I’ve witnessed an interesting phenomenon as I’ve renovated dozens of houses over the years, getting many contractors’ estimates and seeing their work-it’s a process that I’ve named “The Contractor Cycle.”
The 4 Phases of the Contractor Cycle:
Phase 1: Getting Contractors’ Estimates
You land a good deal. You need to rehab it, and you need contractors. So you ask around to find out who’s good, look in the classified ads, and you get three estimates for each major work group (painting, roofing, etc).
Phase 2: Finding a Good Contractor
After comparing the estimates, you choose the best of the contractors and put them to work. They do a good job on that house, and you are inclined to continue using their services. If not, you go back to Phase 1 on the next house.
Phase 3: The Slow Decline
This happens when you get busy, or just plain lazy. Because the they did such a good job before, you continue using that person over and over again on every house without bothering to get other contractors’ estimates again.
Slowly but surely, almost imperceptibly, some or all of the following will occur:
• their prices start to increase
• their workmanship becomes sloppier
• they take longer to finish jobs
• their customer service declines (returning calls promptly, etc)
They must figure they’ve got the golden goose feeding them consistent work, so they are not very motivated to keep doing their very best. And because you’re so busy managing multiple projects, you put up with it.
(True Story:) Things get worse and worse until finally it reaches the point of being ridiculous. You and your potential profits are being held hostage. Once, I had one contractor in charge of fixing up 5 houses at the same time (stupid, I know). He kept agreeing to do each house because he didn’t want to turn down work, but took forever on each of them because he kept running from house to house each week and never finishing any of them. After several months (and mortgage payments), he finally finished.
Phase 4: The Vicious Cycle Repeats
You decide that he’s no good any more, and so you decide to start over. So, it’s back to Phase 1 again, getting other contractors’ estimates. You swear it will be different this time, except that the cycle repeats itself and the same thing happens to the new guy.
Over the next few projects, the new contractor will spoil before your very eyes. Many investors nationwide can attest to this. It happens all the time-it’s human nature (on your part and on theirs)
So how do you break this vicious cycle?
I have found that if you change your behavior, they will change theirs. The key is to implement one simple practice. This will take a little more time, but will save you a ton of time, money, and hassle in return.
Here’s the secret: Get 3 Contractors’ Estimates Every Time
Always do this EVEN if the contractor you have is perfect, for the following reasons:
1) It keeps them in line
When people are held accountable, performance multiplies. By getting several other contractors’ estimates each time, you are holding their feet to the fire. You are letting them know that although you are willing to consider them and even prefer them, you always expect results and will only keep using them if they continue to perform.
2) It helps you find better ones
I don’t know about you, but I am always trying to improve. Just as you continually test your advertising, track results, and find cheaper ways to get motivated sellers contacting you, you should be looking for a better deal on contractors’ services.
Think about it…What are your top 3 expenses? If my guess is correct, they are:
• Property Renovation Costs
• Holding Costs (mortgage payments, utilities, etc)
• Advertising to find buyers and sellers
If these are your largest expenses, then even reducing costs 10% can save you a lot of money. You should always be on the lookout for ways to save. And interestingly, contractors affect both renovation AND holding costs with their prices and the speed of their work.
3) You are never dependent on one person
This is a mistake I will never make again. You never want to become dependent on one of anything-be it a private lender, title company, realtor, attorney, or contractor. Doing so makes you really vulnerable because you have no backup plan if (or should I say WHEN) they stop performing. And the time it will take to find a replacement will dissuade you from looking around.
Getting estimates from contractors regularly will put you in a position where you can quickly replace one that is not performing without losing much time. The time to prepare is before the need arises, not during a crisis.
Always Get 3 Contractors’ Estimates
So, for these three reasons, I strongly recommend you get 3 contractors’ estimates EVERY time you have a property to renovate. It may take some extra time, but will save you hours of frustration, thousands of dollars over time, and will help you avoid being trapped in the vicious Contractor Cycle of dependence.