rehabber,
then you should have a general liability policy. Right on LLC on your LLC, and be able to cover that right. Now, when you hire a general contractor like myself? Do we have it? Yes, my cars have 1 million, 3 million, 1 million coverage, where you have like 100 300 100 Right, right. Yeah. And so the price of insurance and the coverage that we have, we have it for a reason. That’s right, because I need to be protected, just like you do. That’s right. The other thing, just like a snippet on insurance, because people don’t understand a lot, make sure you have a good professional, right. But one of the big things that you can do is your contractor can make you an additional insured. Okay, so what that means is that I have a general liability policy, right? I also have a $3 million umbrella policy, that if the general liability policy doesn’t cover me, yeah, but on this property, you can say, hey, Spencer, can I get a certificate? That’s 50 bucks. Okay. I can assign you as a as a beneficiary on my policy for this property. And so you can do it property by property. And now you’re covered under my policy for this house.
So on this house right now, I could go get insured under your policy, and you’re additionally insured. And why would I want that as the LLC who owns the home that hired you? Because now if
other things happen, right, now you’re covered? Or let’s say there’s a grading and drainage issue. Okay. I’ve had this issue before. Yeah. So there’s a grading and drainage issue. You sold the home? They were already gone? Yeah. Okay, done. Some flooding comes into the home. And we go, we didn’t do grading and drainage. Right attorney doesn’t care. So now their attorney is suing you and I both That’s right. You’re in trouble, because you own the policy of policy. But now you’re covered under my policy. That’s right. Right. And so the things that you don’t foresee that are all unforeseen? That’s right, you’re covered a lot, right. And I think the big thing that a lot of flippers mistake and business owners is we forget that we have to cover things when we’re done. Yeah. Even though you already sold the house. Yeah. Right. And so there’s exposure issues that I’ve been in business a long time, right, that I’ve seen it all I’ve had the lawsuits I’ve had, whatever it may be, and you learn through those experiences. That’s how
you really learn, right? Sure. And then just I know you have a conference call. Let’s talk about payment. I think that’s and I don’t want to undervalue the insurance part, by the way, drastically, drastically important. So make sure you have a good insurance agent to tell you that. Let’s talk about payment. You and I have a certain arrangement. I don’t know if it’s the same with all your clients. But I over the years have always found that at most, I’ll go 50% of the total cost that goes for labor that goes for materials that goes for whatever you the contractor need, right? Why don’t you paint a picture of that because I don’t ever want to come in and I’ve had plenty of newbie rehabbers literally 25 grand for this house here. When you got green go, and the guys in the wind, right?
I think the biggest thing you should do is don’t be afraid to write multiple checks. Yeah. Right. So let’s say it’s a $25,000 scope, you can go to your contractor and say, hey, I’ve got five checks for you. Yeah. 30. All written. Here’s your first one was five grand? Yeah, what? What is covered under that? And so require them to give you a draw schedule. Totally. So then they can be able to say, Well, what I’m going to do first is I’m going to demo blah, blah, blah, Okay, perfect. So here’s the line items you’re going to do that equals about 40 $200 on your bid. So then you finish that, no problem, you made $800. profit, I understand profit. Now we go into phase two, what are we doing in phase two? And so make them break it up into here’s phases? Here’s my draw schedule. That’s right, and then pay accordingly. And then that that minimizes the risk for you. And it maximizes the production, you’re going to get out of that contractor? 100. Because not only does sometimes a contractor take off with the money, sometimes they don’t take off your money. But they did. Right. And what I mean by that is that they take the 25 grand and they go to the neighbor’s house, and they they give him 25 grand, right? Are they there on a draw schedule? So they’re kind of bleeding them out a little bit? So he takes your money? Does that house with your money? That’s it right. And so that’s the big thing to be careful of. Not all contractors are bad, no, a lot of contractors get a bad name. But the majority of contractors that are giving us a bad name are those that don’t run a business.
I was just gonna say they’re just bad business people. And they don’t even want to be bad business people, they’ve just never been taught the right way to do it, or learned how to be a better business person. So I know you’re short on time, dude, I really appreciate you doing this. I love to do this like once a month because this is so important. And then lastly, to finish that, guys, I won’t cut him in last chat until we do what I call the blue tape Walker, to make sure all the little things like doorknobs or chandeliers or whatever it may be, has been replaced. They’re all looking good. That’s when I’ll cut that last check. And then that way, they’re kind of on the hook or Okay, when do I get my last check? That’s how I do that. So dude, appreciate you dude. You’re welcome. Thank you. I can’t wait to get this thing looking way better.