As a real estate investor, you’ll inevitably find yourself managing other people and contractors. For many this is the hardest part of the business. And for many years, I did not understand how one day a contractor could be my best friend and ideal team member and then the next be the biggest pain in the arse. I’ve since discovered a trend I want to share with you. It’s more of a cycle that seems to take place with most contractors. I call this the contractor conundrum.
Often in this phase, you have gone out and found a contractor whose pricing matches your needs. He additionally is motivated and hungry and therefore is committed two doing a good job if you provide clear expectations and appropriate oversight.
As the contractor works with you, he begins to come to know your processes, you’re wants, and your needs. He nearly becomes autonomous which is wonderful for you and provides a lot of freedom. In phase 2 you may even find you’re saving more money then you were on the original projects. However because most inexpensive contractors work with small crews and are involved themselves in the day-to-day work.
In this phase, the contractor begins to receive additional opportunities and business as they have improved their systems, their processes, and their network. In the beginning of this phase, they will be excited about their growth. They may even sell you on the fact that they can get better pricing because of the greater volume of work. They we’ll assure you that you are the priority as you were the initial or one of the initial suppliers of opportunity for them. However these promises are often short-lived as a contractor begins to struggle managing the growth.
At this point, many investors have truly began to count on their contractors to provide them the freedom they had wanted and hoped for in building their business. However the opposite begins to happen. Now and sometimes without the investor knowing things begin to slip through the cracks. This is the point I want you to be aware of. This is the point where you need to be sure you have the oversight systems and management processes then sure your contractor keeps you as a priority and sticks to the committed budgets and schedules. If done effectively a Phase 4 contractor can continue to provide the same level of service as a phase 2 contractor.
However without effective systems and processes many of these contractors will become phase 5 contractors.
Contractors in this phase are your worst nightmare. They have grown too big too fast. They do not have the teams or the subcontractors to manage your job effectively. Work will often take longer and cost more on a consistent basis. In some worst-case scenarios things are flat out done wrong. In other scenarios mis-management of money has created terrible situations where contractors are using your funds to pay for other peoples projects. You must be aware of this phase 5 contractor and be careful to have them on your jobs.
I don’t wish to share this contractor conundrum cycle with you to scare you. But rather for you to understand the challenges in the contractors world. It is critical for you to map out Systems and processes to maximize your security in your fix and flips and ensure profitability on every transaction.
If you haven’t had a chance come join the real alliance and get the systems we use for managing our fix and flip processes and contractors with less stress and more freedom.
Keep your Eye on your ROI, and keep the properties flipping!