Real estate investing can introduce unique challenges along each step of the process. From finding the right property to finding the right buyer, investors may overcome dozens of hurdles before coming out on the other side of a project with their loan paid off and money in their bank account. One of the more unexpected challenges? How to find a good contractor and effectively negotiate with them.
Strong negotiation skills can help keep the labor and material costs low, thus increasing the profitability of your real estate investment business. This is particularly critical for those who are fixing and flipping properties. So, what are some key tips to interacting with contractors to get the job done?
Build those relationships before you need them
In this post from last year, we touched on the importance of investing in other experts, knowing when to delegate your work, and building a strong network of other industry professionals. There’s nothing worse than suddenly needing a good contractor in the middle of a burst pipe emergency with no one to call.The same way you create connections with fellow investors and real estate agents, you should begin putting in the same effort with contractors. Under low stress circumstances, you’ll get a better feel for who might do good work at a fair price rather than pay an exorbitant amount for fast work needed now.
Ask for referrals and do some research online to read through reviews. The more choices in contractors you’ll have, the greater your negotiating position.
Always shop around
This ties into the importance taking those baby steps toward finding contractors you feel comfortable with. Getting several price quotes to snag the best deal should always be common practice, and there’s no better time to do so than before beginning a new investment project. Again, the more prospects you have, the more leverage it gives you when meeting with contractors.
Knowledge is power
Like any other work meeting, you should always go in prepared and armed with facts and figures. People tend to trust that the contractor knows best and will therefore price quote you accordingly. Not always so! It’s important to be well-versed – as much as possible, anyway – in whatever project you’re tackling so that even if you are outsourcing the physical work, you still have a general idea of what it entails. There are also helpful platforms like the RehabEstimator that allow investors to check their contractor’s numbers against local averages to make sure you’re getting a fair deal. If the contractor spits out numbers that are too high, you will have the data to support your reasoning for a lower rate.
Let the contractor do the talking
Make it a habit to have the contractor throw out the first number when quoting the cost of a project. If the contractor asks for your budget and you give your number, there’s a good chance they’ll find ways to rip through all of it. Instead, you can grab ahold of the reigns by telling the contractor you’d like to get the job done while spending as little as possible –what, in their professional opinion, do they propose?
From there, you can begin negotiating the price down.
With each completed project you tackle will come the experience and confidence to master contractor negotiations. If you’re ready to discuss your next real estate venture, contact us today.