I realized that while contractors are individuals with their own unique skills and styles, there are patterns in what aligns with our REI business, what doesn’t, and how to keep projects on track without fear of getting burned.

So today, we’re diving into building that contractor connection and structuring the process to take your flips from “as-is” to “after-repair value (ARV)” condition—leading us to that satisfying moment when the project is delivered on time and on budget.

But first, a quick recap:

Quick Recap: Ten Commandments of House Flipping

1. Thou shalt know the After Repair Value (ARV) ✅

2. Thou shalt keep multiple exit strategies ✅

3. Thou shalt make offers daily ✅

4. Thou shalt leverage the inspection period ✅

5. Thou shalt not advance money to contractors 👈

6. Thou shalt build relationships

7. Thou shalt master Other People’s Money (OPM)

8. Thou shalt view failure as a lesson

9. Thou shalt respect the game

10. Thou shalt be nice

Firth Commandment: Do Not Advance Money to Contractors

When it comes to selecting a contractor, we can’t afford to slack off. During the inspection period, we want to get as many bids as possible, ideally three. We create excitement and identify contractors who are genuinely interested in working with us. This strategy not only finds those we’d like to work with but also filters out those who aren’t a fit.

The goal is for contractors to be ready when we control a property, so they can bid to bring it up to ARV and inspection-passing condition. Once we have a property under contract and send it to them, we see how they respond. Some contractors will deliver as promised; others might ghost us because they lack the experience to give a competitive bid.

With three bids, we can:

• Understand the market rate in that area

• Adjust our rehab estimates for future offers

• Identify pricing and scheduling trends

When it comes to paying contractors, we typically set aside the full project amount in a separate bank account. This protects both the contractor, who knows the money is there, and us, since payments are released as work is completed.

Payout Example:

1. 20% of the work done? Then 20% of the budget is released.

2. 30% done? Another 10% is paid.

3. 48% done? The next 8% is paid.

This structure protects us if a contractor goes silent since we only pay for work completed, and the next contractor can step in without hassle. It’s why getting multiple bids is so important.

When I say we may like a contractor but can’t work with them, it’s because some contractors, especially those focused on high-end work, demand big deposits upfront. That’s fine for their luxury projects, but for high volume, it doesn’t make sense. We look for contractors familiar with investors who can handle volume, run efficiently, and accept this payment structure. And, we pay for our own supplies so contractors know they can’t ask for a deposit down payment for this.

Warning Signs:

• Do not advance large portions of the budget to the contractor. If you do, they have more control then you. They may use those funds on other unrelated projects creating delays for you. Some, and it has happened, have simply walked from the project.

• Many contractors do not know how to manage their funds. Budgeting to pay for their crew is essential to success. If there are fewer guys on the project than what was originally agreed upon, that is a red flag.

• If they miss deadlines and give excuses, you should be concerned.

• If they ask for an advance, they clearly are not budgeting correctly. This is a huge red flag and cause for termination from the project.

• Before paying a contractor, make sure you get a licensed inspector to review the current scope of items completed and approve it. If you are thousands of miles from your rehab, contractors are notorious for cutting corners or outright theft. Paying for a licensed inspector is absolutely worth the cost.

Contractor Horror Story:

A few years ago, I wholesaled a property in Birmingham to an investor from California who planned to keep it as a rental. He hired a local contractor to handle the rehab. Six months later, the investor called to say the project was nearly finished, but the contractor recommended replacing the roof for an additional $6,000. He asked me to check the roof and confirm it needed replacement.

When I arrived at the property, I was shocked. It looked exactly as it had when I sold it to him. No work had been done at all. The investor had already advanced the contractor $20,000. The contractor had been sending him interior photos of a property almost fully renovated, but it wasn’t the investor’s property. He not only lost his $20,000 but had to find another contractor costing him double the price.

Follow Your System:

Anytime I’ve strayed from this system, it’s gone poorly. Don’t do it. Stick to the system, qualify contractors who fit, and disqualify those who don’t. You’ll be amazed at the momentum that builds, especially once you’re established in a market and a reliable contractor can manage multiple projects at a time. It takes time to get there, but once you do, it will exponentially increase the success of your projects.

Next up, we’ll dive into the next commandment: networking. This isn’t just about numbers and systems; it’s also about people. We’ll explore how to find the right people, approach them, and build strong teams that create opportunities for everyone.