Rehabbing Houses Part 4 of 5 – Getting Initial Bids Using “Baby Steps”

Have you seen the movie entitled “What About Bob”, starring Bill Murray and Richard Dreyfuss? In the movie the psychologist (Richard Dreyfuss) instructs Bob (Bill Murray) to handle his psychological problems by taking “baby steps” in all of his daily activities. If you haven’t seen it yet, please do yourself a favor and rent it this weekend because it’s absolutely hilarious!

Interestingly enough, this movie also suggests how we should deal with contractors when getting initial bids. If you are dealing with a contractor for the first time, never let them bite off more than they can chew!

How do you know how much they can chew? I’m glad you asked. The best and least expensive way to find out is… give them a little bit to chew on, and see what happens. If you are satisfied with the results, then give them a little more to chew on. Repeat this process until the rehab project is completed. This is what I call taking “baby steps” when rehabbing houses.

Let’s revisit our previous example. You remember, you have a house that needs a total rehab. The way most people handle rehabs is, they have 3 contractors come in and bid on the job. The 1st guy bids $10,000. The 2nd guy bids $15,000 and the 3rd guy bids $20,000. Each contractor points out different things they will do that the others won’t do. Each guy points out different problems with the property that you didn’t know about, or maybe they aren’t problems and he just thinks they are.

Inherent Problem: Which is the main point of this discussion, you had them bidding on too much work to begin with! Although this is the way things are normally done, and a handful of investors and contractors will form a successful union this way, it sets up both parties for potential disaster.

Solution: Your scope of work for the contractor should be written, detailed, and as small as makes practical sense! As Einstein said, “things should be made as simple as possible, but not simpler”.

So what I am about to say requires anyone who already knows rehab and construction trades to think outside the box…

I don’t hire someone to do an entire house, until they have taken “baby steps” and worked their way up to do a whole house for me.

I can’t hire Joe to do a whole-house rehab for me, based on the word of three relatives, excuse me I mean “references”, who swear that Joe Contractor is the greatest thing since ESPN.

So despite the fact that the entire house needs rehabbed, if I am working with someone for the first time, I will take bids on rehabbing only 1-to-2 rooms at a time, such as the living room and dining room.

Notice these rooms don’t require plumbing, like a bathroom and kitchen. There’s no need in turning Joe Contractor loose on the inherent problems of kitchen cabinets, plumbing, etc. if I don’t know if he can drywall and paint yet.

(Of course, if my project is a kitchen or a bathroom remodel, then it can’t be avoided).

The next part of this equation is that the 1-to-2 rooms he is hired to do must be completely punched out. That’s right, when Joe Contractor is done, the room will be fully functional, and ready to show to a buyer, except for carpet.

That means electrical light fixtures, sparkling paint, new doorknobs, new tile at the front door, and all the drywall patched, even though the rest of the house looks like a total wreck.

Of course it would be more efficient to go in and do all the mechanicals at the same time, then all the drywall, etc., if you had a crystal ball and knew that Joe Contractor would perform. But you don’t…

So within 2-7 days, Joe Contractor is either done and I’m happy, or he has demonstrated that he is incapable of handling the responsibility of working on my entire house. Either way, Joe gets paid faster, and I can make a decision faster on whether to continue this business relationship.

Of course, all of this is explained to Joe up front. If he succeeds, he’s now ready for more work from me. If he fails, he gets paid as agreed for the week and neither one of us is out too much time or money on a dead-end relationship.

It’s kind of like dating. You don’t want to commit too much too soon, because you don’t really know who or what you’re dealing with from the other person.

Of course Joe will want to get a contract to rehab the whole house because, in his mind, it represents a bigger payday. In reality, though, the payday for Joe is the same whether we break the job up into 3 smaller parts or 1 big part.

In fact, Joe might even make a few more dollars this way, since its less efficient and he could be compensated for the added inconvenience.

So when you walk him through the house, you just have to act like you have blinders on, and be clear that you want to do the project in phases, and all you’re taking bids on right now is phase one. Resist his pleadings to do otherwise, until he’s established a track record with you.