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Some house flippers choose to use a general contractor to manage the entire job.  This is especially true when house flipping is not your primary source of income.  You will need someone there watching your contractors every other day at a minimum in this business.

The two types of bidding methods contractors typically use are “Total Cost” or “Time and Materials”.   The rehab or remodel process can be a tricky one.  You can never know just how much work needs to be done until you start the demolition process.  This is why many contractors choose a time and materials bid.  This type of contract requires you to pay them by the hour, plus materials, until the job is completed.  As you can imagine, this could get very expensive!  A total cost bid however contains a set price.  When combined with detailed plans, and a spec sheet, the total cost contract is the safest route to take for house flippers.  It limits the amount you will pay and typically only very experienced contractors will even give you this type of bid.  If the contractor under estimates the job, he or she will have to eat the extra costs.   The only down side is that you run the risk of the contractor quitting or attempting to get ahead of you on the payments and then leaving the job.  Once again this goes back to doing your due diligence on the contractors prior to hiring them. 

House Flipping Tip 

A spec sheet is a very effective tool that outlines exactly what it is you want in your property.  It also helps house flippers stay on top of the contractors.  The spec sheet can be used to make sure that everything in your project is exactly what you wanted.  Often times contractors bid low on a project but use low grade materials to make up the difference.   Other times they will say that they use top notch materials but catch a case of the “I forgots” or the “I never saids”, come payment time.   A spec sheet is a great way to make sure these issues do not occur.

What is a Spec Sheet?

The spec sheet is a list that details exactly what materials you want used on the project.  For example your spec sheet for your plumbing may include Moen Faucets with the exact model number, price, where it can be purchased, delivery issues, delivery time frame, special order, etc.  It does not need to include this many details but you get the idea.  The sheet should be submitted to your contractors prior to receiving a bid for your project.  This way there are no discrepancies later on and your contractors can include these costs in the original bid.

Let’s get straight to the house flipping point…

 House flipping rule # 1 - Buy the smallest or ugliest house in the neighborhood. 

Being a house flipper means that you don’t mind the dirty work; or paying someone else to do it.  The main reason for this rule is based on future appraisal value.  The smallest house on the block has the biggest potential to be raised.  Once the rehab work is completed, it will appraise higher based on the new improvements, and the value of other houses on the block.  Conversely the largest house on the block is already carrying the weight of the market value.  Adding square footage for instance will not bring the same Return On Investment (ROI) as it would for smallest house.

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I know it’s been a few days since my last post but I promise I have some really good tips coming soon including this one.  Considering my “negligence”, I’ll let you guys in on a secret that only the pros know about.  When I say pros I mean remodelers, rehabbers, developers, house flippers, investors and others who buy building materials frequently.  It’s called the home depot pro bid room. 

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I don’t think I can remember a time when I would call a contractor one day and he would show up the next day.   A few years ago, when things were good, contractors were busy.  Getting through each phase of the job quickly was a challenge for GC’s (general contractors) and investors.  I would call my plumber, tell him I was ready and his response would be something like “I’ll be there next Monday”.  Now when I call them it’s, “I’ll be there tomorrow”.  

My concrete guy Adam was one of those “always busy” contractors.  His services were always highly sought after and business was good.  He owns two restaurants, a laundry mat and his concrete business.  I remember waiting two weeks to get him back to finish a job.  Yesterday I called him after church and at seven o’clock this morning he was there.  This Hopkins project just might make it on schedule.  We’ve got a long ways to go so’ I’m not getting my hope up too soon.       

Good subcontractors are happy to give you the names of other contractors.  It’s a great way for them to get referrals.  If you find one that you can trust, he usually knows of others that he likes to work with.  Just today, my plumber gave me another framer and concrete guy that he often does work for.  Contractors run in the same circles and prefer working with someone they have experience with.  Flipping or rehabbing houses requires that plumbers, heating contractors and electricians communicate. Things like trunk lines, ductwork, and pathways need to be planned especially without a architectural diagram.  It can make your job a lot easier just finding one good contractor that will give you the names of others.If you’ve established a relationship with a subcontractor, you can often get the inside scoop about the others as well.  Things like who’s having financial difficulties, dissolving partnerships, going through a divorce, kids in college, a bad drinking habit, and the list goes on.  All of these little things will make a difference on the job that he/she will do for you.  In most cases, I only need to ask a simple question  “What’s his deal?”.  Before you know it, you’ve got the guys life history.  This information is valuable when it comes to negotiating a contract as well.  If you know the guy is trustworthy but needs work, you are in a good position to get a decent price.  Be careful not to go too low.  Even the most honorable person will resort to drastic measures to pay the bills.  If the situation is really bad stay far away no matter how good he is.

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