Are you ready to hit the ground running with flips, but have no bench of contractors to do the work? If so, then you are facing one of the most common issues that stall out new investors, but don’t worry. The lack of reliable labor obviously presents a problem of monumental proportions to most new investors, but it is something that is easily and quickly solved.
When looking for contractors, investors are always trying to achieve the perfect balance of quality, speed, and cost. It’s critical that we don’t pay too much, but we also can’t pay the lowest price and end up with a contractor who doesn’t do a quality job or just doesn’t show up. On the flip side: just because you pay a contractor an above-average amount for a job does not always mean you’ll get a speedy job done with precision quality. This is truly the “contractor conundrum,” as I call it.
Contractors come and go. Consider yourself lucky if you’re able to retain a good contractor for more than three or four jobs. If you want to be a successful rehabber or landlord, you need to reconcile yourself to the fact that a good portion of your time will be spent finding, vetting, and managing your bench of contractors.
Your success will depend on the strength of your Rolodex, so leverage these two simple and highly effective techniques to find a bevy of contractors precisely when you need them.
Step #1: Go Where the Herd Is
When you’re hunting – you have to go where the herd is, right? You’ve got to get up early – grab your shotgun, and head on over to the watering hole, where you know the herd will be grabbing its morning drink of water. Strangely enough, it’s no different with contractors…except for the shotgun part.
Ask yourself, “Where do contractors hang out?” Give yourself a gold star and go directly to the front of the class if you said, Home Depot, Lowes or any building-supply house. Now that you know where the “watering hole” is, get there early for the best results.
So, there you are, just before dawn, at the Home Depot. Just as you’re finishing up your “Venti Americano,” the vans start rolling in. Hopefully your phone is fully charged at this point – because you’ll want to take pictures of all the names and phone numbers on the sides of each van.
Next, you’re going to grab a stack of your business cards. You did bring them with you, right? You’re about to head into the store. Every big-box supply store has a ProDesk where the contractors and other service providers can go to connect with people like you looking for service. You’ll want to head straight to that area and get ready to meet some people [see sidebar].
Don’t ever forget that real estate investing is a networking business. For many of you reading this, networking, which often involves walking up to total strangers and striking up a conversation, may be asking a lot. I’m not asking you to tell these guys your life story. In fact, I just want you to ask the following questions:
What Do You Do?
You’ll get a lot of contractors who will say, “Man, I do it all. We’re good at everything.”
Don’t believe it. Here’s a revelation: not everyone always tells the truth. I know, I know. It’s hard to believe, but it’s true.
Sure, some contractors can actually do every aspect of the rehab from demo to trim, but they are very rare. When most contractors tell you they can do everything, it’s because they either hate what they do, or they are not making any money doing what they do and think if they diversify they’ll magically make more money.
You’ll want to ask every contractor:
- Will you work in [name the area where you think you’ll be doing your flips]?
- Are you licensed and/or insured?
- Can you provide recent references? Can I see current examples of your work?
Now, take a deep breath. It’s over. You came out of your shell, and emerged victorious. Pat yourself on the back. You made it through, and you should have several leads on good contractors who will be able to help you get your deals done.
A final note before we move on to Step #2: This gets much easier as you do it. By your fourth or fifth conversation, you’ll be an old pro. Trust me on this.
Step #2: Look for the Ugly Houses
In this bench-building technique, you’re still meeting contractors where they are, but you’re not meeting the herd all at once where they shop. Instead, you’re going to meet these guys one-on-one, right where they work!
Here’s how you find them:
First, you’ll need access to a Multiple List System (MLS). The MLS is software used by all realtors for listing and selling houses. In Maryland, where I’m located, the MLS is run by a company called, Metropolitan Regional Information Systems, Inc. (MRIS). I’ll use MRIS as an example when discussing how to navigate an MLS system.
If you’re not a real estate agent and you don’t have MLS access, this would be the time to exercise those newly found networking skills. You’ve got to find an agent who is willing to help you. Alternately, you can take the required classes, pass the exam, and become a licensed real estate agent. I got my license ten years ago and still believe it was one of the best decisions I ever made.
I often say, “An investor without a real estate license is like a carpenter without a hammer,” but not everyone agrees with me by any means. You will have to make the decision about whether or not to get your license for yourself.
Now, back to finding contractors.
Once you’ve located an agent who will play ball with you, you’ll want to ask them to do a simple MLS search for you. Here are a few search criteria:
PICK A ZIP CODE: Try to pick an area that you know is a hotbed for investor activity. Pick ZIP codes where you know investors are active.
SOLD: Next, tell your agent you are looking for sold listings only. Not active, or under contract, sold only.
CASH: Next, search only for houses that were purchased with good old American cash money. Now, here’s the thing – most people have no idea that they can do this on the MLS.
Take a look at the screen shot taken directly from the MRIS. Notice the “Additional Fields,” area. It’s in that area that you’ll find the search box, “New Trust Loan Type.” This box denotes how the buyer paid for the property. For this search, the Realtor must select, “CASH.”
LAST 7 – 45 DAYS: Finally, you want to refine the results to houses that were sold within the last seven to 45 days. That means it could have been purchased no earlier than 7 days prior to your search, but no later than 45 days prior to your search. Again, this is easy stuff for a realtor who knows anything about how to use the MLS system.
That’s it. That’s all the criteria you need to do your search, and you should have a list of results to review. If you’re lucky, the search will return a long list of addresses. Maybe you’re asking, “What the heck, Craig? Why am I looking for CASH SOLDS within the last seven to 45 days?”
Well, let me ask you, who buys houses with cash? Investors!
And, what is a common trait of almost every house purchased by investors?
You guessed it. Investors buy houses that need work!
And, who does the work?
Correct! Contractors do the work.
You should now have a list of investment-grade houses that were purchased with cash, where contractors are working.
Keep in mind, you’ll want to visit these houses during normal business hours. Look for a dumpster out front, work trucks, or permits in the window.
If you think contractors are working in the house, simply walk into the house like you own it. It takes some nerve to do this the first few times, but you can do it! Walk in with authority. I usually look for the nearest worker and say something like, “I see you are doing some electric there. I’m Craig. I was wondering if you’d be interested in doing some work for me at a house I have in [name the town you’re in]?”
If you’re a new investor, I know this can seem daunting. It doesn’t have to be. Trust me. Just be yourself. Most of all, don’t lie and don’t try to be a big shot.
If you don’t have a deal, simply say, “I’m looking for contractors who would be willing to work in [insert neighborhood]?”
Get the contractor’s number and email. Also ask if he is licensed and insured. Then say, “If I hired you, would you have a problem getting me a few recent references?”
That’s really it. You don’t need to strike up some big conversation with these guys. They’re working hard on another job, so your main goal should be to make contact and then get out of the way. Also, it’s possible you may walk into a house and discover that the owner of the property is present. If this happens, be respectful of the situation and remember that you essentially are, from their perspective, “poaching” their guys. Explain you saw the trucks out front and you are looking for a few reputable contractors for a project. You don’t need to go into a lot of details about your investing business. Just apologize if they seem upset and move on.
Now, Get Out There and Do It
Success is all about execution. I once asked the most successful investor I know, “What is the biggest difference between you and all the others?”
You may find his answer surprising. He told me, “Not much. I just have a long history of executing consistently.”
So get out there and build your contractor bench. Finding contractors can be daunting, or it can be pretty darn easy. You may as well choose easy. Create a system for every aspect of your business, starting with finding, vetting, and managing your bench of contractors.
FlipTip from Craig: Know Who You’re Looking for Before You Go
Real estate investors never pay retail for anything. We buy our houses at wholesale prices, and we get our materials for the best prices. Why then would we ever want contractors who charge more than wholesale pricing? When looking for a good contractor, always remember you’re looking for the “small guy.” You’re rarely looking for the cheapest guy, but you’re not looking for the company you heard about on TV or on the radio either. In my experience, investors can’t afford contractors who have million-dollar ad budgets – at least not more than once.
You’re looking for the guy (or gal) I call “Chuck In the Truck.”
Chuck might have a crew of two or three guys at most, and he’s out there swinging a hammer with them. He’s doing the work, not riding around from job to job with a clipboard. Chuck doesn’t have a back-office, an accounting department, or a marketing department because he is all of those departments! To get the most efficient pricing from guys like Chuck, make sure you know in advance whether or not he’s running a small, efficient company. If he is, then you likely have found a guy you can work with and possibly even count on.