September 19, 2022

JF2937: Finding Great Contractors | Bonus Operations ft. Slocomb Reed


Bonus Operations is a weekly series hosted by apartment owner/operator and Best Ever Show host, Slocomb Reed. In each five- to ten-minute episode, Slocomb provides his top takes for executing your business plan and maintaining cash flow.

 

In this episode, Slocomb shares his secrets about how to find and keep great contractors. He breaks down the three aspects of a good contractor — speed, affordability, and quality — and how to decide which of these aspects is most important to you. He also shares what to do once you have found a good contractor in order to foster a relationship and build loyalty.

 

 

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TRANSCRIPT

Slocomb Reed: Welcome to Cincinnati's Best Ever real estate investor mastermind. We meet here in-person the last Tuesday of every month at the Deer Park Community Center. Best Ever listeners, I hope you have the opportunity to join us here soon. Our topic for today is how to find and keep great contractors. I want to break this down into three quick categories, and we'll go from there.

The first is who to hire. The first thing that you should think about with the contractors is who's going to be a good fit for you and who is it that you're going to look for. There's an old saying in real estate investing that really does hold true, that there are three traits or three aspects to a good contractor. There's speed, affordability, and quality. And with a good contractor, you pick two; that really holds up in a lot of ways, in one part because if you do find a contractor who's good at all three, they're very soon not going to be as affordable. So when you're looking at fast, affordable, quality, pick two.

Something that you should think about is your style, what's going to fit your business model the best. I know a lot of investors and a lot of newer investors who make the assumption that affordable quality is best, because it saves you money, and you've still got a quality product. I want to push back against that for some investors, though; in particular, I'm thinking about apartment investors in like C class, maybe low B areas especially; if your apartment turns or your renovations are not going to be all that intense, if you're thinking to choose the affordable quality contractor who is slow or can't get to it right now, and you don't have any other options that can get to it sooner, vacancy is the number one killer of profits.

Quick example - let's say a one-bedroom apartment that rents for $750 a door in a 30-day month. That's $25 a day that you're not collecting in rent due to vacancy. So if you're gonna have to wait two weeks to get your affordable contractor in there, 14 times 25 is an additional $350, $325 in rent that you're not going to collect while you're waiting on your painter. So when you're talking about fast, affordable quality, keep that in mind.

To scale this conversation, I'm at a position now where I'm not looking to find a contractor to turn my next apartment. I'm looking for contractors to hire to renovate my apartments, working for me in some full-time capacity. And there's a little bit of a hack here that I've found. Well, first, I speak Spanish, so I have access to a quality labor market that a lot of people struggle to get into. But also, when thinking about hiring people to work for you full-time, I have learned that if I hire affordable quality, and I have the ability to tell them where to go and what to do each day - not because I'm a micromanager; I don't have the bandwidth to be a micromanager. But I can make my renovations fast, because I control where my contractors are, and what's getting done. So I know the moment the current renovation is done, I have a crew ready to move on to the next one, and I can get them there faster than I can get on someone's schedule who doesn't work for me exclusively.

So whether you're looking for a company to handle a major renovation for you, and you're checking references and you want to see what their previous projects were like, because this is a big deal, and they're asking for a large deposit, or you're gonna have to lock arms and get through several apartment renovations or major structural work together, or you're just trying to find the person who can paint and carpet your apartment - you ought to figure out which of those three qualities they possess: fast, affordable, quality workmanship. And make sure that what they have is what meets your needs.

Another quick example of fast quality that's not affordable - a plumbing emergency. I'm calling the expensive company that can be there right now and fix it. It's not like -- if there's a leak on the third floor, and I'm hearing about it from the basement, then I want it done now, and I'm just gonna pay extra.

Speaking to how to find great contractors - really everything I can say about this can be summarized in "Do the hard work." There are so many Facebook groups out there for real estate investors, and even Facebook groups for finding contractors. If all you're doing is sending out Facebook messages, and then expecting that someone is going to respond and be the perfect fit for you - yes, you should send us Facebook messages because of how fast and easy it is, but chances are if someone has the time to be on Facebook, looking, or they are on Facebook looking for work, they're not likely to be that great contractor. It may be that you find someone who's on a hard time and needs help, and you can help them through a short term stint in their lives where they actually will do quality work for you affordably. But chances are the people who are scouring Facebook, especially during business hours, looking for work, are not the ones that you're going to want on your project.

In my experience, whether it's the general contractor with a or multiple large crews, or it's the person who's going to come work for me because they know how to patch and paint and they can learn along the way from people who know more than them - all of the quality contractors I've found have come through word of mouth. And it's come from figuring out who I know who might know someone, and just follow the trail until it ends.

I have someone who's helping me with HVAC installations, who last fall I called a woman who attends this named Stephanie. Stephanie sent me to one of her land contract tenants who wasn't interested in working for me, but he had a handyman who was helping him, and that handyman worked for me for a while, and his ex wife's cousin was also looking for work, and now that guy works for me full-time, doing HVAC installs and other handiwork... So that sounds like a great story when you're listening, but there's a lot of work involved. And of course, I didn't just talk to Stephanie; I didn't just talk to her one tenant. There's an aura in real estate investing that everyone hoards their contractors and won't give them away. That's not always the case. There are people who think that way, there are also people who have a more abundant mentality and want to share, especially when they have good people that they cannot keep busy.

By the way, when you have a great contractor that you cannot keep busy, giving them referrals is one of the best way to get them to stay loyal to you... Because they'll recognize that you're the one who's feeding them business even if it's not your business.

Break: [00:08:36.03] to [00:10:35.17]

Slocomb Reed: A couple other comments here... When you have found a contractor that you think is going to be a good fit working for you, you want to make sure that you're engaging with them in the way that they want to be engaged. And I mean a few different things when I say that. The first is make sure you're giving them the kinds of projects that they want. If someone tells you that they like framing drywall paint, and you're asking them to install tile floors, and they tell you they're not good at it, or that it's going to take them a while, that they really want to focus on drywall and paint, don't be surprised if when you ask them to replace a vanity and a toilet that they don't want to do the job, or that they started looking for other work, because they want to focus on the thing that they're already good at.

Also, I've learned that thinking in terms of individuals here, there are individuals who work better, and contractors who work better when they can bid a job, because when they've bid a job, they've said, "I will do that for $2,400", then understanding that they have to satisfy you to get paid, their motivation is to get that $2,400 as fast or as efficiently as they can. And I know people who will ask for that $2,400 and just do unimaginable amounts of quality work to get it done quickly. I also know people who do better when they're paid hourly, and they don't want to have to bid projects, they don't want the stress. They want to know that -- with contractors it's obviously not clock in, clock out, otherwise they wouldn't be independent contractors. But they want to know that the work will be there, they want to know that their quality workmanship will be respected, and they want to know that there's not as much pressure on them as there is when they have to make a bid, and then meet a deadline. Again, from my personal experience, my hourly people are the affordable quality. My bid by the project people are my fast quality.

Also, make sure that you establish upfront the pace at which you will be paying your contractors. With my hourly people, they know that I will find them on Friday to pay them for that week's work. I will go out of my way to go into the boonies or wherever my guys are working to make sure that they have a paycheck from me for that week, because I don't want them to have to go longer than a week without pay. If you know that your contractor is taking on a large job, I suggest that you offer to pay in installments that have observable results. If someone is going to be doing an entire house for you, and they want to bid it by the project, break that apartment renovation into recognizable chunks. Like "Okay, you've taken the walls down, you've put up the insulation. Great. Here's the pay for that. Drywall, drywall mud, paint. Here's the payment for that." Because that keeps them from going too long without cash. The vast majority of contractors aren't good at budgeting or cashflow. That's one of the reasons why they're contractors. But also, you want to make sure when you're setting that kind of pace, that you have - not necessarily metrics, but observable results that are easy to go in and see that something has been completed and should be paid for.

If you have someone who's bidding by the project, you should not be paying them by the week, no matter what happens during the project, you want to have recognizable results.

I mentioned loyalty earlier... What I wrote in my notes for this presentation is that loyalty can be bought and should be paid for. I know I said I reach into the Hispanic community to find my contractors often... And here's another thing - when I'm working with a new contractor, whether it's by the project, it's a big company, whether it's an individual, I always start them in phases. So I give them a small project, I want to see success with that small project, unless they are a large contractor who has a really good reputation, that has come to me through word of mouth referral, and they are just too big or too good to be interested in my small project. Then I'm going to trust the referral that I received.

But in the example of someone who's going to work for me - and I tell this to all of my people, because I need to at least double my crew in the next three to six months. I tell them that anyone you know who wants to come work with us, if you trust them, I trust them, because I trust you... And we'll figure out what their hourly should be, and I'll pay him for a day, and I'll come see what they do at the end of the day. If you and I both think that we should continue, we'll make it a week. I'll pay them at the end of the week, come check it out, and then we'll move forward from there.

I definitely recommend that you have that sort of gradual progression. Don't hire someone for the first time to handle a large project, and make sure that you have expectations set in advance for oversight. You don't want to tell someone who's going to be working for you "Here's the project. Monday morning, ready, set, go. I'll see you on Friday", and then show up every day to see how things are going, and look over their shoulder. If you know that you're going to want to be there every day to check in on them, make sure that that's established upfront.

And also, I on day one of that test period, so long as they showed up and work was done, I am going to pay them. I'm going to pay them what I agreed to pay them. If it was poor work, I'm just not going to invite them back tomorrow. And that's important. It's also important for the people who are referring them to me, to be able to say, "Hey, if you come work, you're getting paid."

Last note here, and I've touched on this a couple times already... contractors who are good businesspeople, as well as good at their craft, should be more efficient, and should be more expensive, because they're going to be able to deliver for you in a way that a contractor that is not good at business isn't. If you're looking to stay affordable, I'm not going to say look for contractors that are bad at business. What I will say is, if you're looking for contractors who are more affordable, who still do quality work, don't expect them to be good at business. Don't expect them to be able to handle paying their subs or paying their teammates or paying their crew members at the end of a three-week project, because you can't expect them to have the kinds of cash reserves to be able to swing that. Make sure that you, with your expertise, and understanding that it's your property that they're working on, make sure you're putting them in a position to win.

If you're going to go the affordable route, make sure you understand where their business skills are, so that you have the opportunity to continue to get quality, affordable work out of them, while putting them in a position to win.

Best Ever listeners, thank you for listening to this Bonus Operations episode. If you gained value from it, please do subscribe to our show. Leave us a five-star review, and have a Best Ever day!

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