Negotiating Pricing With Your Contractor

When collecting bids from a contractor, my rule of thumb is to always get three bids, especially when you're new in this business. You also need to decide on one contractor versus many to do multiple jobs; what is best for your time management and pocketbook?
To figure this out, make sure that you and your contractor do a thorough walk through assessment of the property and define what needs to be done. This can be done through a repair estimates worksheet. Have your contractor write down the scope of the work to be done for each item that needs to be replaced/repaired (i.e. windows, kitchen cabinets, doors, fencing, etc.). By doing this you can determine the general contractor’s price for each item. This breakdown will tell you if you should hire the GC for everything, or if you could save money on an item that you feel is grossly overpriced. Remember, the price may be a little higher than if you were to personally do all of the leg work to get it done, but is it worth the couple extra bucks to not have to worry about it? Additionally, if you think your GC price is way too high, but don’t want to undertake any of the workload, remember that it doesn’t cost anything to get bids, so shop around a little bit more to get the best rate as that means more money in your pocket in the end.
Rehab Investor Tip: You get what you pay for. Cheaper doesn’t always mean better, and most times can mean more expensive in the long run. You don’t get a quality job, or it doesn’t get done right the first time and has to be redone, the work might not be done in the time frame you are looking for, and it might not bring the total job up to the finished product you are looking for. Sloppy work or ‘cheap labor’ to me means money lost.

Ways to know if the contractor is a good one…

• Ask them if they have their own tools
• Look at their truck
• Ask for before and after pictures from a previous project
• A good rehab contractor will be able to do most repairs/updates “in house”
• He will also have relationships with other tradesmen
• He will get cheaper prices if he has relationships with other tradesmen

Risks Associated
There is a risk that you will not get as good of work done on some repairs because your contractor is not an expert in all fields. These risks are inherent when hiring new contractors. It may behoove you to stop by the work site more frequently with new contractors to ensure the work meets your standards. You can also mitigate this risk by being thorough with your hiring process. Do your best to screen as much as possible so that once you have a few projects under your belt you should have a multiple “go-to” list of contractors and sub-contractors to call upon for when you start doing multiple rehabs at once.
There is also a high risk that your contractors will work past your timeline, and budget. These risks will become less of a problem with the more rehabs you do, because you will better understand your contractor’s turnaround times, and costs associated with the repairs. You should always add a little padding to your repair costs for instances such as these (but obviously, don’t let your contractor know of these reserve funds). A safe padding estimate is 20%. So, if the contractor says repairs will cost $10k, you should have at least $12k set aside for the project. This should also help cover repairs that you may have overlooked too.
There are many factors to consider when working with your new contractor.