Hiring a Dependable Contractor is Crucial to Real Estate Investor Success

by 08 Jan 2013

For real estate investors doing home flips, having a dependable contractor is key to success. Because making money depends on the speed of turnover of the property, any delays can really cut into the project profit.

We recently funded a hard money loan on a purchase and rehab of a property in Provo, Utah. The property was half fixed up when our clients purchased it. They were buying the house for $157,200 and would put approximately $21,000 into it. Their estimated After Repaired Value (ARV) is showing as $235,000 and there are strong comparables for it. The client estimated 2 weeks to complete the rehab on the house and another 4-5 weeks to sell it. This timeline seemed very realistic for the repairs needed and the days on the market for the neighborhood the house is located in.

At the outset, prior to closing on the property, we asked for a bid from our client’s contractor. It took so long to get the bid from the contractor that it actually delayed the closing on the property by nearly one week! This was a red flag that we all should have paid attention to.

After closing on the property it was just one delay after another. The contractor didn’t even start the work until the 3rd week after closing on the property. He came up with some pretty creative excuses too! During week 3 after the closing, the contractor finally came in and demolished one of the walls between the kitchen and the living area. Nothing else was done.  Another 2 weeks went by and still nothing more had been done to the house.

After week 5, the contractor still had only demolished the one wall in the house. The client called me to find out what he should do about the contractor. The client was panicked because his holding costs with the loan were eating him up with each passing week. I told him to fire the contractor immediately and get another to come in and finish the work.

When doing home flips, having a dependable contractor is key to success. If you see delays or excuses at the outset, consider these to be red flags and start looking for another contractor. In California, delays are just the norm right now for contractors due to high demand, so listen to what your market is dictating as well. Listen to your gut. If a contractor is being flaky, kick him to the curb and find another.

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