Rehabbing Houses Part 3 of 5 – Finding a Good Contractor

First I’ll tell you where NOT to look. Then I’ll cover some of the good, but common, responses that experienced investors and gurus give, then I’ll share with you something that I have had great success with that I’ve never heard anyone else teach.

Where NOT to look for rehab contractors

The (hardcopy) Yellow Pages

The guys advertising with display ads here are typically targeting John and Mary homeowner who are willing to pay top dollar.

Even it their ad isn’t a display ad, this is a very inefficient way to find an affordable general contractor, and should only be used as a last resort for a special item that is an emergency (which is not the category of a rehab project).

Rehab Services Offered by Major Hardware Stores (Home Depot, Lowe’s, etc.)

These places may be excellent sources for materials, but they are not the ideal source for your labor. Despite the fact that they go out of their way to tell you that they want to take care of your rehab needs, at the time of this writing, they don’t have a true general contracting service.

If you contact them about a rehab project, they will want to send out a bunch of subs for different components of the job to give you bids. This is terribly inefficient, and they will likely be too high priced anyway. This is just too much hassle for someone who is trying to run a business rehabbing houses, and profiting through resale or rental, or another exit strategy.

Typical Sources to Find Contractors

Ask For Referrals From Other Investors

This sounds good in theory, but usually doesn’t work well in practice. In practice, its a lot easier to find a maintenance person, a skilled tradesperson (plumber, carpenter, etc.), than it is to find a quality general contractor by asking other investors.

Why? Because if the investors are doing consistent business, they don’t want their “top secret” favorite general contractor to end up “getting stuck” on your job when they need him/her again. A good general contractor is worth their weight in gold, and every experienced rehab investor knows this. So don’t expect any golden nuggets.

However, occasionally when an investor is running out of rehab projects, and feels a sense of financial obligation for their contractor’s well being, they may WANT to refer them out to someone else. They will want to refer them to someone they feel close with, can trust, or isn’t doing a bunch of rehabs, so that the contractor is likely to be available when they need them again.

Therefore if you catch the right investor in a weak moment, you could stumble upon a good find. But even then, remember, that investor will likely be expecting “their” contractor to come back “home” when they need them. If that doesn’t happen, this could cause a problem with you and your colleague. As long as you don’t create this conflict, this could be a viable option to keep your work moving along until you find a replacement where there are no scheduling conflicts.

Hang Out Around Opening Time Of Major Hardware Stores (Home Depot, Lowe’s, etc.)

This can be a good method to find general contractors and all manner of skilled trades people. It takes a little patience and assertiveness on your part, and you have to get up early in the morning.

You want to be there very early in the morning, because you want to target guys who get up early and get working everyday. You don’t want to deal with guys who can’t show up before 10 AM or Noon to save their life.

Responsible, efficient, professional contractors are getting the materials early so they can get to the jobsite and get done.

Also, you can target the guys with advertising on their trucks. Again, this isn’t necessary at all, but it does indicate another level of commitment to their craft.

Stop And Get Contact Info When You See Contractors Rehabbing Houses

This is another targeted method, because you are finding guys who are already “working”. At least you know these guys actually show up for work.

Unlike the guys/gals you met at the hardware store at 7:00 AM, however, you don’t know what “time” these guys show up for work if you happen across them at 3:00 PM.

The other advantage to this method is that you get to see (what is presumably) their work first hand. Of course there is the outside chance that you could be looking at work done by another sub contractor, who isn’t there at the time, that they are taking credit for, so try to focus on stuff that they are actually physically working on in front of your eyes.

Look In The Small, Weekly Neighborhood Newspapers

This is another “starter” method. These guys have at least spent a few bucks to advertise in a local, weekly, neighborhood paper. They may be advertising in a specific neighborhood paper because they live close by and it’s easy for them to get to their jobsites. This could work to your advantage, if you are doing rehabs in that particular neighborhood. Therefore you want to first check the neighborhood newspapers where the “rehab project” is, not necessarily the paper for the neighborhood where “you” live.

Always Ask About Licensing, Bonding, and Insurance

In all of the above methods, you still need to screen these guys to see if they are even licensed. Whatever method you use, you won’t know about their bonding and insurance until they show you “up to date” certificates.

My Favorite Method which I Haven’t Heard Anyone Else Teach…

I’m not saying that no one else is teaching this. I’m just saying I haven’t heard them. So far we have looked at method to find contractors that we are not 100% sure are licensed. If the contractor is indeed licensed, his license number will be kept on record with the city. Why not just go to the city and obtain the list of licensed contractors? Why not go directly to the source?

This eliminates all the guesswork and wondering if someone is lying to you. Also, once you have the list, you can verify the license number of a contractor that you found through another means, say at Home Depot. If he tells you his license number is XYZ, you may see that he isn’t on the list, or his license is expired, or its actually the license of someone else that he works for (or doesn’t work for).

So if you use this list to find your contractors, then you simply call them up since the phone number will probably be provided. Expect to leave messages, since these guys should be out working, right? When they call you back, you can explain what you’re trying to do… rehab houses and hire someone you can give repeat business to. You pay promptly upon completion, and you expect that the contractors have accounts set up with supply houses, so that they don’t need material advances up front.

Some of these guys will want to do business with you, and some will prefer to work with John and Mary Homeowner at exorbitant prices that won’t allow you to make a profit. Some will insist on getting 50% down no matter what, which is not the deal you are looking for.

They will ask you what your budget for the job is. Tell them you have no idea, that you are taking bids, and you have funding available (assuming you do of course). You can give them some specifics of what needs to be done, or better yet fax or email them your scope of work.

If they are persistent about finding out what your budget is, then give them a wide range because you don’t want to be pigeon-holed into paying a certain price. If you’re trying to get 3 bids and you tell everyone the budget is $10,000, then “presto” all the bids come in right around $10,000.

Instead, do this: If you think its a $10,000 job, tell them that based on experience, you know that job could range anywhere from $5,000 to $15,000 (for example). Or tell them you don’t expect to pay any more than $10,000, but you’d like to get their feedback on what you can do to lower costs closer to $5,000. Whatever approach you use, just make sure you tell each bidder the same thing. More on that later…

Conclusion

Feel free to use all the recommended methods to find your licensed general contractors. Several of these methods may also help you find licensed or unlicensed skilled trades people whom you can use for maintenance projects.

Even if you don’t use the city’s list of licensed contractors as your main source, you can use it as a backup to verify contractors you find from other sources.

First I’ll tell you where NOT to look. Then I’ll cover some of the good, but common, responses that experienced investors and gurus give, then I’ll share with you something that I have had great success with that I’ve never heard anyone else teach.

Where NOT to look for rehab contractors

The (hardcopy) Yellow Pages

The guys advertising with display ads here are typically targeting John and Mary homeowner who are willing to pay top dollar.

Even it their ad isn’t a display ad, this is a very inefficient way to find an affordable general contractor, and should only be used as a last resort for a special item that is an emergency (which is not the category of a rehab project).

Rehab Services Offered by Major Hardware Stores (Home Depot, Lowe’s, etc.)

These places may be excellent sources for materials, but they are not the ideal source for your labor. Despite the fact that they go out of their way to tell you that they want to take care of your rehab needs, at the time of this writing, they don’t have a true general contracting service.

If you contact them about a rehab project, they will want to send out a bunch of subs for different components of the job to give you bids. This is terribly inefficient, and they will likely be too high priced anyway. This is just too much hassle for someone who is trying to run a business rehabbing houses, and profiting through resale or rental, or another exit strategy.

Typical Sources to Find Contractors

Ask For Referrals From Other Investors

This sounds good in theory, but usually doesn’t work well in practice. In practice, its a lot easier to find a maintenance person, a skilled tradesperson (plumber, carpenter, etc.), than it is to find a quality general contractor by asking other investors.

Why? Because if the investors are doing consistent business, they don’t want their “top secret” favorite general contractor to end up “getting stuck” on your job when they need him/her again. A good general contractor is worth their weight in gold, and every experienced rehab investor knows this. So don’t expect any golden nuggets.

However, occasionally when an investor is running out of rehab projects, and feels a sense of financial obligation for their contractor’s well being, they may WANT to refer them out to someone else. They will want to refer them to someone they feel close with, can trust, or isn’t doing a bunch of rehabs, so that the contractor is likely to be available when they need them again.

Therefore if you catch the right investor in a weak moment, you could stumble upon a good find. But even then, remember, that investor will likely be expecting “their” contractor to come back “home” when they need them. If that doesn’t happen, this could cause a problem with you and your colleague. As long as you don’t create this conflict, this could be a viable option to keep your work moving along until you find a replacement where there are no scheduling conflicts.

Hang Out Around Opening Time Of Major Hardware Stores (Home Depot, Lowe’s, etc.)

This can be a good method to find general contractors and all manner of skilled trades people. It takes a little patience and assertiveness on your part, and you have to get up early in the morning.

You want to be there very early in the morning, because you want to target guys who get up early and get working everyday. You don’t want to deal with guys who can’t show up before 10 AM or Noon to save their life.

Responsible, efficient, professional contractors are getting the materials early so they can get to the jobsite and get done.

Also, you can target the guys with advertising on their trucks. Again, this isn’t necessary at all, but it does indicate another level of commitment to their craft.

Stop And Get Contact Info When You See Contractors Rehabbing Houses

This is another targeted method, because you are finding guys who are already “working”. At least you know these guys actually show up for work.

Unlike the guys/gals you met at the hardware store at 7:00 AM, however, you don’t know what “time” these guys show up for work if you happen across them at 3:00 PM.

The other advantage to this method is that you get to see (what is presumably) their work first hand. Of course there is the outside chance that you could be looking at work done by another sub contractor, who isn’t there at the time, that they are taking credit for, so try to focus on stuff that they are actually physically working on in front of your eyes.

Look In The Small, Weekly Neighborhood Newspapers

This is another “starter” method. These guys have at least spent a few bucks to advertise in a local, weekly, neighborhood paper. They may be advertising in a specific neighborhood paper because they live close by and it’s easy for them to get to their jobsites. This could work to your advantage, if you are doing rehabs in that particular neighborhood. Therefore you want to first check the neighborhood newspapers where the “rehab project” is, not necessarily the paper for the neighborhood where “you” live.

Always Ask About Licensing, Bonding, and Insurance

In all of the above methods, you still need to screen these guys to see if they are even licensed. Whatever method you use, you won’t know about their bonding and insurance until they show you “up to date” certificates.

My Favorite Method which I Haven’t Heard Anyone Else Teach…

I’m not saying that no one else is teaching this. I’m just saying I haven’t heard them. So far we have looked at method to find contractors that we are not 100% sure are licensed. If the contractor is indeed licensed, his license number will be kept on record with the city. Why not just go to the city and obtain the list of licensed contractors? Why not go directly to the source?

This eliminates all the guesswork and wondering if someone is lying to you. Also, once you have the list, you can verify the license number of a contractor that you found through another means, say at Home Depot. If he tells you his license number is XYZ, you may see that he isn’t on the list, or his license is expired, or its actually the license of someone else that he works for (or doesn’t work for).

So if you use this list to find your contractors, then you simply call them up since the phone number will probably be provided. Expect to leave messages, since these guys should be out working, right? When they call you back, you can explain what you’re trying to do… rehab houses and hire someone you can give repeat business to. You pay promptly upon completion, and you expect that the contractors have accounts set up with supply houses, so that they don’t need material advances up front.

Some of these guys will want to do business with you, and some will prefer to work with John and Mary Homeowner at exorbitant prices that won’t allow you to make a profit. Some will insist on getting 50% down no matter what, which is not the deal you are looking for.

They will ask you what your budget for the job is. Tell them you have no idea, that you are taking bids, and you have funding available (assuming you do of course). You can give them some specifics of what needs to be done, or better yet fax or email them your scope of work.

If they are persistent about finding out what your budget is, then give them a wide range because you don’t want to be pigeon-holed into paying a certain price. If you’re trying to get 3 bids and you tell everyone the budget is $10,000, then “presto” all the bids come in right around $10,000.

Instead, do this: If you think its a $10,000 job, tell them that based on experience, you know that job could range anywhere from $5,000 to $15,000 (for example). Or tell them you don’t expect to pay any more than $10,000, but you’d like to get their feedback on what you can do to lower costs closer to $5,000. Whatever approach you use, just make sure you tell each bidder the same thing. More on that later…

Conclusion

Feel free to use all the recommended methods to find your licensed general contractors. Several of these methods may also help you find licensed or unlicensed skilled trades people whom you can use for maintenance projects.

Even if you don’t use the city’s list of licensed contractors as your main source, you can use it as a backup to verify contractors you find from other sources.