You Need To Do These Things Now To Protect Yourself From Contractors | Flipping Mastery Weekend Edition

On today's Wholesale Hotline Podcast (Special Saturday Edition), we help you start your weekend right offering tips, news and mindset advice. Show notes -- in these episodes we cover: Tips to level up your wholesaling business. Motivation to keep you going on your real estate journey. The latest industry news to keep you updated. Please give us a rating and let us know how we are doing! ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ ☎️ Welcome to Wholesale Hotline & Flipping Mastery Breakout! ☎️ Jerry Norton went from digging holes for minimum wage in his mid 20's to becoming a millionaire by the age of 30. Today he's the nation's leading expert on flipping houses and has taught thousands of people how to live their dream lifestyle through real estate. **NOTE: To Download any of Jerry's FREE training, tools, or resources… Click on the link provided and enter your email. The download is automatically emailed to you. If you don’t see it, check your junk/spam folder, in case your email provider put it there. If you still don't see it, contact our support at: [email protected] or 888) 958-3028. ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 💲 USE THIS LINK FOR DISCOUNTS AND FREEBIES TO USE IN YOUR BUSINESS: 💲 Make $10,000 Finding Deals:b https://flippingmastery.com/10kpod Get 100% funding for your deals! https://flippingmastery.com/fspod Mentoring Program: https://flippingmastery.com/ftpod FREE 8 Week Training Program: https://flippingmastery.com/8wpod Get Paid $8700 To Find Vacant Lots For Jerry: https://flippingmastery.com/lfpod FREE 30 Day Quickstart Kit https://flippingmastery.com/qkpod FREE Virtual Wholesaling Kit: https://flippingmastery.com/vfpod FREE On-Market Deal Finder Tool: https://flippingmastery.com/dcpod FREE Wholesaler Contracts: https://flippingmastery.com/wcpod FREE Comp Tool: https://flippingmastery.com/compod FREE Funding Kit: https://flippingmastery.com/fkpod FREE Agent Offer Sheet & Scripts: https://flippingmastery.com/aspod FREE Cash Buyer Scripts: https://flippingmastery.com/cbspod FREE Best Selling Wholesaling Ebook: https://flippingmastery.com/ebookpod FREE Best Selling Fix and Flip Ebook: https://flippingmastery.com/ebpod FREE Rehab Checklist: https://flippingmastery.com/rehabpod ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 🔌 PLUG IN & SUBSCRIBE 🔌 SUBSCRIBE: Jerry Norton and Flipping Mastery TV FACEBOOK: http://www. Facebook.com/flippingmastery INSTAGRAM: https://www.instagram.com/flippingmastery/ ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 🤝 #SQUADUP & GET MORE DEALS DONE in the Wholesale Hotline LIVE Facebook group: https://www.facebook.com/groups/759418414582645 🤝 ‼️‼️Pro tip: Make a post with your market & what you need help with‼️‼️

• 0:03Speaker 00

  Hey, it's Jerry Norton. Welcome to the Wholesale Hotline Podcast and the Flipping Mastery Breakout. We want to know how we're doing, so please leave a comment and give us a rating.

• 0:17Speaker 00

  I have 15 clauses that I believe are a must-have with your contractors. The first one is the scope of work. So you want to have a detailed scope of work. I create this on a separate thing and I add it as an addendum to their contract. And I even have that as well. If you guys want that for free, I have a scope of work. It's a detailed list of every possible thing you could do on a house. And what you do is you go through this scope and you basically checklist everything you want, or it's digital, so you could even delete stuff or add stuff, whatever. And you want to make this right down to knobs on the cabinets, a new handrail, like everything. This is where you take your time and you really build out the most detailed scope of work.

• 1:01Speaker 00

  You leave no rock unturned. It's a bunch of upfront work, but it's going to save you so much time and hassle and headache later. The better you communicate upfront with your contractors, the more clear you are about that, then you eliminate 90% of your headaches and problems by just having really good communication and a really good contract upfront. You eliminate 90% of your problems. And you'll see why as I go through this. Okay, so scope of work is the first clause or the first thing in your contract. Second thing is payment, meaning how is payment handled? Payment needs to be tied directly to the scope of work and it needs to be very clear on how that pay is structured.

• 1:42Speaker 00

  The third clause is the draw schedule. I have five rules that I follow when doing draws. The first one is I only pay for work completed. No upfront draws. And what does every contractor tell you? I need half upfront so that I can what? Buy materials. Nope, we do not do that. If they need materials upfront, then you buy the materials and you subtract it from contract price. And I put it on my credit card and I get points and I find my family wherever I want around the world because I get so many points on my credit card. And then when you do pay a draw, it's only for whatever percentage of scope that they've completed. And then you always hold back at least 20% at the end. Not 10%, 20%. Needs to be enough to where they're going to do that last little bit to get

• 2:26Speaker 00

  the final draw. I like to have a minimum draw amount of 2,500. Now, this obviously depends on the scope of work. I've come outside of that, but I don't want to be paying $200 draw, $500 draw, $1,000 draw. It's just too much counting and headache. So I like to have a minimum draw amount. I only do one draw per week and typically it's on Fridays. We pay all our contractors on Friday. And if you want paid on Friday, you need to submit for that payment three days early. Must provide your invoice and a lien waiver. I have to get an invoice and I have to get a lien waiver every time they submit a draw or you do not get paid. Now, guys, why do you think we need invoice and lien waiver? Because if you get audited by the IRS and you don't have an invoice, they're going to count that as income, not expense and you're going to pay taxes. Your lien waivers are a partial lien

• 3:11Speaker 00

  waiver on a draw and a final lien waiver on the final payment. And guys, I teach this to people. They don't do it until they have a contractor, put a mechanic's lien on their property and it holds up their closing and they pay it to get the property closed. And then they start doing lien waivers. Happens over and over again. That's when I started taking it seriously. I had a contractor with a $7,500 mechanic's lien on my property, on a contractor I fired. They put the mechanic's lien, title found it the day before closing and said, "We can't close. There's a $7,500 thing." And I said, "You know what? Pay it because I don't want to lose my buyer. Just pay it." And then I wanted to kill the guy, but you know, I paid it. I could have fought it and got it off, but I didn't want to hold

• 3:52Speaker 00

  up my closing. So like, get the lien waivers. Okay, number five is three days from date of submittal to receive payment. And the reason why I have that is because if I'm using hard money, I need a little bit of time so that I can submit the draw, get the inspection done and pay the contractor. Give yourself a little bit of time. Now, this is in writing. So contractor can't be like, "Hey, I need paid today. I need paid today." And you're dropping everything and you're meeting them at your house or at the bank or something? Like, "Guys, I've done all this." No. Rumor our contract. I got three days to pay you from when you submit your invoice. And we only pay on Fridays, so I need your invoice on Wednesday. Or you don't get paid this week. You get paid next week. You know, and I train everybody. A lot of this is training your contractors on how you operate.

• 4:34Speaker 00

  And once they get trained on how you operate, a lot of that headache goes out the window. Clause number four is completion deadline, very clear timeline for when they'll start and complete their scope of work. For example, let's say I've got an electrician and he's going to come in and he's going to do this whole list of stuff. He has to provide for me his timeline. It's going to take me seven days to do this work. If I don't get that as part of his bid, then I can't decide if I want to hire him. Because if his timeline is seven days and another contractor's is three days, I might pay more for the other contractor that can get it done in three days because I'm going to save four days. Part of my selection process with contractors is how quickly they can get the work done. You know, if it's going to take them 10 days, that's even longer. I can't tie up the project that long. I'm losing money if I go that long.

• 5:19Speaker 00

  The timeline is very important and it has to be in writing and it has to be in your contract. Without a completion deadline, there is no incentive to hustle. Five is bonus and penalties. I don't always give bonuses because I feel like your pay that we agreed on is your bonus. Like, why am I paying you more to do the job you agreed to do? But sometimes I'll do it. So the way that I'll do the bonuses is every day they finish early from the agreed upon timeline, I will give them a per diem bonus. Because if they finish early and I can speed up my process, that's money to me and I'm happy to pay you a bonus. They got to figure out your per diem or whatever. But likewise, I always have a per diem penalty if they go past the deadline and it's every day. And typically what I'll tell my contractors is they'll say, look,

• 6:03Speaker 00

  I've timed line this project to take 60 days or 30 days or 45 days, whatever. Every day I go past 45 days, I'm paying $500 a day to my lenders every day this thing goes past the deadline. And now I'm passing that on to you because you're holding me up. And that's how I explain it to them. Because you said you'd get it done in seven days and we're on day 12 and you're not done yet. And you've pushed everybody back, you've delayed my project. These are hard conversations to have if you don't have them upfront and you have them after the fact, it ain't going to go well. But if you have all these conversations and you get it all in writing and you talk about it all upfront, then you're like, hey, refer to clause five in your contract. You agreed to this. Don't be mad at me. Okay, clause number- Six is how we handle selections and allowances.

• 6:44Speaker 00

  This depends on the project and the scope, obviously, but I want to make sure that my budget has allowances. So it's like, we're going to allow $8,000 for flooring. We're going to allow $10,000 for cabinets. So you create these allowances, but then you do not let the contractor make the selections. What will happen if you let the contractor make the selections? They're going to pick out the most horrific stuff ever and they're going to buy stuff that's on sale. That's going to be a disaster. Then I make the selections. I tell them exactly what materials to put in. And that's within that allowance we created in the scope. Clause seven is what I call minor alteration. Basically, I need to have some leeway for routine and small changes that happen throughout the renovation. The island's going to go this way, not that way.

• 7:28Speaker 00

  You can't change order me for things that are small, minor, normal things that are going to happen throughout the project. So I want to be clear about this because contractors will underbid and then they'll try to nail you with change orders to make their money. Very common tactic. Come in low, change order the heck out of them to make money. So that's number eight is change orders. So how do we handle a significant change that is outside the scope of work? And not considered a minor alteration? You have to make sure that this is talked about and agreed upon ahead of time in writing. Because what they'll do is they'll just do the change and then they'll slap you with a big fat invoice for what they did. And now you've got a problem. You're like, what are you talking about? Make sure you're very clear. Change orders must be approved in writing upfront.

• 8:12Speaker 00

  I had this happen, by the way, guys, on my Puerto Rico eight million dollar house. My phase one builder who does all of the structure, it's all reinforced concrete. At the end of like 12 months of working for me, he gives me an invoice. It was like over a hundred thousand dollars. And you know, we had changed some things. We'd move this around, move that around. I thought it was all minor alterations. He clearly didn't. And not only were his change orders like for minor alterations, but they were excessive. They were 10 times what it actually cost. And he thought that he could just like nail me with this and I was just going to pay it. And I was like, dude, let's sit down with our contract and let's talk about this. You should have said, hey, you want to change that pool? All around this way, not that way, and whatever we change, you want to move the lights from here to there.

• 8:55Speaker 00

  I assume that was all minor alterations. Now you're hitting me with this big change order. You should have brought it to me and said, here it is in writing. Do you want me to do this? Approve it ahead of time before we make these changes and he did it. And so I didn't pay any of it. I said, no, absolutely not. You should have talked to me about this if you thought this would worth more money. I've been flipping houses for over 20 years now, and one of the biggest challenges with rehabbing houses is keeping track of everything. That's why I built Flipster. Flipster is your all-in-one deal management and CRM software for wholesaling and flipping houses. And the rehabbing tools in Flipster allow you to stay organized and easily keep track of everything going on. With the scope of work tool, you can create a detailed list of everything that needs done on the project.

• 9:37Speaker 00

  The budget tracking tool tracks what's been paid and to who, how many draws, and what the remaining balances are. The paperless contractor management center is where contractors upload invoices, lien waivers, and W9s, and it automatically tracks it to each specific rehab that you're doing. These and other time-saving tools in Flipster not only keep you on track, but they save you countless hours. I can't imagine rehabbing houses without Flipster. To test drive it for yourself for free, go to joinflipster.com. Okay, number nine is warranties. I want to get warranties and I want to be clear on what's warranted. What exactly and for how long will the contractor warranty his work after completion?

• 10:17Speaker 00

  Now, this is extremely difficult to enforce, and I can't tell you how many times my brand-new furnace fails. One month into me selling the house, the homeowner calls me and says, what the heck, my brand-new rehabbed house I bought, the furnace just went out, and this ain't cool. I'm pissed off. I call the contractor and say, hey, I paid you $5,500 to put a new furnace in, and I got this problem and that problem. I need you to get over there and fix it. Refer to clause nine in our contract. You warranted the furnace for a year, so I need you to honor your warranty and go over there and take care of this problem. I would say probably three out of 10 times the contractor will honor their warranty. The other seven out of 10 times they'll tell me to F off and I, you know, then they never get work from me again. Just because it's in here doesn't mean you enforce it, but what it

• 11:01Speaker 00

  does, it sends a very strong message. I'm going to pay you for this work. I need you to warranty it. And I try to get 12 month warranties from contractors. Clause number 10 is compliance. Contractors licensed and agrees to comply with federal, state and local code and laws. And it's your job contractor to know what that is and make sure you're compliant. Clause number 11 is insurance. They must have active liability insurance and workers comp for all workers on site. I do not want a guy fall off the roof and I'm paying his medical bills. I had an experience happen. I was actually there when this happened. The framing contractor, he laid the two by four across his thigh and he ran his bandsaw across the two by four and he cut a gash an inch deep into his thigh. And we rushed him to the hospital because he's

• 11:46Speaker 00

  bleeding all over the place. He had no insurance and guess who paid his medical bills? Cost me tens of thousands of dollars for this guy to go to the hospital. Clause number 12 is safety. Contractors agrees to follow all safety practices and indemnifies and holds harmless you, the investor for any and all injuries. Now, this would have been great for my guy that cut his leg with the two by four, right? They need to be safe and if they get hurt, it's on them, not me. You can't sue me if you get hurt on the job. 13 is liability. Contractors sell, indemnify, defend and hold you harmless for any, against any and all expense damages liabilities resulting from any breach or default by the contractor under this agreement. So again, that kind of aligns with safety. These are just things that are really good

• 12:27Speaker 00

  to have to cover your butt in the event of something. Okay. Number 14 is walkthrough final payment. Once the contractor's scope of work is complete, there's to be a walkthrough and final punch list and the contractor's final payment is withheld until the punch list is completed and it has to be more than 10%. I'll tell you guys a story I had. This is where I changed this in, in my business. I had the painter come in and he painted, you know, and you know how you go through with blue tape and you tape all the spots you want touched up? So we do that, you know, we go through and we, and we blue tape everywhere. I call the painter and I say, hey, I need you to come back for the punch list. And I was there for this. I see the painter walk in the front door and he looked around and he saw blue tape everywhere.

• 13:10Speaker 00

  He didn't say a word. He turned around, walked out the door and totally disappeared because I had held back 10% and in his mind 10% was not worth finishing the project and he was like, no way, I'm out of here. And he walked. I didn't hold back enough for him to be motivated. Even 20% might not be enough. You know, you want them like, are you a hundred percent happy with my work? Cause I got, I really want that final draw. So I could be done. Gotta hold back enough. So as you're drawing, once you get down to the last 20%, then it's no more draws until they're a hundred percent done. You've done the punch list. You've done the walkthrough and you're happy with it. And clause number 15 is dispute. In the event of a dispute, you and your contractor agree to take the matter before an arbitrator. Now arbitration is a whole lot cheaper than, than

• 13:55Speaker 00

  courts and then litigation. I created my own software called Flipster. Flipster has all of my management tools and it's all digital. We have what's called in there a contractor management center. They have to upload their invoices and lien waivers digitally. It comes right into a dedicated folder for that project. It's all organized. And at the end of the year, I go boom, and it sends it off to the CPA for 1099s. And I don't even have to think about it. It's got my budget tracking, my punch list tools, all of it. My scopes, everything are tools that I built in that software. The basic level of 97 bucks a month, you get all those tools. A paperless digital tracking center and it does it per project. So I could have multiple projects going on.

• 14:37Speaker 00

  Even my budget tracker, what it does, as you pay your draws, it tells you your balance is owed. You set it all up in the beginning of your project. You put your entire scope in there, all your subs in there. And then at a glance, I instantly know what I paid, what's, what's still owed, what's still outstanding, how many draws I paid. I think it's just a great way to stay super organized. You can do a trial of that and see if you like it. If you go to joinflipster.com, you can do like a free seven day trial and see if you like that tool. You guys had a rehabbing, but I built it based on all the projects I do and how I would like to run the project, but I think they're really cool tools.

• 15:12Speaker 00

  Thanks for listening to this podcast. To get more free tips, check out my YouTube channel. Just search Flipping Mastery TV on YouTube where I have over a thousand videos teaching you how to make more money with real estate. On my channel, I also give away free

• 15:26Speaker 01

  Quick Start Kit with everything you need to flip your first house in the next 30 days. Or my deal finding software called Data Cruncher, which finds discounted houses in any zip code in a matter of seconds. You can get those for free at myquickstartkit.com and mydatacrusher.com.