The Business Side of Things

Lets talk.

OK, so we are couple houses down at this point and some very valuable lessons have been learned. Hard lessons, easy lessons. Lessons you don't even know you've learned. But, today I want to talk about the business side of things and how it relates to working in building, housing industry.

First and foremost, it's completely flawed. Yup, I said it. Now, every industry is flawed but I'm thinking the contracting and sub-contractor industry is incredibly flawed. In my opinion, it's because there's so many 1 man operations that don't know how to run the business like, well, a business. I'll get to that more later but for now, what happened to get us here? During 2007 and 2008 when the housing bubble erupted into a volcanic mega cloud many contractors decided to get out of the industry. Taking jobs in other areas less stressful or competitive. When those people exited the market, no one jumped in to take their place. The pool we had to pull from had been dramatically lessened, almost over night. Fast forward to another hot time in real estate (like today) and you'll see many new faces and companies all hustling to get a part of the action. And this is where the issues begin.

See people like us need to get work done quickly. We are in the business of turning over homes fast and making them look like brand new ones. Unfortunately, the new home builders have most crews on lock down for obvious reasons. Others scramble to find smaller contacting companies to fulfill their needs. Some pay labors full time wages just to stay committed to them. For every good contractor, it seems that you have to go through 3 bad ones. Below are a few tips I've learned along the way. I hope these help as you start to plan out your next project.

1) 30/70 splits

My wife who worked in the industry for awhile saw this payment structure most commonly. The idea is that you give them 30% upfront for any material cost and 70% at the completion of the project. Completion of the project is not determined by the contractor, it is determined by you! When you feel the job is complete, then you pay. Be strong on this because it's hard looking someone in the eye and telling them you will not pay until the job is complete. 

There are special circumstances that might issue a 50/50 split. The only time this is accepted is when they can show you in writing why they need 50% up front. For instance our concrete contractor needed 50% up front for all materials. He had an itemized list showing me exactly what he needed to buy. I was comfortable doing this because he provided me with a certificate of insurance (see below) and if he ran, I could make a claim on his insurance.

Why I no longer do the 50/50 Split - I'm convinced that those snake in the grass contractors price their work knowing that 50% payment will cover their labor so when (not if) they sneak off and leave, 50% is just fine to them. 

2) Keep a log of insurance and bonds

Only work with those who supply you with certificates of Liability or Bonded papers. If they don't have them and provide proof, don't use them. Their lack of ability to operate like a business will ultimately make you pay for their large mishap.

Keep a log of all the documents and a spreadsheet of when they expire. Set a calendar reminder of when they expire so that you can reach out to the contractor for an updated document.

3) Trust Your Gut

If someone doesn't seem right, chances are they aren't. If you don't want them doing a roof when rain is being forecasted, then tell them no. Trust me, we learned the hard way. There are many wolfs in sheep's clothing out there and it's hard to spot. If you stick to the first and second tip here then it will weed out those who are typically looking to scam you.

4) Finding the right contractor is a numbers game

In sales they teach you the 10-3-1 rule. 10 people are called on, 3 might be interested and 1 will buy. That means we have to call on a lot of people to make 1 sale. Finding the right contractor is very similar. You have to go through a lot of bad ones to find a really good one. Lucky for us, we have a few really good people we can call on.

It's not all doom and gloom so don't let this get you down. You will quickly forget all the bad stuff that happened when you step back at the end of the project, look up at the freshly updated home and smile knowing that you completed a big task. 

As always, reach out to us or comment below with any questions you should have. Happy building.