Hiring contractors when flipping

[Joe Duhamel]

hello everyone,

I'm a relatively new real estate investor out of Rhode Island who does mostly flip deals. I've been working on bettering my process ensuring I'm covered from a liability standpoint .I'm being told I should be getting copies of insurance certificates and workers comp certificates from everyone I hire, so my question is..Is everyone doing this? And no matter how big or small the job is??and any other tips on how to make sure your covered??

Thanks

Joe 

[Account Closed]

@Joe Duhamel I would agree with @Anthony Thompson that you need to take in all of the information and make the best business decision for you. Requiring all of your contractors carry workers compensation, liability and auto insurance, provide you with a certificate of insurance and sign a contract requiring the proper risk transfer is certainly the safest way to go. However, as an insurance agent I think it is our job to provide you with all of the various options and including the safest route and let you make the business decision. I would note a few things based on other comments I have seen on this thread.

1. The size of the job is completely irrelevant when determining insurance and risk transfer requirements. We see just as many large claims resulting from a $2,500 job as we do a $100,000+ job. In fact, the guys doing the smaller jobs tend not to be as professionally trained and tend to carry lower amounts of insurance. This can actually make the small jobs more risky in some circumstances. 

2. Carrying your own work comp insurance can result in large additional premiums during an annual audit. If you are in fact purchasing property in order to remodel and resell you are likely going to be considered a contractor under workers compensation law and could absolutely be found liable just as @John Lapointe suggested. In this circumstance I agree with John that a policy is necessary to provide proper protection. That being said, you need to be aware that your work comp carrier will audit your books at the end of every year and you will be charged for every $ of insured subcontractor payroll (a relatively lower rate) and for every uninsured subcontractor (at the rate for that contractors trade). If you are not aware of this fact you may end up paying much more in premiums than you calculated ahead of time. 

3. Practically speaking you will almost certainly run into contractors that do not carry work comp insurance when you are bidding small residential jobs. Work Comp insurance is much more expensive than general liability insurance in most cases and sole proprietors can legally not purchase work comp insurance when they are the only employee in most states. It is not realistic to think that you can demand all of the requirements above without getting push back from some contractors. I would recommend that you talk with your insurance agent and attorney about how you want to handle this situation as soon as possible and determine what your stance is going to be on this issue. When it inevitably comes up stick to whatever policy you determine is best for your business in the long run.