How Do You Manage Your Contractor During the Remodel

Question

Hello, Im planning ahead and wondering how some of you have managed the rehab and your contract.

Once you have the contractor/GC you are wanting to work with, how do you both set expectations of what will be done and by who? How do you create the remodel plan of what additions will be made/what things will be fixed/ or if a huge rehab-what will the layout and finishes be like? Should the contractor be able to give you a new layout design?

What about all the material? Generally, who's responsibility is it to purchase the required material? If it is the contractor's, how do they know what material to buy when it comes down to finishes and the style of the rehab? Is it up to their discretion?

Calvin Pringles · Answer

When working with a contractor or general contractor (GC) on a remodel or rehab project, clear communication and setting expectations from the beginning are crucial

Begin by discussing and outlining the scope of work. This should include details of the additions, repairs, or changes to be made, and any specific preferences you have for the layout and finishes.Some contractors may have in-house design services or work with architects and designers to help you create a layout and design that suits your needs. If the contractor you choose doesn't offer these services, consider hiring an architect or designer separately to work with the contractor on your behalf.

You get to choose the materials and finishes you prefer! Share your wishlist with your contractor, or ask them to recommend options based on your budget and style. Make sure you both know who's in charge of buying the materials – it can be you or them, just agree on it and put it in the contract. If it is them, make sure they send you a picture of the receipt after going to the store, every single time a dollar is spent. Additionally, A well-drafted contract is key so that both parties understand their responsibilities. The contract should clearly outline the scope of work, timeline, payment terms, and any warranties or guarantees provided by the contractor. It should also clarify who is responsible for purchasing materials, obtaining permits, disposing of construction waste etc etc

STAY IN TOUCH throughout the project. Regularly check on progress, ask questions, and address any concerns as they arise, not afterwards. This will help ensure that the project stays on track and meets all expectations.

Eliott Elias · Answer

My contractor handles all daily operations, that's why they are a contractor. I set weekly goals with them and do not pay until milestones are hit. If I were to micromanage I would just be the contractor.

John Mocker · Answer

Colin,

I would add to this discussion, get proof of insurance before any contactor comes on site.  At minimum, they need General Liability and Workers compensation.  Depending on the project, there may be other coverage needed.  Some things that large building owners, GC's and Property managers require in are area:

- propety owner named as addional insured

- 30 day notice from the contactors insurance company if they cancel or modify the policy

- Contactors Insurance is Primary and non contributory

- Contractors Insurance waives subrogation against the owner

Discuss these with your agent and attorney and see if they suggest incorporating any in your contact with the Contractors

Eric Fernwood · Answer

Hello @Colin Orlowski,

We've completed over 480 renovations, and I've got the scars to show for it. I decided to divide my answer to your post into two parts: what to renovate, and lessons learned.

What to Renovate

The renovation items depend on your target tenant segment. Below is a graphic showing how you decide which items to renovate.

Essentially, compare the current condition of the property with the ideal condition as perceived by your target tenant segment. The changes necessary to approach the ideal condition become your initial renovation list. However, you can't afford to do everything. You need to prioritize where you spend your money. I divide renovation items into three categories.

Systems - Required

All systems must function correctly. Systems include HVAC, plumbing, electrical, roof, foundation, windows, etc.

Health and Safety - Required

It is important to provide a safe environment, which includes items such as smoke detectors, transition strips, trip hazard removal, lock rekeying, and more to ensure a safe environment.

Items Necessary to Attract Your Target Tenant Segment - Required

If you want to attract a specific tenant segment to occupy your property, it has to match their housing requirements. You will fulfill most of the requirements when you purchase the property. However, you may need to modify the property in order to be attractive to the right segment. For example, if similar properties renting to the same segment have granite kitchen counters, having laminate counters could reduce the rent significantly and increase the time to rent. You have to do the items to attract your target tenant segment.

Market Ready

Market ready is the condition where the vast majority of your target tenant pool segment is willing to pay full market value. Anything beyond this condition is a waste of money and will not increase the rent significantly. For example, I noticed a rental property remained on the market for an exceptionally long time. Looking at the rental history, I noticed that the original asking rent was roughly 20% higher than the typical rent in the area. Intrigued, I visited the property. The house had travertine floors and Bosch appliances. My guess is that the owners spent $20,000 or $30,000 more on unnecessary upgrades. They probably believed that by making the property more luxurious, it would rent for a much higher price. The property was finally rented for about $50/Mo more than similar properties without all the upgrades.

Materials & Demographics

The materials you use must match your demographic. For example, if your target demographic is young families with small children, put LVP in all the high-traffic areas. Especially the family room.

Another example, we generally put commercial-grade carpet in the bedrooms. If the property will be used for house tacking, we put LVP in the bedrooms so that the renovation cost between renters is minimized.

Renovation Creep

Too often, property owners want to improve their properties according to their personal tastes. They begin with our standard renovation components but then rationalize that they can improve the quality of certain aspects for only a small additional cost. Rinse and repeat. This can cause delays in putting the property on the market and increase renovation costs. Remember, the only people that matter are your target tenant segment.

Lessons Learned

We’ve completed hundreds of renovations and worked with many licensed contractors and handymen. Here are some of the lessons we've learned.

• 50% upfront and 50% upon acceptance - I have had contractors and others tell me that it is standard practice to pay 75% or 100% upfront, but I will only pay 50% upfront and the balance after acceptance. I have to hold money back until the work is completed or, it will never get done.
• Acceptance - During final acceptance, we go through the property inch by inch to check that everything has been done according to the work order. If only a few small items are left incomplete, I will withhold $500 and pay the rest upon completion. I don't release all the money until the property is rent-ready.
• Permits - Do not try to skip permits. Unpermitted work can end up costing far more than the cost of the permits themselves. For instance, if someone wires up a house without a permit, the insurance company may refuse to pay in case of a fire. Or, if a tenant is injured and you did not have the proper permits, they would have strong grounds for a lawsuit.
• Price is no indication of quality or timeliness. - I have worked with many licensed contractors, and almost without exception, their prices were high, their quality was poor, and their ability to meet schedules was practically nonexistent. The problem was that our renovations, which typically cost between $15,000 and $25,000, were too small to interest them. As a result, we ended up with a crew that nobody else wanted. And, if they had a bigger job, they simply pulled the crew off my jobs.
• Use appropriate vendors - We use Handyman when feasible and only use licensed contractors when needed. The handyman service we work with has completed over 250 renovations for us, and they do excellent work. We only work with licensed contractors for special skills such as plumbing, HVAC, roofers, and electricians. Over time we've developed good working relationships with many of these trades.
• Contracts - Everything must be in writing, including the start date, duration, paint brand & colors, materials included, and permits as needed. etc. An example will clarify the problem I have not specifying specific materials. Several years ago, I just specified a ceiling fan, but did not supply the specific make and model. Below is what I envisioned.

Below is what was installed.

What happened was that the price for installation and purchase of the fan was fixed. The contractor used the lowest-cost fan they could find so that they could make more money. The lesson here is that you need to specify everything or plan on receiving something you did not want.

• No Drugs, Smoking, or Alcohol on Site - I've kicked multiple contractors off sites because the workers or the supervisor showed up intoxicated or stoned on drugs. I've also found workers smoking in a property under renovation. Removing the smell of smoke is expensive, and I learned to have in writing in the work order or contract, "No Drugs, Smoking, or Alcohol Allowed on Site."
• Licensed and insured - When working with contractors or handymen, I require a copy of their license and proof of insurance to be part of the quote. This has become a challenge on more than one occasion. The contractor or handyman would say they are licensed and insured. But, when I asked for proof, they would get upset and never show up again. Why does this matter? If they are not insured, and one of their workers gets hurt on site, they will likely sue you, the property owner.
• Fixed price - No matter how low the hourly wage is, you cannot afford to pay someone to work by the hour. We only do things by fixed price. The estimate contains a number of line items, each line item is a specific and identifiable task. Overall, we expect the work to be completed at their agreed price.
• Overwatch - I cannot emphasize the following enough. Unless you have a person with construction experience who goes on-site at least every other day, your job will take a long time to complete, the quality will be poor, and the price will go up. We have a dedicated team member who goes on-site every other day.

Colin, reach out if you have questions.

Marshall Swatt · Answer

Your question is super important. I've worked with numerous contractors on projects.

You'll want to grasp two things very well: 1.) Management 101: "Trust, but Verify." If you hire someone, you need to verify that they did what they said they would do, at all stages, not just at the end. You need to check their work as they go. Assuming they provided referrals and come with a solid reputation, you should extend a sense of trust but make it clear that you'll verify their work and that payment is dependent on your approval according to what you agreed. Note that this extends to verifying important details, like whether they have liability and worker's comp insurance in place. I had a contractor forward me his insurance policy, and I called the insurer, only to find out it wasn't correct. Your role is a manager and good managers have to verify everyone and everything on a project. 2.) You want to be as detailed as possible in any contractor agreement about the work to be performed. That's why we have architectural and engineering specifications, to show precise measurements, along with detail drawings showing specific elements and steps required for things like exterior walls. You want to be as detailed and descriptive as you can reasonably afford to be, for the type and size of job you are doing. A light renovation requires less specificity than a new construction build, and you'll have to gauge that accordingly, but you should err on the side of being more specific rather than less.

Lastly, regarding materials purchases, you should NEVER let a contractor choose, purchase or pay for any finish materials or important elements like appliances, sinks, toilets, bathtubs, counters, cabinets, trim, doors, windows, or even things like paint and stain or varnish. Assume that contractors will ALWAYS choose the cheapest (and ugliest) material for a task. Trust me, I've seen their choices myself over the years, and you don't want to get into an argument about an ugly tiny useless bathroom sink after the contractor bought and installed it. It's really your fault if a contractor is given free reign on a project to make design decisions. They are called contractors and not designers for a reason, (because they aren't paid or incentivized to have any design sense, just efficiency in execution) and they have a financial disincentive to choose quality, expensive, labor-intensive, or unique materials. So even with paint, for example, you want to specify up front what brand and grade they must purchase, if you are having them purchase it.

It's best if you purchase critical materials yourself, or specify exactly the material the contractor needs to buy and then be sure to verify he buys the right materials.

Bob Stevens · Answer

NEVER pay a dime upfront. Then you pay in draws, Also I strongly suggest you do not even do this until you walk the property with someone doing deals. How do you know you are not paying to much, do you know what it should cost to replace a furnace, paint a house ,etc ?

Chad Kastel · Answer

Hire an owner's rep.  They are a GC that doesn't work for the GC. They work for you and make sure the GC stays honest.

Matthew Paul · Answer

As a contractor . I agree with most of what you stated . Until the part where you say dont let the contractor pay and furnish finish materials .  We will NOT install customer supplied materials or fixtures . We want them to pick out EXACTLY what they want , but we buy them ( and mark them up )  Then if there is a problem or damage we cover it . If a customer were to supply something and it gets damaged , or doesnt work , not our problem .

Branden Jordan · Answer

Each project is different, but ultimately up to you as the owner. I have documents/spreadsheets that are merely plug-and-play. You will need a Scope of Work(SOW). This details what, when, and how everything will be done. There is usually a timeline to meet. If it is written well, everybody is protected from getting screwed over. The spreadsheets I use make it easy because you go line to line to line and describe all the details. I've done properties with very little work with my own two hands and rebuilt some from mere rubble. There are pros & cons to doing the work yourself. Make sure your contractor has a track record of happy customers. If he drives up and $100,000 truck, I wonder if he's overcharging. Not to say some contractors don't deserve their luxury lifted trucks. Your GC can make or break a deal of what we're talking about. This relationship is paramount to getting a project done right.

How Do You Manage Your Contractor During the Remodel

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