Don’t Let Denver Contractors Dictate Your Investment Business
Investor models vary a great deal and from my unique perspective selling Wholesale Deals in Denver exposed me to a wide variety of these models. However there is a few major problems that keep rearing there ugly heads time and time again for a large portion of my investment clients. I thought I would address the biggest problem and show a solution that the most successful investors in my client network use.
Let me give you some of my background first, I started in real estate investing in 1997 in the Big Island of Hawaii. Looking for land there I came across a real estate agent who was working for an investor doing lease option land deals , I joined his cause and was hooked. I moved back to Colorado in 2000 looking to do the same thing and that just did not exist here. I then began to get into construction as a subcontractor doing finish Trim carpentry on production homes built by KB homes, Richmond, Capital Pacific etc.… It was fast paced work and I was impressed by the way these builders organized there construction crews to get the houses built in such a short amount of time. The money was not great but there was so much work and it went so fast I ended up with a lot of money each month.
Soon I was diving into the semi-custom home market and got my first taste of a little more money with a slower paced work. As a contractor I liked the fact that I did not have to rush and hurry myself as much and could make the same money as production work. Eventually this led me to the custom home market where I worked on incredible homes ranging from 2 million to 25 million dollars. I would take my time, sleep in and eat lunch twice a day with some work in between and I made a killing. Perfection was expected in the workmanship but I did not mind I was always given plenty of time and it paid 10 times as much as production work.
I got back into real estate investing in 2003 during my custom home days by flipping mobile homes as side work and I flipped many. I had full control and management of the jobs and enjoyed not having to work as much and just setting up subcontractors to do the work. This led to me becoming a GC and managing my own construction in the investment properties I acquired .
Flipping Houses and remodel work was exciting but had its challenges , I would GC my own projects and noticed that hiring subcontractors I was always getting a mix of workers who’s experience was either Production, Semi-Custom and Custom workers. The bids were all over the place, many 4 times as high as others. As a GC I just managed the subs and called them in to bid the work I needed and what the subs bid I would accept and that would decide if I would buy an investment deal or dump it based on these bids meeting my budget. It was then I realized I was not really in control of my flipping business, really depending on what the subs bid I was at their mercy my job as a GC was management and Permits and I missed out on a lot of good deals. I got so tired of the subcontractors changing their prices depending on their personal mood that day or weather not they needed a little more money.
This led me to become a wholesaler. Wholesaling, no more contractors to deal with was a relief, I made great money flipping houses and was successful the entire time but I was stressed and jobs kept going over budget. Wholesaling gave me a much needed break. It was not until around my third year working with Denver Wholesale Deals I started to notice that many of my clients where having the same troubles I had but most were unaware and just accepted things how they were going. In fact because I was a GC and most of my investor clients were not involved at all in the process it made an even bigger disconnect for them to see what was going on in there models. I started to notice through a small handful of very successful investors they were making the deals work that the contractor controlled investors were walking away from and were doing very well with the same deals. Other investors said it’s too tight or too much work, bids are too high. I had to know what these guys were doing and when I found out it was not long before I was flipping again myself using the same model.
You see these guys took their business by the horns and took control, much like the impressive production models production builders were using , don’t get me wrong If you are flipping a truly custom home you want custom skilled workers but the vast majority of flips in the Metro area are at best semi-custom mostly production finishes. Regardless you want to determine the pricing, its your money. Well these few ultra-successful investors stopped letting subcontractors and GC’s determine their bids, they simplified it like similar to the production builders models and had more success with their investment properties.
How did they do this?
The first model was for piece work subcontracting. They copied production pricing models and made a cookie cutter template for their flip business. They made a production level piece price sheet, a Semi-Custom level piece price sheet and a custom level price sheet based on current area prices on all the work they needed except some specialties. That is what they pay and it’s final, their subcontractors come in to have a look over and sign the agreement of price structure and go to work. If they was 10 cabinets and they paid $20 per box to hang that was understood to by the price paid by the company and the subs and GC had no say in the bid process.
This allowed them to filter their subcontractors by type and keep the ones that best fit there model being production home subs. By keeping a constant flow of now hiring ads going from a VA or assistant they all had an endless line of subs lining up. It was all agreed from the start what the piece prices were and signed in contract between the subs and GC on the start day. Two more things that they did that allowed them to take control was :
Stop hiring GC’s that bid the jobs themselves. You do not want this. So much money is padded in to feed into the pockets of General Contractors. Also these GC’s don’t have a way of sifting through the subcontractor types. So you’re stuck with their subs accustomed prices. The GC will usually give you production home quality any way or worse so they can make all the money out of the job. They befriend you and make you feel comfortable, maybe you have some success with them on the first few jobs then the prices keep going up or you just don’t realize how much more money you could be making .
Hire a GC to manage Subs work performance, inspect the properties with your project manager, Job Safety and Pull Permits when applicable for a straight fee. Do not hire a GC to bid your jobs and work out his own prices with the subcontractors. He is then in control of your business. Set your own prices and keep the GC as a manager only of subs work quality and safety. Let your project manager or assistants bring in the subs from your advertising , filter them out first by giving them your price sheet, eventually you will have some good steady crews that are cost effective.
Hire a Project Manager or do it yourself. Use them to pre-inspect your properties with your GC and work up the construction estimate based on your set prices. And to pay our subs, give draws, check on progress and purchase material from your own suppliers. Take time to find good material suppliers.
The Second Model I learned about was a lot of these really successful investment companies actually built their own construction company and paid their labor hourly rates with set job time limits. This is the same model larger Skilled Trade companies use when working for production home builders. For instance a plumbing company or HVAC contracts with a KB homes subdivision they have a set amount per model they get paid, they then send hourly workers out to complete the work within the time limits. This is nice because it gets rid of the piece work mentality and can turn laborers skilled in multiple areas into very cost effective crews that save your investment company the overhead a major company would make on top of their workers.
Investment Property is a risky business, if you use these models above you will increase your profits and open your business up to taking on deals your current model does not allow and make a good profit from them. Don’t sit on the sidelines while your current GC and Subs are out controlling some other schmuck and taking their profits. Take control of your business put the time in to make it a model that will last and weather the changing market.
Here at The House Ninjas we can provide you with local General Contractors to complete your flip deals and Rental Investment Property Construction. Contact us for more info.