Rehabbing a property is one of the most flexible expenditures in real estate investing. Expenses to fix a house or furnish it can vary according to the extent of what needs to be rehabbed. Most real estate investors usually have a hard time looking for contractors or rehabbers that can give them the lowest cost for the rehab.
But there is a way to lessen the cost of rehabbing up to 40% less!
Lowering the Price
In business, one reason that the prices of similar products are so close to each other is because of competition. If company A, for example, has their product on an average price range, company B would follow the same price range. Most would actually prefer their product to be lower than the usual price. This is because they know that customers would want to save and spend their money on lower-priced products whenever they can.
To get a lower price, or a lower estimate (as rehabs are first estimated), this concept of manipulating competition among the many contractors is applied. Your try to bring in more contractors, more estimates, for more competition, which will ultimately give you lower prices.
Here’s how it exactly works.
Look into the yellow pages for a material supplier, for example a supplier of paint, and then go to that supplier’s store. Ask the supplier whether they know some people who can give an estimate on your property. There is a very big chance that the suppliers know of many people, especially their regular buyers who buy their equipment from the supplier and has built a good work relationship with the supplier.
The supplier would naturally refer you to his friends or his best customers. There is very little chance that he will refer you to a vague customer of his. For one, he’ll get a kickback if he refers his best customer to you. The referrals he made will give further boost his work relationship with his buyers and gain him more recommendations, and possibly a commission.
Once you’ve determined that the supplier has got good contractors buying from him, determine at which time you can catch most of them. In meeting them, you introduce yourself and ask them if they can do an estimate and when. Some of these people may already have appointments for the day and would decide to come to your property some other time. There is nothing you can do about that. But after that first contractor, there may be another one that will approach you and offer his services instead.
You ask for their estimates. On your initial survey, get three contractors to give an estimate on the costs of rehabbing your property. When you’ve gotten these estimates, pick out the lowest of the three and use that as a basis for the next batch of estimates.
Two Groups Of Three
The next batch of estimates?
Getting three contractors to give you their estimates will have naturally toned down the price by more or less 15%. As you pick out the estimates, each one of them will offer a lower price than the other.
Now if this group has given you an estimate at a price that has been lowered to 15%, what do you think will happen if you compare the lowest price of this batch to new one?
After you have surveyed for the lowest price in the first three contractors that you met, you are now set to meet three more contractors to give you their estimates. When they give their estimates, explain that one of the contractors you have talked to have given this estimate and it is by far the lowest among those you have received. Naturally, when the contractor hears of a lower estimate than his, he would be tempted to compete with it.
Again, you meet with three more contractors and get the lowest estimate. Then you compare and talk of the contractor in your first batch that he gave you a lower estimate. As the competition tightens, the contractor would give a lower estimate.
By this time, you would have already cut your costs for about 30-40%! It’s a simple tactic that’ll take time, effort, and simple analysis. But it will result in less costs for your estimates.