Remote Rehabbing: Vetting Contractors Fr...

From Lori Greymont, Rehabbing Adviser...

This is a continuation of my fascinating conversation with remote rehabber Lori Greymont.

If you've tuned into our previous lessons from Lori, then you already know her modus operandi is buying and rehabbing distressed properties across the country, then reselling them in tiptop shape to passive cash flow investors as turnkey rentals. She does this remotely from her home base near San Jose, CA, and until recently had never even seen any of the 1,350+ houses she’s turned.

Lori and I had an extended, unscripted dialogue about her operation and how she does what she does. And over the last few weeks I've been sharing some of the key lessons from our in-depth conversation for anyone in Mogul who may want to learn how one of the greats does it, or maybe even follow in her footsteps.

If you’re new to Lori, you may want to start off with one of her previous lessons:

So here’s another slice of awesomeness from our little chat on vetting contractors.

{Mogul Elite members: Download and listen to our full conversation in the Power Pack Tools for this lesson.}

Vetting Contractors Is Half the Battle in Winning the Real Estate War

Have you ever found yourself with a great rehab on your hands, and you know you can make some good money once you flip it, but you just don’t have a reliable contractor?

Have you cycled through contractors like you change your underwear and still can’t seem to find a good one? Ever feel like contractors are always jerking you around and you just can’t get a deal closed fast enough, or on budget?

Been there, done that, got the t-shirt.

In this lesson, Lori’s going to share with you how she finds the contractors she works with, and how she vets them (even after she’s hired them) to be sure she has several contractors available to take on her rehabbing jobs.

JP: So you say you find most of your contractors through referrals. Who refers them?

Lori: We always start with people we like. Our Realtor gives us referrals. If we get a tree guy we like, we ask him if he has a referral. Everyone we are talking to in the marketplace, we are always asking for referrals.

For example, one of our carpet cleaners came in and referred us to one of our contractors; one of our wholesalers referred us another contractor.

If you are starting out in a new market don’t be afraid of Angie’s List (in case you aren't familiar with Angie’s List – it’s a website where you can find detailed reviews on roofers, plumbers, house cleaners, etc.)

JP: How do you go about screening contractors from afar?

Lori: We like to talk to some references. If they are slow to provide references then we know that’s a red flag right away.

If they aren't willing to start a job with upfront cash of their own, then that tells us we probably don’t want to be working with them, either.

In the beginning I can understand their point of view because they are afraid they won’t be paid. So in the beginning we might front a project for a $1000 or have them talk to a past contractor we've worked with. But if they can’t get started without an initial payment then they usually aren't a good fit.

Then we ask them how long their projects usually take. And if they’re saying normally they take 3 months on a job ,and they’re used to doing these jobs, then we know they probably aren't a good fit for us as they aren't good time managers.

JP: Once you have a contractor working for you. What are the warning signs you’d advise people to look out for?

Lori: If the contractor is not completing the work on time, not showing up, not returning phone calls then there is obviously something going on. We don’t let it go for very long.

For example, if we've tried to contact the contractor for a week and they don’t return our call then we are moving-on and re-assigning the job to someone else.

If they don’t go back and do the re-work after we've asked them to then we don’t assign them anything new.

We try our contractors on one job first. And if they can handle one job effectively and consistently then we might give them two jobs.

It really depends on the skills of our contractor. Some of our contractors can handle five jobs at a time and others only one. It doesn't mean we are going to fire the contractor that can’t handle more than one job it just means you are only going to give that contractor one job at a time.

JP: How often are you or your field supervisor communicating with your contractors?

Lori: Daily. We are going to talk every day; it’s part of the relationship. If after a week you haven’t talked to the contractor, then they are gone right away. If they can’t communicate with you for a 5-10 minute conversation on a daily basis, then they aren't being a team player.

This again is our continued vetting of our contractors to be sure they are working out.

JP: Do you have a contractor sign a new agreement for every single property regardless of how long they've worked with you?

Lori: We do, we've had contractors do fabulous work for us for six months, and then things went sideways somehow. I can’t tell you why they went sideways but they did. It’s always for various reasons, but it’s happened to us more than once.

What we've learned is, every new job is a new opportunity and for them to succeed or not. Most investors would assume that once you have a good relationship going with a contractor one or two jobs into it, you as an investor can layoff of them it for a bit. But you can’t, you have to manage every job like it’s your first job with that contractor, because they have things in their life just like everyone else.

JP: It seems like contractors often tend to have more of their life interfere with their work than other industries. Do you find that to be the case?

Lori: It does appear this way, but I’m not sure if it’s true or not.

It really depends on if you have a good business-minded contractor vs. a handy man trying to run a crew. There are two different types. And when you have a business-minded contractor you don’t have these problems as much.

JP: Because your contractors aren't likely swinging hammers daily, they are running their business and their people. And because of that, you probably aren't hiring the most expensive guy out there, but you also aren't hiring the cheapest guy out there, right?

Lori: That’s true. Our contractors run from job to job to be sure their subs are doing what they need to do or they hire someone to do that for them.

We do have a couple individuals that aren’t the larger one’s we use. But the majority of who we work with are running their own crews.

{Mogul Elite members: Download and listen to our full conversation in the Power Pack Tools for this lesson.}

So here’s what you need to do so you don’t end up without a good contractor or two on hand at all times to help you fix and flip as quickly as possible:

Ask everyone you come in contact with in the real estate world if they have a contractor referral (that means anyone, carpet layers, tree guys, Realtors, the usual suspects and every one in between, even your friends).
Ask for references – if they can’t provide references pretty quickly then they probably aren't a good fit
Don’t provide upfront payments – if they can’t front the labor costs then they aren't running a good business and aren't a good fit (you can however pay for the materials and products to get them started)
Ask how long a typical takes for them – if they say all of them probably take 3 months then they don’t know how to manage their time, again not a good fit!
Only assign your contractor one job at first until you determine they can or cannot handle more than one job at a time.
You (or someone on your team) should be in contact with your contractor on a daily basis – at a minimum – to asses progress and deal with any issues – it’s a continued vetting process even after they are hired.
Have your contractor sign an agreement on EVERY deal. Every job is a new opportunity for the contractor to succeed or fail.