Mastering Cost Priority Profiles in Real Estate

Sunday, February 25, 2024

The Larossa Workshop Blog/Mastering Cost Priority Profiles in Real Estate

Mastering Cost Priority Profiles in Real Estate

Leverage 15 levers to optimize your projects and contractor relationships.​

There are 15 levers that make up your Cost Priority Profile. When you understand your own and your contractors you will be able to systematically lower the price of your house flip or rental projects.

I’m sure you have heard it said before that you have to pick two of the three.

  • ​Speed
  • ​Price
  • ​Quality

Well, I think it's quite a bit more complex than that.

It’s pretty obvious that as real estate investors one of our main goals when shopping for contractors is to do the renovation on our house flip or rental for the best price possible. I don't think that is anything to be shy about.

A lot of you might hear that and think that means that you have to beat contractors down on their price, but that’s not necessarily the case. What you really need to do is understand the different factors that a contractor will weigh when deciding what customer to work with.

Sometimes their priority is certainly being able to charge the highest prices for their services. However, there are 15 different factors that may affect how they count the COST of doing business with you. If PRICE is not the highest on their list you may be able to double down on some of the others to reduce the dollars you spend on your next flip.

In this article, I intend to help you understand the 15 levers of the Cost Priority Profile for both you and your potential contractor. Plus one more that I’m not sure I’m supposed to say, but I’ll go ahead and try to beat around the bush enough to make it clear while not getting myself in any trouble.

First, you need to understand what I mean by Cost vs Price.

Price is what you as the customer pay in dollars. Cost is what a producer (in this case the contractor) pays to achieve a product. Of course, the PRICE is ultimately derived from the COST, but there is more to it than what meets the eye. There are two main categories of costs:

  • ​Real Costs - which consist of
  • Direct
  • ​Indirect
  • ​Perceived Costs

Real Direct Costs

Real direct costs are the measurable dollar costs like what they pay for staffing, subcontracting, machinery, materials, etc. Basically everything that you can find on a Profit and Loss statement. You cannot really impact the real direct costs of a contractor. This is really about how well they manage their business. Typically the most cost-effective way for most contractors to run their business is to be a small company that has a couple of guys on a crew that they lead and an administrative team member. When they are smaller than that they have to raise their prices for their personal hourly to cover business overhead. When they get bigger than this they have to rely on adept business management. That skill typically doesn’t stick around for the investment-grade renovation industry. I am constantly trying to meet people at the Home Depot parking lot or the gas station when I see a van or a truck that isn’t brand new, has a company vinyl on the side, and has a full crew with an obvious leader (usually the driver). These are the teams that make up 90% of our contractor pool. So how do you affect real direct costs? Picking a contractor who is managing a tight ship and creating a Smart Scope of Work that separates Wants from Needs. Look at any of my other content to find more info on smart SOWs.

Real direct cost is what most investors are trying to attack. By getting a contractor to give you a price that doesn’t exceed their actual price is not a strategy that will work long-term. Also, it's just not the right thing to do. So work harder to find a contractor whose business model works with yours.

Real Indirect Costs

Real indirect costs are things like time and opportunity costs. These are costs that you may not be thinking about, but your contractor probably is. This is their time involvement on a project that isn’t production time. For a contractor to run a successful company they must keep the “surgeons at the table.” This means the need to keep a project moving - they need time to be directly related to production which is in some form or another able to be income producing. The more time they can be renovating and the less time they spend with all the other stuff keeps their indirect costs down.

Perceived Cost

For lack of a better way to put it, these are basically the costs to the contractor's soul. Are they doing the type of work that they love to do for people who they have mutual respect for? Are they proud of what they’re doing?

Now, it's time to understand the 15 different levers that impact the COST to a contractor.

Stick around and I will show you how to apply it.


Not much to say here. I think we all get this lever. Some are all about the cheddar. It may be 99% price and 1% all of the other levers. To demand that, they may have an excellent business. Maybe that’s even what you want. Maybe you’re willing to pay more so you don’t have to deal with anything. That’s easier than having to learn all this stuff that I’m slinging! A caveat though, some contractors really understand how to operate a business and can keep their real costs down and make a healthy profit while still keeping the price for you down. These are unicorns.

Now you are all really here to understand all of the other levers so you can find a contractor who cares more about something other than price.


Some just want to be left alone. “Let me go into a house for the next 3 months and build stuff!” They want you to stay off their job site. They don’t want to be on the phone with you every day. Set a clear Scope of Work with checkpoints and let them do their thing, you’ll be rewarded. If you feel the need to micromanage this perceived cost will go up for the contractor and so will your price.


There are contractors out there who are always showing photos of their work and the creative way they address different portions of a project. Awesome! “Show me more” is what I would say to them. I’m pumped that you are getting to express yourself here. However, I will feel a lot differently about that if that high craftsmanship starts to increase the real costs like time and labor, therefore my price. It doesn’t always mean that though. Some are out there “for the love of the game” and just want to deliver something they can be proud of, even if it took them a bit more time to perfect.

Fluid Schedules

Every contractor loves to have a project that doesn’t have an intense timeline. This is like a safety blanket. A big part of the life of a contractor is to make sure they have the next job lined up. A gap between finishing project A and starting project B represents a gap in income which is not acceptable in the razor-thin profit industry of construction. If you can provide them with a “Project C” that can be going all the time they will love it. They may not even need to make a profit on it, they just can use it to send guys to when they would otherwise have to send them somewhere non-income producing. Or send them home which will eventually lead to a job search for those guys.

Receiving Trust

The contractor-to-customer relationship has long been a muddy one. Each side thinks the other is out to get them, therefore it often manifests itself. The reality is that it is often unintentional and caused by miscommunication. Trust me, contractors can sense your feelings toward them. Break the cycle and give some trust. You’ll be rewarded for it. Now I’m not saying blind trust. You need to set your expectations via a Smart SOW and follow up at your checkpoints, but when an issue arises (which it will) don’t assume the worst. Try assuming that the contractor is actually trying to help you. See what happens.

Project Type

New build? A-Class Renovation? Crappy rental where you just want the safety basics done? Do you need permits? Is it a complex project that will require a lot of problem-solving? You really have to find out what a contractor likes to do. If they love doing the high-end renovation, they are probably not going to give you good pricing to do a B-Class flip project.

Shared Project

Are you going to have multiple contractors working at the same time? Most contractors would rather be the only ones in there working, however, some are REALLY bothered by this. It may heavily weigh on their perceived costs. It may actually have real cost implications as well. Like when the other contractor accidentally picks up your tool and puts it on their truck or messes up the work that you were doing.

Payment Confidence

Do you have a reputation for paying quickly and in full? You better! Now I’m not saying that you should pay when expectations weren’t met and there are certainly those contractors out there who will say you never pay when the reality is that they do sloppy, incomplete work that doesn’t meet expectations that were clearly set. It does mean that when a contractor says he is done with the work you agreed upon you make it a point to get there quickly to check the work and you go with the checkbook in hand.

Future Work - Really

Everybody uses this one. “I have plenty of work where that came from” is the basis. Every contractor has heard it and doesn’t believe you because most of the time they don’t deliver. Prove it. Find ways to inject stories into a conversation. Have them meet you at a different job site to give them a check. When I was first starting out, I would actually have people meet me at sites that weren’t even mine.

Time Wasting

Don’t have contractors go look at projects that they aren't going to get. Having 3 contractors bid on the project at the same time is a big middle finger to their time. Help them be able to “keep their surgeons at the table.” Respect for people and their time will be returned. You will constantly level up the people you work with by extending this respect.


Are you always trying to get a little bit more for the same price? Contractors have a pro/con list for their customers too. Just understand that they are tracking these things.

ADD or Focused SOW

You might think you're really optimizing by changing that plan when you run into certain roadblocks or because you simply thought of a new design. Just like they do on HGTV. You’re not optimizing. You’re being confusing and costing contractors time and money. Or they’ll make you pay for those changes. I know it seems weird that if you are willing to pay extra for those changes, why would the contractor be upset? Because some just want to put their head down and have the pleasure of a job completed.

License, Insurance, and Permits

I’m not advocating hiring guys who aren’t on the up and up, but this article is about things that affect price. If you hire the guy working out of his basement you will certainly get a price break. Obviously, you will be exposing yourself to other risks.

Who Are You?

Be likable. How do you do that? By being genuine. Know what/who you are and act accordingly. I’m an experienced investor and contractor. I play that part well because it’s who I am. However, when our Ops Manager goes to job sites in his loafers he will say things like “I don’t know construction. I’m here to gather and give information. That’s what I do well.” He plays the part of who he really is. He doesn’t try to act like he knows how to do that structural repair. People respect that. They find it likable.


It’s not necessarily problematic to be a perfectionist. The question is, do you know it? And are you willing to pay for it? If you are, it needs to be established at the beginning, in the expectation-setting portion of the project, not at the end. Most projects aren’t even close to perfect, just look around your house. If you are going to be shining a flashlight down the drywall, be prepared to pay for what that takes financially to perfect. Also let the contractor know before they decide to work with you that the project will take them 3 times as long to complete.

Now for the bonus...


Some guys just don’t speak English all that well. Yeah, I think you get what I mean here; however, I’m also talking about some various flavors of the English language (have you ever seen Swamp People?). Some customers don’t take the extra effort to bridge the gap here. Well I’m telling you, you’re missing out on some of the best people to do business with.

How Do You Apply This New Found Knowledge?

For both you, the customer, and the contractor, trade-offs are always being made. Neither one of you can fill all 15 of the buckets that make up your cost priority profile. You need to consider which are more important to you and understand that by filling one bucket you may be emptying another. Now while you go out in search of the contractors that you want to work with you need to be conscientious of their profiles as well. Over time you will find the ones that most closely match your priorities.

Now this isn’t You’re not going to find perfect alignment here, but I believe that being mindful of these factors will help you build a better team of contractors and therefore a more profitable, less stressful real estate investment organization.

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Hi, I'm Ross Paller

CEO Of Larossa

After flipping over 300 houses, holding a portfolio of 150 properties, and creating a successful construction company for over a decade, I felt compelled to pay it forward by sharing the wealth of knowledge and experience I’ve accumulated on my journey.

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