Contracting 101

[Robert Leach]

Despite the local temperatures in Chicago still regularly hitting 90 plus, the cold winds of winter are barreling toward us like a freight train. That said, I wonder how many of you have started projects with snow on the ground and are still hard at work completing them or stuck spinning your wheels. Over the past few months I have been contacted more than once to step into a project mid stream and offer my assessment or bid to provide the property owner a life vest so to speak. Not to worry, I do not plan on naming anyone here but what I have seen has been an eye opener to say the least. There are a lot of hacks floating around the construction trades but there are steps you can take to avoid them. I figure that writing an article describing the typical 5 step process for hiring and working with a general contractor could be useful for new investors and even perhaps offer the seasoned investor a view from a licensed contractor. 

Let's assume you just closed on your first investment property (congrats!) and you have decided to completely rehab the home. Here is a quick break down on next steps.

1. Find a good architect. Believe it or not, in most cases the city will require 3 sets of blue prints for the home, a plat of survey and a scope of work matching the prints. I wouldn't advise paying a GC for this service largely because it will cost more for prints you could readily contract out yourself. I have seen examples of GC's adding upwards of $1,000 to the architectural fee and passing it along to the investor. 

2. Once a print is delivered, ask for bids from 2 or 3 GC's you have already vetted in terms of insurances ect. Ask for a bid broken down by room in detail ie: demo costs? how many sf of drywall, how many outlets/switches, doors, LF of trim and SF of flooring to name a few categories. It is also important to have your desired finishes chosen. If you want a ceiling fan, which model? If you want 5" base trim, specify that. You want all your bids to be apples to apples which may help avoid costly change orders down the road from your low bidder. 

3. Create an agreeable time line. This is always an issue as holding costs reduce profits and can add stress to the project for investors. Keep in mind that it can take up to 30 days to get blue prints approved and submitted for permits, get the GC and all subs registered with the city and inspectors approving the build plan. In Chicago, it generally takes 2-4 weeks to schedule inspections.

4. Understand the inspection process and terms of the building permit issued. All inspections must be performed & passed in order to clear the permit for occupancy. In Chicago you will need a rough electrical, plumbing, ventilation (HVAC) and usually a framing inspection if you added or removed walls. If any one of these inspections fail for any reason, you will be waiting another 2-4 weeks for a reinspection before advancing the job. Once the job is complete, the city will come in and do a final inspection of all finishes to ensure it's up to code and ready for occupancy. Hint...if your contractor is hanging drywall before passed rough inspections you are probably using the wrong guy. 

5. Make certain the GC is paid on time per your agreement. A GC among other things is a bank for his subs and employees and if the money doesn't keep up with the work performed or vice versa, there will likely be problems. 

Finding a good general contractor is essential to any long term real estate investment strategy. I have witnessed a couple of investors going the route of hiring a couple handymen, subbing their own licensed trades and playing the role of GC that have not always gone as planned. Sure you can save a few thousand dollars becoming your own GC but the trade off for giving up 4-6 months of your life may not be worth it in the long run. I would love to hear from some of you investors and the horror stories that back up what I am saying here. Happy trails to all of you and may your bottom line be above the water line :)