Randy,
Is it possible to ask the contractor to have some skin in the game? I may want him to feel the same urgency that I may have. I may defer payment or make partial payment until I flip. I don't know if it is tough to do that. I think it is a good idea so you are more like partners.
Thanks,
Abdul
Replies
Thanks for the response. Yes it is more like a partner with more incentive after closing if a profit is made, profit sharing etc, like how partners do. That way the rahabbers interests and the GC's interests are aligned. You raised valid concerns and risks, like how losing control of the project since he is the 'expert' and he is 'doing' the job, especially for a newbie rehabber.
As for paying more for the labour/materials, which is what I think you implied, I think it is a reality for the new rehabber anyway. The guy who does several hundred jobs a year will get the most economical price on labour and material vs the guy like me who is a new to the game right...?
by all means if you have someone willing to do it you are ahead, I'm just saying an arrangement like that is like looking for a needle in a hay stack. possible but unlikely without large incentives. and even with that the contractor has to trust and believe in you. they would need to know and see you are capable.
imagine this. its Ur first deal and something goes wrong, contractor puts out money or skin in the game as you say, and you decide to fire him. now what, he has to chase you in court for his money. as a contractor I would let the owner be more than 1-2k up on me...then after that the job stops.
it would havto work like this. agree to regular price then if he is putting skin in the game he gets X cut at the end. this way he still makes his profit...maybe less than normal but he won't be losing so much if deal goes south. this is why you are the investor...investor is basically synonomous with risk
remember the 20:1 ratio of finding a good contractor...magnify that by 5 to find this contractor.
HOWEVER, you could easily find that kind of a situation if working with an investor who is also a rehabber or runs their own rehab crews...I suggest searching in that arena as it will minimize a lot of headache.
if not partners and u ask them for skin in the game...from our investor world u sound like a hard money lender. aside from that if they put skin in the game it would be more in the lines of doing work before getting paid. this way u stay a bit ahead of them. if they put skin in the game from a $ perspective what would be their incentive...to put their money on the line to give you investor rehab pricing??? hard to have it both ways. if you do find someone who will do that, it needs to be worth it to them to do so this your rehab costs goes up.
the more you want the more you will have to give. not saying its impossible to get someone to agree to this just saying unlikely foe your needs which is price.
a guy in my other. rehab class does commercial HVAC and he puts up money and gets paid at the end and waits for it...but he is no where near wholesale prices. so there are people/trades that do it. you are more likely to get a plumber or electrician to do something like that vs a contractor who will have to dish out more than those other trades...typically