Draws

We never, EVER pay contractors in-full for the whole project upfront.

Sample draw schedule
Sample draw schedule

It’s human nature to lose motivation if they’ve already received their reward, so we nip that in the bud by paying as they go, using a draw schedule.

A draw schedule is a planned-out payment plan for the contractor handling the rehab job.

The draw schedule is crucial, because it’s milestone-based; they don’t get paid until they meet pre-determined milestones in the progress of the project.

We use draw schedules because:

  • They keep us from having payment disputes down the line. Before they start on a project, they are presented with the draw schedule and agree to it. It lets them know how many payments are going to take place throughout the project, and much they’re going to get paid on each draw.
  • It motivates them to work quickly, because they know they have to reach those milestones before they can get paid.

The number of draws depends on how much work needs to be done to a property.

Usually there’s no more than three, MAYBE four, since we avoid properties that need extensive work.

 

Schedule of Values

The Schedule of Values (SOV) breaks-down the value of each repair or thing they’re doing to the house.

Each task is given a percentage. The sum total of the percentages allocated to each task should equal 100.

detroit general contractor kitchen construction

So for the sake of round numbers, let’s say that a contractor is going to make $5,000 for the work they’re going to do on a property.

Let’s also assume the roof needs to be done, and that they’re getting $1,000 for the labor for doing the roof.

Since $5,000 divided by $1,000 equals five, we’d put “25%” next to the roof work on the Schedule of Values document.

This is discussed, reviewed, and modified (if necessary) from the very beginning, so both parties are on the same page.

We used to give contractors a Schedule of Values on a separate document, but nowadays we just implement the values into the draw schedule.

It just reduces the amount of paperwork we have to deal with.

Interviewing

When we’re looking for a new contractor, we interview them.

It’s not like a sit-down suit-and-tie interview. In fact, it’s usually over the phone. But we like to talk with them and get a feel for them.

Outside of getting a feel for them, we want them to understand what we’re all about as well. We stress to them that we’re serious about what we do, and that we expect excellence.

We let them know about our system, what we expect, and we let them know that we’re looking for someone that we can give consistent work to.

Note: Don’t lie to them and say you’re going to be giving them consistent work if it’s likely that you won’t. Trust goes both ways. They need to trust you too, so don’t lie. Lying is a good way to ruin a relationship with a good, quality contractor.

Here are some of the other things we like to find out when we’re interviewing prospects:

  • Their specialty
  • How long they’ve been in the business
  • Are they licensed?
  • References
  • Their current workload
  • The specific areas that they operate in, and where they don’t
  • Do they have damage and liability insurance?
  • Are they a member of any related organizations?
  • Do they have their own work crew, or will everyone working on the project be a subcontractor?
  • Who will be onsite supervising the workers?
  • If we hired them, how many hours could they spend per day on our project?
  • Will they be doing labor themselves, or would they be just supervising?
  • How many other jobs will they have going during the time they’d be working on ours?
  • How much time do they think it would take to complete our specific project (including cleanup time)?
  • What time would you be arriving to start working on our home each day?
  • Do they deal with homeowners or investors more? This gives me an idea of how flexible they might be with their pricing.

If they have electrician and plumbers that they’re going to be subcontracting work out to (if we’re going to need that kind of work), I find out who those individuals are, and I try to get references for them as well.

Next: More Tips on Sorting Through Prospective General Contractors