Hiring a Contractor: Tips and Tricks?

Question

Hello Community!

I had a couple of quick questions I wanted the Forum's insight and input on, specifically when it comes to hiring contractors to do rehab/project work on your investment homes.

1) Can you (or should you?) bring Contractors in during the Due Diligence Phase - aka, during the Home Inspection phase? My thinking was that this could be a good idea, especially in a situation where a contractor would be able to provide some preliminary estimates or bids on how much a specific rehab or project would cost in conjunction with what the Home Inspector's insight would be.

2) In order to save on both time and on costs - would it be better for you (the investor) to buy the materials for your contractor to use? Like - if there was a specific light fixture, or a specific luxury vinyl plank type you would want, would it be less time-consuming or cost-feasible to just get it yourself, or would it be better to just let the Contractor know exactly what kind of materials, and what kind of work you would want them to do?

I'm still very much learning about how all of this works, and I want to make sure I do it right, when I finally commit to the purchase of a property.

Thank you so much.

Paul Sedillo · Answer

Hey @Emil Pinlac, I wanted to share tips/considerations for selecting the right contractor for the job: Hire the right contractor for the job - there is a big difference between a general contractor who understands the needs of an investor versus a handyman. While there are some incredible people out there who operate at the hanyman level, they typlcally do not carry the kind of insurance needed for this type of work.Get several bids - as you're establishing relationships and building your team, it's important to get an understanding of the current rate for your market. Also, the lowest bid is not always the best option. All to often they have left something out and it turns into a change order. This adds costs to the project and reduces your ARV profit which is no bueno.Vet the contractor - a solid contractor will be more than happy to provide references, show you other jobs, introduce you to investors that they work with who can talk about the work you've done. Depending on the city, they contractor should also be licensed or registered with the city where the work is being performed.Get a contract in place - you want everything spelled out so there is no missunderstanding. A reputable contractor will have a straight forward contract that lists what will be performed on the job. If a change order comes up this is also covered in the contract. A change order should never be started until the investor approves the work. The contract should also spell out milestones for payments. Review to scope of work and don't be afraid to question something you don't understand or agree with - a good contractor will have no problem explaining why a line item is on the list and provide a solid explination.Project materials for the job - one other consideration is having your contractor buy the materials. They will charge an uplift to do this, but keep in mind your time is money. Do you really want to make 10 trips a day to Home Depot?Establish an expected update cadence - as an investor you're on a short timeline to get a property/project completed so that it can be sold or rented. You want to make sure that the contractor you select provides regular updates so you can track the progress. The goal is to avoid any unexpected surprises from popping up. Communication and transperancy. The above is a short list of things to consider and hopefully will help you in finding a good contractor to add to your team.

Greg Dickerson · Answer

There are plenty of tips but no tricks when it comes to finding, hiring and managing general contractors.Yes you want to build a relationship with your main contractor And include them in all of your walk-throughs if you are serious about buying the property. You do not want to drag them to every single deal your interested in. You want to look at it yourself first and make sure you’re comfortable with moving forward and have the resources to do so.You do not want to supply any materials. It’s not worth your time and effort. The best bet is to have the contractor do everything for you one price turnkey that way they are responsible for everything they have to warranty everything and any mistakes, theft or damaged materials is on them not you.

Account Closed · Answer

Have you built any relationships with contractors in your area? The property management company I work for here in Milwaukee, Wisconsin found it advantageous to open our construction/Inspection services up to the D.I.Y investors, who dont need necessarily need Full management or leasing services. Couldn't you reach out to some PM's in your local area to see if any are offering similar services?

Paul Sedillo · Answer

Hi @Emil Pinlac,If it were my investment and I had someone doing work on a property, insurance is a must. I'm not willing to take the rist of having an uninsured handyman or contractor do work for me. A handyman is great for quick and simple repairs, adjustments, and painting. When you get into structural repairs, changing floor plans, remodling bathrooms and kitchens, that's when you should be looking at a GC. There are no hard rules, but this should give you an idea of things to consider.The GC will have a contract for you to sign and it will spell out the work being performed. If it is a larger project more than likely there will be milestones built into the contract - plus a payment schedule.A payment schedule can vary based on the size of the job. 1/3 upfront, 1/3 when you hit a milestone, 1/3 upon completetion. Of course if it's a bigger job this might be spread out. Every GC has their own way of structuring the payment schedule.While I appreciate your desire to buy materials and save money, it builds inefficiency into the project if it is larger in scope. If it is a small project this is not a problem.

Drew Sygit · Answer

Actually, you can learn a lot about a contractor when you control the purchase of materials.Instead of buying and delivering materials, just setup accounts where they can go in and buy materials on your account (only with your approval). This way, you better know the materials are just for your jobs and they aren't bulk buying seeral jobs at once and overcharging you.

John Mocker · Answer

Emil,Try to spell out the Insurance coverage needed by the GC in your contract. Require proof at contact and again before each payment. Include Liability, Workers Comp., Business Auto, and other coverage that may be appropriate to the job. Require all their subs to have Insurance for Liability and Workers Comp.The big Property owners and General Contractors use clauses to push the Liabiltiy away from themselves on to the sub contractors (Hold Harmless & Indemnify, Primary & Non-Contributory, Waiver of Subrogation, etc..). Discuss the need for those in your contract with an experienced Real Estate Development Attorney and an Insurance agent who is experienced in construction and development

Emil Pinlac · Answer

Hey @Paul SedilloI very much appreciate you laying this all out for me! There's a lot here to unpack - 1) You bring up the difference between a General Contractor and a Handyman. Would you be able to provide some examples of specific jobs/projects a handyman could handle, vs. hiring a full-on GC? (or, alternatively, SHOULD you hire a handyman for anything in the first place? if they don't have insurance?)2) Yes! I definitely made a mental note to myself not to just go with whoever's the cheapest. My intent is to establish a long-time working relationship with the professionals I run into, and so I would ideally communicate that I would like to use them over the long-term and I would definitely do my due diligence and ask for references / ask them for pictures of recently completed projects. (hopefully they are GCs that work with investor-clients, not just "building my forever home" type clients.4) Will I need to create the contract between the GC and myself? Or will they have their own contract provided, and we can just revise/remove things as necessary? 4a) What is the recommended payment schedule for a project? I heard 50% upfront, and then 25 / 25 afterwards. 5) I would rather avoid that extra uplift charge - would it be possible for the GC to specifically just tell me what materials they would need for the job, so that I can purchase it myself, and leave it for them in my property? Again, I'm completely grateful for your insight and for this quick list of things to consider/know about this process. This was exactly what I needed.

Emil Pinlac · Answer

@Greg DickersonDefinitely. I want to make the process work as smoothly for all parties involved - including general contractors in the eventuality that I hire them out to work on my units. I do not want to waste anyone's time.As an aspiring rental property investor, I'm learning that there are very specific updates that I would like to make on my properties, which are intended to keep my tenants safe, and also provide the biggest ROI in terms of forced appreciation and durability to the property. So I'm looking at updates like LVP flooring, reglazing bathtubs, painting kitchen cabinets, replacing old door handles/hardware, scraping popcorn ceilings, and creating cost-efficient landscaping. Would laying these kinds of items out to a potential GC be enough to inform them of what I would want done? Additionally, will I need to ask every potential GC I hire if they warranty their work? Or is it common industry procedure that every GC will automatically place a warranty on their work? Thank you so much for your initial response Greg! I look forward to hearing more from you.