digest
Short Summary
Main recommendation: Avoid costly contractor mistakes by pricing quality over the cheapest bid, getting multiple bids, writing a clear scope of work and contract, setting a defined draw schedule, and creating a written process for change orders. The speaker says he has done over 600 properties and has made these six mistakes himself over the years, and that planning thoroughly before starting work reduces the likelihood of change orders and other issues.
Key Points
- The six mistakes, as named in the video: (1) Cheapest isn't always best, (2) Not getting multiple bids, (3) No clear scope of work, (4) No crystal clear contract, (5) No defined draw schedule, (6) No way to handle change orders.
- The speaker says the cheapest electricians and plumbers caused the most delays, issues, and collateral damage, and that paying trades fairly solved many problems.
- Pricing and speed are the variables that change; the speaker says he never gives up on quality, and that you can typically only get two of cheap, fast, and quality.
- Multiple bids should be three by default, and six to ten when entering an unfamiliar area or work type, or when sourcing contractors from open markets like Craigslist or Home Depot rather than referrals.
- Change orders often come from hidden damage discovered after purchase or during demolition, and can drain a rehab budget if no written approval process exists.
Details Worth Noting
- Concrete instructions:
- Get three bids on most jobs, and six to ten when the area, work type, or contractor source is unfamiliar.
- Use a bid with line items as a scope template: take a contractor's itemized scope to other contractors and ask them to match or build a similar one, then investigate why item counts differ.
- Have a construction attorney review the contract once (the speaker says a few hundred dollars), then reuse and renegotiate the terms with contractors.
- Make sure the contract states the payment terms, draw schedule, deposit, how work completion is verified, and how change orders are handled, including written approval before further work.
- For large remodels with a general contractor, keep the initial deposit small; the speaker says he typically gives about 10,000 on a 50,000 job, roughly 20 percent maximum, enough for starting materials.
- Tie each draw to completed work, ideally not paying significantly ahead of completion; track payments against the scope yourself, since the money is the investor's responsibility.
- Before starting, inspect the property thoroughly (crawl space, roof, walls) and plan the scope and schedule to reduce change orders.
- The speaker notes that in Washington state, where he invests most, the state often sides with the contractor if there's no written change-order process requiring approval before work.
- The speaker mentions the book The Book on Estimating Rehab Costs by Josh Scott as something that helped him build scopes, and also mentions BiggerPockets forums and referrals from home inspectors, investors, contractors, and realtors as sources.
- The speaker says demand for contractors is tapering as interest rates rise and fewer investors and homeowners do cash-out refinances, which may affect pricing.
Bottom Line
Contractor losses in rehab deals usually come from unclear pricing, scope, payment, and change-order rules rather than from bad luck, so put those terms in writing and plan thoroughly before work begins.
