NUTS & BOLTS
BLAKE JOHNSON
3 CommonMistakes Investors MakeAbout Their Contractors THESE MISCONCEPTIONS COULD BREAK YOUR BOTTOM LINE.
nothing wrong with this practice, but it makes it even more like- ly that the wholesaler making the recommendation is looking out for themselves, not you, when they give you a name. LESSON LEARNED: Don’t get sold a house and a contractor as a package deal. Vet any contractor that is recommended by some- one who you do not know. Just because they sold you a house does not mean that you know them. HOWTO FINDAGOOD CONTRACTOR WHO FITSWITHYOU For me, personally, when I walk into a house with a new investor, I want them to ask me what I would do to the property. It’s a good way for them to vet me, if we don’t know each other, and a good way for me to determine if I’ll be able to do a good job meeting their needs. As an investor, always remember: Your ears will never get you in trouble. Take the time to ask your contractor questions and then listen to what they say. If you’re looking for guidance, take a minute to pick apart what they recommend you do and also what they say about how they are willing to help you do it. Some contractors will take the reins for you, but you need to be sure they have experience with that as well. Find the right fit for you and make sure you’re both going in with your eyes wide open, and that’s where the rubber meets the road. •
the contractor will walk them through the fixing side of the fix-and-flip process. They won’t. That is not their responsibility, and it’s not entirely fair to demand they do so. Sure, there are contractors out there who have a lot of experi- ence in their markets who also work with investors (my compa- ny, for example, works exclusively with investors and does not take owner-occupant clients), but you should never assume a contractor will help you through the process or even understand how to help you achieve your financial goals on a deal. Further- more, just because someone believes they can help you does not mean they have the knowledge and experience to do so. LESSON LEARNED: Do not expect any contractor to coach you through a deal, even if they say they can. In hot markets, new investors tend to rely heavily on wholesal- ers to help them gain access to good deals. In theory, you might find your deals without a wholesaler, but in reality, it is simply too difficult to start out straight into fix-and-flips in a heated market like DFW. If you don’t want to start out wholesaling, then you are probably going to have to rely on a wholesaler to find your deals for you. However, just because someone helps you get a deal (that you’re paying them for, by the way) does not mean that you should blindly trust their recommendations for other service providers. A wholesaler who recommends a contractor may very well have no idea whether that contractor will be a good fit for your project. It may be the only contractor they know, and if they are wholesaling then they may have never worked with that person personally. Many service providers offer wholesalers commissions for sending business their way. There is 3 SERVICE-PROVIDER REFERRALS CAN BE IMPLICITLY TRUSTED.
by Blake Johnson A
1 CONTRACTORS WHO WORK FOR HOMEOWNERS CAN WORK JUST AS WELL FOR INVESTORS. A contractor used to working for homeowners is not necessarily going to work well with a real estate investor because homeowners and investors have very different priorities. Contractors used to work- ing with homeowners are less likely to tell you (or know themselves) whether your plans for renovating a property are going to fit into your budget or pay off with a good ROI at the end of the project. LESSON LEARNED: Do some research on your contractor and be willing to wait. A contractor will probably tell you that they work with investors because they do not see a difference between an investor and a homeowner, but if they do not have a history with investors you will need to be extra-vigilant monitoring your expenses and projecting outcomes. 2 YOUR CONTRACTORWILLWALK YOU THROUGH YOUR DEAL. A lot of times, new investors assume that because a contrac- tor has more experience rehabbing properties than they do,
s markets get hotter and the availability of labor gets tighter, something troubling starts to happen to real estate investors. I’m seeing it in my local market, Dallas-Fort Worth (DFW), more and more all the time. When any market heats up, the investors start to come out of the woodwork, and more new investors start to get involved. That is wonder- ful, but the combination of not enough contractors and a lot of folks new to real estate doing high volumes of deals can get pretty hairy pretty fast. In DFW, for example, investors are getting desperate for con- tractors. We’re a buying market right now, meaning that people want to buy (and can buy) even more than they want to rent. Fix-and-flips are the main area where investors are working right now, even the new ones who normally might still be wholesaling in a less heated market. They’re grabbing the first contractor they come across, especially if they’re cheap. It leads to confusion and, a lot of times, serious mistakes and huge losses. Here are three common misconceptions real estate investors (especially relatively new ones) have about their contractors:
Blake Johnson owner of Finishing Touches as seen on HGTV Flip or Flop Fort Worth. He may be reached at contactus@finishingtouchesremodeling.com.
104 | think realty magazine :: april 2018
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