Working with Contractors on Short Term Investments

The other day, I was talking with a colleague who mentioned that he had a really fantastic deal on his hands. He was being offered hundreds of thousands of dollars just to find a buyer for several houses in a subdivision out west. I asked what was wrong with the subdivision, and learned that in fact, nothing at all was the matter. The finished homes were selling, and several under construction already had buyers lined up. I was really confused as to why these people would pay him so much money to find a buyer for a discounted property that didn’t seem to need to be discounted, and I asked him what was going on.
He readily admitted that the properties were great deals. However, it seemed that they had been one nightmare after another for the present owners. The reason? Contractors. Turns out that the homes had been under construction when they were purchased by the present owners, and the contractors had predicted that the properties could all be completed within a few months, and on a certain budget. Not surprisingly, that deadline (and the old budget) both disappeared shortly after the purchase was made.
These investors were not interested in long-term real estate investing. They had seen how well the homes in that area were selling, and they wanted to get in, get those houses finished, and get out. However, when construction dragged on and out for months, they started to lose patience and finally got to the point where they just wanted out.
Now, I understand – and I think most real estate investors would agree with me – that it is an unfortunate fact of life that projects are going to take longer than planned. However, there are things that you can do to make projects run more smoothly, and that will help you determine the likelihood of an investment being completed and off your hands on time.
When you are working with contractors, always get more than one bid. This is not just common financial sense. It also helps you determine what is reasonable to expect. Ask about how time frame impacts the numbers that you are given, and consider writing a “late clause” into the contract that allows for some type of discount or other reparation if the project is not done on time for an avoidable cause. Some investors also like to create calendars with milestones to help them determine just how much work has been done and has yet to be done.
Finally, determine how much work actually has to be done on the property. If you are flipping, then one option is to take the cost of repairs out of the asking price, then go ahead and sell, letting the buyer deal with the repairs later. If you are going to take this route, always make sure that you have factored in the lowered asking price after you worked in the cost of repairs. If the deal still makes sense for you and the buyer (since they will probably still want a discount), then you have the makings of a good short-term real estate investment on your hands.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com

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