Finding A General Contractor
While all investment team members are important, the one most key to actually helping you estimate the costs for rehab — and then actually complete it — is your General Contractor (GC). Your GC plays an integral role in your ability to accurately analyze the profitability of a flip, and your ability to actually get the flip completed on-schedule, on-budget, and with utmost quality. So, when searching for a good GC, be prepared to do a little bit of work…
Let’s review what a good GC can do for you:
- First, a good GC can help you accurately estimate the cost to rehab any particular property. The GC will walk-through the property with you before you purchase it, and based on your “scope of work,” will be able to give you a good ballpark estimate of the costs to complete the rehab;
- A good GC is generally skilled in many areas of real estate construction, often including carpentry, electrical, plumbing, roofing, etc. So, when it comes to estimating and completing those types of tasks on your rehab, a GC is invaluable;
- In the areas where he is not an expert, a GC often has a team of sub-contractors he works with who can provide estimates for your rehab and can complete those areas where they specialize;
- Your GC will often supervise the day-to-day efforts of your rehab, freeing you up to spend time on other aspects of the project or even to be out looking for more great deals
So, how do you go about finding a good GC?
Here are a few thoughts:
- First, ask other investors in your area for recommendations. This should be the first place you go whenever you’re looking for a new team member;
- Secondly, if you’ve found or know any other great sub-contractors, ask them which GCs they’ve worked with in the past who they’d recommend; good sub-contractors like to work with good GCs, so they often have strong opinions on who’s good and who’s not.
- Hang out at your local Home Depot or Lowe’s, especially early in the morning. Good contractors are buying materials at 6am so they can be on the job by 7am. Start handing out cards and making friends at your local hardware store.
- If necessary, look for (or post) ads on Craigslist or other websites where you can find local talent. While this is the most hit-or-miss method (you’ll certainly get a lot of response, but not all of it will be quality), it’s a way to start if you have no other good options.
Once you find a bunch of potential GCs, it’s important to do some screening. Here is the list of questions I recommend you ask every potential contractor you might work with:
- Are you licensed and Bonded? (I wouldn’t consider a GC was wasn’t!)
- Will you sign an Independent Contractor Agreement? (I don’t want contractor employees at this point)
- Do you create Statements of Work and Detailed Specifications as part of your bids? (Contracts are important!)
- Where are you located? (If I need someone on short notice, I don’t want someone who has to drive 60 minutes)
- What types of projects would you be qualified to do and interested in doing? Purely cosmetic? Basic Remodeling? Major Rehab? Structural? (You want the right person for the right job!)
- Do you know how to pull permits? (I’m won’t be doing that myself)
- Do you hire subs? (Saves me the effort of finding all the workers myself and allow me to get a smaller number of bids)
- What contracting areas are you qualified to perform work or hire subs? Plumbing, Electrical, Roofing, Carpentry, Exterior, Landscaping, etc? (Jack of all trades is good for a GC)
- What contracting areas would you be able to estimate material and labor costs for houses I’m considering purchasing? Plumbing, Electrical, Roofing, Carpentry, Exterior, Landscaping, etc? (I don’t want to have to bring more than one guy out to get an estimate)
- If you got one of my projects, what part of the work will you be doing yourself vs sub-contracting out?(The more he does himself, the fewer people I’ll likely be paying for)
- Have you ever done any rehabs for investors? (i.e,. do you understand my business needs?)
- How much notice would you generally need to schedule a walk-through of a property I’m considering purchasing to give a rehab estimate? (Shorter is better)
- How much would you charge to provide pre-purchase estimates on rehab costs? (I’m happy to pay, but I want to see what they thing they’re worth)
- Would you be able to provide references upon request? (I will check them before giving them a job)
Angie’s List might be a good source for contractors as well
Regarding pre-purchase estimates. I am going to assume you are making multiple offers on properties while hoping that a small percentage are accepted. Lets say you make 10 offers to get 2 properties. Are you bringing a GC to each of these properties for pre-purchase estimates and paying them for each one before making any offers? It sounds like just making offers can get expensive, unless I am misunderstanding your general process. Thanks in advance! This site has been invaluable with the level of information and I am so grateful to have come across it!
-Jarred S.
Baltimore, MD
Hi Jarred,
These days, I pretty much know my rehab costs in about 10 minutes of walking a property. But, that has come with a lot of practice and experience.
Back at the beginning, I would spend a lot of time talking to contractors about what their labor prices were (asking plumbers how much to install a sink or toilet, asking a cabinet guy how much to install kitchen cabinets, etc) and then spend a lot of time walking the aisles at Home Depot getting a feeling for materials prices. This gave me enough information that I could get a ballpark idea of how much a rehab would cost (to within 20-30% of the true cost). I would use this estimate to come up with an offer.
Then, if I got the property under contract (with an inspection period), I would bring in a GC to give me a formal bid and would plug the new number into my analysis to see if the deal still worked. If it did, I moved forward. Otherwise, I would ask the seller for a price reduction.
This way, I only paid the GC if I was certain I could buy the property (if I wanted it).
Thanks for the reply! I do have one follow up question. When asking the seller for a price reduction, is that ever denied? I would assume this would force you to leave the deal, and still pay the GC, correct?
I will definitely start to do some research on pricings and try to familiarize myself better so I can do ballparks on my own. Thanks again for the reponse!
Hi Jarred,
Yes, it’s very possible that the seller will refuse to lower the purchase price, especially if there was competition for the property and the seller has other potential buyers. And yes, the GC is generally going to be paid for his time, regardless of whether you end up buying the property or not.
J Scott your website rules! Thanks for all of this information you generously give on here and BiggerPockets!
J,
I know you like to have all of your contractors sign ICA’s, does this apply to all of your subs as well or do you just have the GC sign one and that covers the entire job? Also, do you carry your own personal general liability coverage or does the ICA cover you enough that you don’t need it? Congrats on the continued success and thanks for all the great info!!
Jake –
When I use a GC, I only have him sign the ICA and his subs are covered under his agreements with them. I do carry general liability for $2M.
Thank you sir I appreciate the response.
J, Are you then making your offers subject to the GC walk through and his estimate? If not and the seller refuses to lower their offer are you simply walking away from the deal?
Hi Matt,
These days, we do the walk-through ourselves and estimate the repair costs ourselves, so we don’t need to involve a GC (we’ve been doing this long enough that we can evaluate everything ourselves). Back when we first started, we’d ensure that we had a due diligence period during which we could get a full inspection and talk to contractors about repair costs. If we found any major issues, we’d ask for a lower price and would happily walk if the seller refused to cooperate.
J,
What type of insurance does your house flipping company carry when the GC’s are doing your construction? I know you want the GC’s company to be insured and bonded, but what about your company?
Also, what type of insurance do you carry on the house’s while you are doing the flips? Do you get special rates for the homes?
Dom –
We carry an umbrella liability policy for $2M, and for some houses we’ll get builder’s risk insurance (basically, it’s vacant property insurance). We won’t get builder’s risk insurance on all properties…in some cases, we’re willing to take some risks…
What is a fair price to pay a GC for his time in evaluating a property with you?
Hi Jaymes –
These days, anywhere from $30-60/hour is about right.