Today’s REI Classroom Lesson

As Ron Carlson explains, there’s some tricks that some contractors use in order to get your business. Ron shares what they are so that you can be aware when looking for your next contractor.

REI Classroom Summary

It’s important to protect yourself from contractors who may not be up front with you. They might tell you they’ve done jobs as big as yours (but haven’t) or underbid the job (and ask for more money later). There’s numerous ways they can trick you and Ron shares them with us today.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Ron: Hi, my name is Ron Carlson. I am with Renovation Gurus. Today I’ll be your host on REI Classroom, and I want to talk to you about tricks contractors use to get your business.

Mike: This show was sponsored by passiverental.com.

Ron: I’m a contractor. I see a lot of contractor bids. I see a lot of people trying to do the right thing, doing the wrong thing. I see people purposefully doing the wrong thing. There are a lot of contractors out there that are really good with their hands but they don’t understand the customer service side. There are a lot of guys out there that will write a bid or do something to get your business hoping to sideswipe you later. So I just want to talk to you of how to protect yourself when using your contractors, when hiring your contractors, and specifically when working with a bid.

Some contractors, they will purposefully forget to put items on your bid. You need to go through your house that you’re rehabbing and get a pretty detailed list of what you want, and make sure it’s on your bid. Contractors will write up a bid, say, for $20,000 and they’ll purposefully forget small items like backsplash, fireplace, curtain rods, blinds. Then at the end, they’ll come back to you and say, “Oh, this item wasn’t on there. We have to charge you an extra $3000, or $4000, or $5000.” So in the beginning, you thought you were getting the cheaper bid. At the end, it’s more expensive because they have purposefully missed stuff as far as the sales process.

Some contractors group many items into one. For example, they’ll just put, “Kitchen, $10,000.” It doesn’t really have a good description of what you’re getting as a client. A perfect example of this is, I hired a contractor. He gave me a bid for a couple thousand dollars. He said, “This is your kitchen.” I came back when the kitchen was done, and had granite countertops and a sink. I say, “Where is my backsplash?” He said, “Oh, your backsplash isn’t included in that price.”

So he hit me with a change order. I said, “So okay, where’s my stainless steel appliances? Where’s my garbage disposal?” “Oh, that wasn’t included in your kitchen price.” As a client, I thought I was getting a full kitchen, and it was not specifically laid out on the bid for my price on what I was really getting. So sometimes they group stuff together.

Contractors will tell you that they’ve done projects like yours in the past, when they’ve never have. I’ve seen this several, several different times in many different aspects. Make sure that if you’re doing especially a big remodel, that you can get referrals or references, pictures, and preferably going and seeing a job that the contractor is currently working on that is very similar to your job. If you just do a little due diligence, you’re going to save yourself time and headache from hiring a contractor that might not be experienced in what you need them to do.

They’ll tell you that they’re not too busy to handle your project when in reality they have way too many projects going on. A good rule of thumb that I use here is for every project a contractor has, they should have four subcontractors or four employees working on that house. If they have, for example, only 10 teams or 10 guys total but they’re working on seven houses, that’s not going to work because they need two, three, or four guys per every single house.

So if you ask them how many crews that they have or how many guys work for them, and then how many houses they’re working, you can figure out if they have enough manpower to handle your rehab. If you hire that contractor that’s in too many fires, probably going to have financial problems with them, you’re probably going to have some sort of timeline dispute, and you just don’t want to hire a contractor that can’t handle your work today.

They’ll tell you an unrealistic timeframe. They’ll say, “Hey, I can get this done in two weeks,” and in reality it’s a three-month job. For us, and this varies in every market, it varies every place, for us, we typically can do about $1000 worth of work per day. So if you look at your bid and you have a $20,000 bid, you should be able to kick that out in 20 days or less. Now, it could be 23, or 25 with some contractors? Sure, but it should not be 60 and should not be 3. Make sure you kind of know how much work is expected to get done when you hire your contractor.

Some contractors, like I said in the beginning, they just completely underbid the job. They have a $20,000 job and they bid it for $10,000. Some of these guys are crooks. They’ll take your down payment of, say, $5000 or $8000, and they’ll walk away, they’ll never do the job again. Call references. Make sure you know who you’re working with before you cut them a check.

Then some contractors give a verbal bid. When I first got started in construction remodeling, I hired a guy who gave me two verbal bids on two houses and I lost a bunch of money because he was just like, “Hey, I’ll do this for 55,000,” but I never got detailed specifics on what he was going to put in the house. Then when I said, “Hey, look, can you replace the sheetrock?” He would say, “Well, that wasn’t in my original bid.” Never ever do a verbal bid, and never ever do a verbal change order.

Change orders will happen. They’re part of the construction business. If you tear out a wall and there’s termite damage, or water damage, you will have a change order come in because there’s additional cost of labor and material to either remove it, repair it, or fix it.

But don’t ever do a verbal change order because what will happen is you’ll, as the client, say, “Well, I thought that was on the original bid,” and the contractor will say, “No, that wasn’t.” And you guys won’t have a clear place to go back to, to say, “How much was this? How much are we charging? Are we taking money off of the original bid? Are we adding money to the original bid?” Just make sure it’s very clear what the change order is and that it’s not verbal, it’s in writing and you both sign off on it.

My name is Ron Carlson, I’m with Renovation Gurus. You can reach me directly on my cell phone at 817-566-4346. I’d love to help you with any questions you have. You can also email at admin@renovationgurus.com. I hope you guys have a great day.

Mike: Passiverental.com is your source for turnkey, done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cash-flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Ron Carlson
Wholesaling house after house gave enough capital to start flipping houses. For a short time he worked alongside a few hedge fund companies. Started a real estate brokerage firm, started a construction company, started owner financing houses. He spends a lot of his time speaking at local REI groups, and time leading his team of acquisition agents