Ep 1: How to Vet a Contractor Before Your Next Iowa Flip

Episode 1: How to Vet a Contractor Before Your Next Iowa Flip -

 

[NEIL] I had a borrower call me a few weeks back staring down a five thousand dollar swing on one line item.

[MAGGIE] One line item.

[NEIL] One electrical panel. Two bids from two different contractors. Same job. One bid was almost double the other.

[MAGGIE] So which one was right?

[NEIL] That's exactly the question we're answering today. Because the difference between those two numbers wasn't the work. It was who you hired to do it.

 

[MAGGIE] Before we get into today's topic, I want to take a minute, because this is our very first episode of Flipping Iowa.

[NEIL] First one. No pressure.

[MAGGIE] So if you're new here, welcome. This show is for people who want freedom, flexibility, and control of their own lives, people who see the opportunity in real estate and are seizing it, from their first deal to their hundredth.

[NEIL] That's the whole audience. First flip or the hundredth one, same show.

[MAGGIE] And the promise is simple. Every episode, we're bringing you quality content that ups your game, grows your knowledge base here in Iowa, and increases your capacity to do more.

[NEIL] Not theory. What's actually working on real jobs, right now.

[MAGGIE] For anyone wondering who's asking all these questions, I'm Maggie. Neil brought me on as content coordinator and curator. My job is pulling the knowledge out of his head, everything he's learned financing deals and advising clients through their remodels, and turning it into something that helps the Iowa investor community. That's this podcast, and it's the blog over at LittleGuyLoans.com.

[NEIL] And I'm Neil Timmins. I've been in real estate for over twenty years now, as an agent, a broker, and an investor. Somewhere north of three hundred million dollars in transactions along the way. These days, I'm Iowa's hard money lender.

[MAGGIE] Which means every episode, you're getting what he's actually seen work, and what he's watched go wrong.

[NEIL] Both. Probably more of the second one, if I'm honest.

[MAGGIE] Alright, let's get into today's show. Neil, I spent this week inside your blog on vetting contractors, and I have to say, it made me nervous for every first-time flipper reading it.

[NEIL] It should. Because I'll tell you flat out: I have never seen a flip blow its budget because somebody bought the wrong house. I've seen plenty blow up because somebody hired the wrong contractor.

[MAGGIE] That's a bold claim.

[NEIL] It's not a claim. It's a pattern. Ten thousand-plus homes, hundreds of rehabs, I've watched it happen the same way over and over.

[MAGGIE] Okay, so today we're talking about how you actually vet somebody. Not the handshake, not the good feeling.

[NEIL] Right. The real process. What I ask on the first call, how I check license and insurance, what a walkthrough tells you that an interview never will, and the red flags that make me walk before I've spent a dollar.

[MAGGIE] One thing that struck me writing this up. You said you don't sign with anyone until they clear a real screening process. Not a handshake and a good feeling.

[NEIL] Because a good feeling doesn't show up on a change order. I've sat across the table from plenty of charming people who talked a great game and then disappeared the second something got hard on site.

[MAGGIE] So charm is basically a red herring.

[NEIL] It's worse than neutral. A contractor who's great on the sales call and thin on the follow-through costs you more than one who's a little awkward on the phone but rock solid once the crew shows up. Get this right before the first draw goes out, and honestly, the rest of the rehab gets a lot more predictable.

[MAGGIE] Let's get into it.

 

[NEIL] Here's the thing nobody tells new investors. The purchase price, the after repair value, all of that is math you can basically nail down before you ever pick up a hammer. But the rehab? The rehab is the one variable where a single bad decision compounds every single week.

[MAGGIE] Why does it compound so much worse than, say, overpaying for the house by a few thousand dollars?

[NEIL] Because overpaying is a one-time number. A bad contractor is a leak. Every week they're on your job, slow, sloppy, or dishonest, you're bleeding holding costs, you're bleeding your timeline, and you're bleeding trust in your own numbers.

[MAGGIE] So walk me through it. Somebody's got a deal under contract in the Des Moines metro. When do they start vetting a contractor?

[NEIL] Before they close, ideally. I never meet a contractor at the property first. I want one real phone call before anybody sets foot on site.

[MAGGIE] What does that call actually sound like? Because I think people picture vetting as pulling a license number and calling it a day.

[NEIL] That's step two. Step one is a conversation, and it tells you more than any license lookup will.

[MAGGIE] Before we get into the call itself, I want to connect this to the money side. Because the loan is part of this equation too, right?

[NEIL] It is. Little Guy Loans funds up to ninety percent of the purchase price and up to one hundred percent of rehab costs, with twenty-four hour approval and a five-day close. But the whole loan is capped at seventy percent of after repair value. That's the ceiling everything else fits inside.

[MAGGIE] So if the contractor blows the budget...

[NEIL] Then your all-in cost, purchase plus rehab, can push right past that seventy percent ceiling before you realize it's happening. Rehab funds release through a draw schedule, paid out in stages as the work is actually verified, not handed over up front. A contractor who runs a tight site and communicates early keeps those draws moving on schedule. One who doesn't can quietly eat your margin one change order at a time.

[MAGGIE] So the contractor isn't just a line item. He's the thing standing between you and that seventy percent cap.

[NEIL] That's exactly right.

 

[NEIL] On that first call I ask how many active jobs they're running right now. If somebody tells me six, I already know my project isn't getting their full attention. Two, maybe three, that's a contractor who can actually show up.

[MAGGIE] What if they say just yours? Doesn't that sound better?

[NEIL] It can go either way. Sometimes it means they're hungry and available. Sometimes it means nobody else is hiring them right now, and that's worth asking about too.

[MAGGIE] Fair. What else is on that call?

[NEIL] I ask what a typical week looks like on a job this size. Vague answer, vague schedule later. I ask if they run their own crew or sub out plumbing, electrical, HVAC, because I want to know who is physically doing the work on my house.

[MAGGIE] And the question everybody should be asking but probably isn't?

[NEIL] How do you handle a surprise. Old wiring behind a wall that wasn't in the scope, a foundation crack you didn't see until demo. The answer to that tells you whether change orders are going to be a conversation or an ambush.

[MAGGIE] What if somebody dodges that question, gives you something vague instead of a real answer?

[NEIL] That's a tell all by itself. A contractor who's handled surprises before has a story ready, because they've lived it. Someone who gets uncomfortable or changes the subject usually hasn't had to be honest with a client about a mistake, and that's exactly the moment you'll need them to be honest with you.

[MAGGIE] So the call itself is basically a filter before you spend any real time on somebody.

[NEIL] That's exactly what it is. Fifteen minutes on the phone can save you from wasting a week scheduling a walkthrough with somebody who was never going to be a fit anyway.

[MAGGIE] Okay, so the call goes well. Now what?

[NEIL] Now we verify. Not on their word. I ask for a certificate of insurance sent to me directly from their carrier. Not a photo of a piece of paper they hand me, straight from the source.

[MAGGIE] What are you actually looking for on that certificate?

[NEIL] General liability, and workers' compensation if they've got employees on a crew. If a contractor hesitates on that, or the insurance only covers them and not the people actually swinging hammers on your job, that's information. Before you've spent a dollar.

[MAGGIE] So the phone call and the paperwork. What's next?

[NEIL] The walkthrough. This is the part almost nobody does, and it's the one I trust the most. Before any deposit changes hands, I ask to walk an active job site. Not photos. In person.

[MAGGIE] What are you looking at when you walk a job like that?

[NEIL] Everything. Are the tools organized or scattered everywhere. Is the site swept at the end of the day or is trash piling up in the yard. Is there an actual schedule posted somewhere, or does it look like the crew is improvising room by room.

[MAGGIE] And a messy site tells you what, exactly?

[NEIL] A contractor who runs a tight active job almost always runs a tight one on yours. And a contractor who's careless with somebody else's house right now is going to be careless with yours too.

[MAGGIE] Can you give me a real number? Because the site looks messy is subjective.

[NEIL] Sure. Take a mid-size Beaverdale bungalow rehab, call it a forty-five thousand dollar scope. If a disorganized contractor lets that job slide two extra weeks because materials weren't staged right or subs weren't scheduled back to back, that's two more weeks of holding costs. Insurance, utilities, and interest on the loan. On a project that size that can run you eight hundred to twelve hundred dollars you didn't need to spend, and that's before anything actually goes wrong.

[MAGGIE] So a clean site isn't just about pride of work. It's a proxy for whether the schedule holds.

[NEIL] Exactly. And it's not the same story in every submarket either. A panel swap on an older Beaverdale or Sherman Hill bungalow is a different animal than the same job on a newer build out in Ankeny or Waukee. Older homes have surprises behind the walls. A contractor who's done fifty of those Des Moines-era rehabs knows what to expect. One who's only worked new construction out west doesn't, and that shows up in change orders.

[MAGGIE] Last piece?

[NEIL] Reference calls. Two, maybe three recent clients. And I don't ask what went right.

[MAGGIE] You ask what went wrong.

[NEIL] Every single time. Every contractor has a hard job story somewhere. I want to hear it from the person who lived it, not find out for myself six weeks into my own rehab.

[MAGGIE] What are the actual questions?

[NEIL] Did the finish date match what they were told, or did it slide, and by how much. How were change orders handled, in writing with a number attached, or verbally after the fact and hoping you remembered. And would they hire this person again.

[MAGGIE] You mentioned change orders twice now. Why does that specific thing come up so much?

[NEIL] Because it's where trust either holds or breaks. Always have a written scope of work before day one, period. If it's a contractor I haven't used before, I walk before I run. I'm on site. I take photos. I document everything, because a verbal change order is just a disagreement waiting to happen three weeks later when nobody remembers exactly what was said.

[MAGGIE] Give me an example of how that goes wrong.

[NEIL] Say demo uncovers old knob-and-tube wiring behind a wall nobody expected. A good contractor stops, documents it with photos, gives you a number in writing, and waits for a yes before touching it. A bad one just does the work, tells you about it after the fact, and hands you a bill that's four thousand dollars higher than what you budgeted, with no paper trail to push back on.

[MAGGIE] And that's the difference a written scope makes.

[NEIL] That's the whole difference.

[MAGGIE] Let's talk red flags directly. If you had to give someone a short list of things that mean walk away before you've spent a dollar, what's on it?

[NEIL] Five things, and I've seen every one of them in real life. First, the price changes materially between the phone call and the written bid with no explanation for the gap. Second, there's no current job anywhere you're allowed to visit, for any reason. Third, they're reluctant to send that insurance certificate directly from the carrier, or the coverage only protects the owner and not the crew. Fourth, a timeline that sounds faster than every other bid you got, with nothing behind it that explains why.

[MAGGIE] What's the fifth?

[NEIL] No local references, or references who can't remember specific details about the job. Somebody who genuinely did good work for a client, that client remembers it. Vague answers on the phone usually mean a vague relationship, or no relationship at all.

[MAGGIE] What if a contractor only trips one of those five? Is that automatically disqualifying?

[NEIL] Any one alone might have an explanation. Somebody's insurance renewal could genuinely be delayed a day. But more than one together, that's a pattern, and that pattern is exactly how contractor cost overruns start, long before the first wall comes down.

[MAGGIE] I want to bring this back to somewhere real. You mentioned a Johnston flip in the blog.

[NEIL] Yeah, this was a bungalow out in Johnston, and I ran this exact process before I signed anything. The screening call surfaced that this guy was juggling three active jobs, which pushed me to dig harder on crew size, who's actually going to be on my site day to day.

[MAGGIE] Did that kill the deal with him?

[NEIL] No, but it changed the questions. The insurance certificate came straight from his carrier within a day, no delay, no excuses. I walked his current job, clean site, schedule taped to the wall. And both reference calls, unprompted, mentioned the same thing.

[MAGGIE] What was that?

[NEIL] He called them the day a problem showed up. Not the week after. That pattern is why I signed him, more than the bid itself.

 

[MAGGIE] Okay, before the break you teased something about a five thousand dollar swing on one bid. Tell me that one.

[NEIL] This is a borrower who did everything right on paper. Remodeled a house top to bottom, got it under contract with a buyer, and then the buyer's inspector flags the electrical panel as a fire hazard. Needs to be replaced before closing.

[MAGGIE] That's a bad time for a surprise like that.

[NEIL] The worst time. Now the clock's running on a signed contract, the seller, in this case my borrower, doesn't have much leverage to push back, and every day that panel isn't fixed is a day closing doesn't happen.

[MAGGIE] So what did he do?

[NEIL] Went out and got bids. Two of them, both from established electrical contractors. And the numbers came back high enough that it was going to take a real bite out of his margin on the whole deal.

[MAGGIE] How high are we talking?

[NEIL] High enough that he called me instead of just picking one and eating the cost.

[MAGGIE] And you had a better answer.

[NEIL] I've been an investor longer than I've been a lender. Which means I've built a bench of contractors over the years, across every trade, not just from lending, from being on job sites myself. I referred him to an electrician I'd used personally.

[MAGGIE] What happened?

[NEIL] Same panel. Same scope of work. That contractor came in just over fifty percent less than the lowest of the two bids he already had.

[MAGGIE] Fifty percent.

[NEIL] Fifty percent. The deal closed on schedule. And that's really the whole argument for why this matters beyond just the contractor you hire for the rehab itself. Vetting isn't a one-time event at the start of a project. The right relationships pay off any time something surfaces.

[MAGGIE] Fifty percent off the low bid is a big number. Did the borrower ever find out why the gap was that wide in the first place?

[NEIL] We talked about it after. Best guess, the two big contractors he called were both stacked with commercial work at the time and priced the small residential panel job like they didn't really want it. The guy I referred does mostly residential, knows exactly what a panel swap on a house like that costs, and priced it like he wanted the work. Same materials, same code requirements, completely different pricing logic behind it.

[MAGGIE] So it wasn't that the first two were ripping him off, necessarily.

[NEIL] Not necessarily fraud, just misaligned. Which is its own lesson. The right contractor for the job isn't always the biggest name or the first one you find searching online. Sometimes it's the specialist who actually wants your specific kind of job.

[MAGGIE] So this is really two lessons in one story.

[NEIL] It is. Vet who you hire going in. And know that a lender who's actually operated as an investor is worth more than a rate sheet, because when something goes sideways mid-project, that's the phone call that saves you real money.

[MAGGIE] Does that happen a lot? Borrowers calling you mid-project for something that has nothing to do with the loan itself?

[NEIL] More than people expect. I've been inside thousands of these homes myself, hundreds of rehabs personally operated, so the bench I've built over the years covers plumbing, electrical, roofing, HVAC, foundation work. Most of our borrowers won't need a referral on every deal. But when something surfaces after an inspection and the clock's already running, having a lender who's also an operator is worth more than any rate comparison they did when they were shopping for the loan.

 

[MAGGIE] Let me push on this a little, because I think a lot of listeners are thinking it. What if the contractor came from a referral? A buddy, another investor, someone you trust. Do you still run the full process?

[NEIL] Every time. A referral is a starting point, not a substitute. I still confirm license and insurance directly, I still walk a current job, I still make the reference calls, even when a friend sent me the name.

[MAGGIE] Isn't that going to slow you down? If you've got a deal moving fast, all this vetting feels like it costs you time you don't have.

[NEIL] It costs you a few phone calls and maybe one afternoon walking a job site. Compare that to what it costs when a contractor blows your timeline by six weeks or hands you a change order you never agreed to. The vetting is cheap. The alternative isn't.

[MAGGIE] What about price? If one contractor's bid comes in noticeably lower than everyone else's, is that a green flag or a red one?

[NEIL] Neither, by itself. It's a question. I want to know why. Sometimes it's a newer contractor building a book of business, and it's legitimate. Sometimes it means something's missing from the scope, and you find that out during the project instead of before it. Either way, you ask before you sign, not after.

[MAGGIE] And if somebody just doesn't have time to run the full process? Two to three contractors, screening calls, walkthroughs, reference calls, that's a lot for somebody with a full-time job doing this on the side.

[NEIL] I get it. But this is the underwriting you do before your rehab budget gets tested. Skip it, and the surprise doesn't disappear, it just shows up later, behind a wall, or in a schedule that quietly slides another two weeks.

[MAGGIE] One more, because I think this trips up first-timers specifically. If someone's never walked a construction site before, what are they actually supposed to catch? They don't know what a clean site even looks like.

[NEIL] You don't need to be a contractor to catch this. You're not grading the framing. You're watching behavior. Are materials stacked and covered or left out in the weather. Is there a dumpster on site and is it being used, or is trash just piling up in a corner. Does anyone greet you when you walk up, or does it feel like nobody's actually running the job that day. Those are things anybody can see on a first visit, experienced or not.

[MAGGIE] So it's less about reading blueprints and more about reading the room.

[NEIL] Exactly that. And if you genuinely can't tell, bring someone who can. A more experienced investor, even another contractor you trust. One walkthrough with a second set of eyes is a lot cheaper than finding out three weeks into your own rehab.

 

[MAGGIE] Before we wrap, this is something we like to close every episode with. A little piece of Iowa history, and in this case, one that speaks straight to what we just talked about.

[NEIL] I like this one.

[MAGGIE] Construction on the Leaning Tower of Pisa started back on August ninth, eleven seventy-three. And the builders made basically the classic mistake. They only dug the foundation about ten feet down, because the ground underneath was too waterlogged to go any deeper.

[NEIL] Ten feet. On a tower.

[MAGGIE] By the time they finished the third floor, five years in, the whole thing was already leaning south. And thanks to two wars putting the project on hold, it took roughly two hundred years to actually finish it.

[NEIL] You know what that story is? That's every flipper who's ever found a cracked foundation and had to decide whether to walk or fix it. Just a much bigger, much slower version of the exact same problem.

[MAGGIE] And a much worse contractor conversation than the ones we've been talking about today.

[NEIL] At least our version doesn't take two hundred years and a couple of wars to sort out. But that's the point of vetting somebody before you break ground. You catch the waterlogged ground, so to speak, before you've built three floors on top of it.

[MAGGIE] I love that the Pisa crew basically got stuck with the world's most famous change order.

[NEIL] Eight hundred and fifty-some years later and people still pay to go look at it. Not exactly the outcome I'd wish on anybody's flip.

 

[MAGGIE] Okay, let's bring it home. If you take one thing from today, what is it?

[NEIL] The contractor decision is the real underwriting on your flip. Not the purchase price, not even the after repair value math. Who swings the hammer determines whether your rehab budget holds.

[MAGGIE] And the process, one more time.

[NEIL] Screening call first. Confirm license and insurance directly from the carrier. Walk an active job before any money changes hands. And call references and ask what went wrong, not what went right.

[MAGGIE] And don't skip it just because the name came from a friend.

[NEIL] Especially then. That's usually when people skip it.

[MAGGIE] And the five red flags. Price that jumps between the call and the bid, no job you can walk, hesitation on insurance, a suspiciously fast timeline, and no real references.

[NEIL] Any one of those, ask questions. More than one, that's your answer.

[MAGGIE] I think the thing that sticks with me most is that none of this actually takes that long. A phone call, a walkthrough, a couple of reference calls.

[NEIL] That's the whole point. It's not complicated. It just takes doing it every time, not just the times you happen to remember.

[MAGGIE] This has been Flipping Iowa. If you got something out of this one, share it with a friend, and be sure to subscribe so you don't miss the next one. Catch you on the next episode.

[NEIL] Talk soon.