Beginner Investor, Paying the Contractor

[Quincy Baker]

When using a contractor to go in to estimate repairs on a property, how do you pay the contractor for their estimate? Is this an expense as a new investor you must be prepared to cover OOP until you’ve done a few deals and saved a reserve for estimates? Are estimates expensive?

Thanks

[Anna Laud]

@Quincy Baker

Hi Qunicy! 

I'm not sure if you've talked or met with any contractors already, but if you truly mean the estimates (and not the actual work itself - like "how do I pay the first portion of the work until my first draw from an HML?") those are FREE.

You would usually NEVER pay a contractor for their estimate- they are 'bidding' on the work as in submitting a 'bid' to you to gain the job. A contractor's bid or estimate to you is part of their overall 'application' if you will. You would never pay an employer to submit your resume right? Same logic here : )

Along with this bid, you should ask about them being licensed, bonded, insured and for past client references - and make sure to call those references up.

Do not go with the first bid you get, simply because it's the first one, and truly shop around. Make sure that your contractor seems knowledgeable yet isn't going to 'take over' your project, i.e.. "Yeah, don't worry about the kitchen, I've got some ideas on what I can do" - that won't work as their 'ideas' can cost you a lot more than necessary and you never want to give 'creative license' with your checkbook or timeline. 

Know what you want, how much you're willing to pay total (as it pertains to your 'all in' totally invested mark with purchase, rehab, closing, and holding) and stick to it. 

Make sure to also be very clear with your contractors about your timeline- if it's two weeks to get flooring ordered and installed, it two weeks period. Absolutely any changes to this (like backordered product) need communicated to you immediately (as in them calling you from the big box store they are trying to place the order in or builder's supply house etc) 

- In that call you make a quick shift to similar product/price that's ready to rock and roll with now (I would never suggest a product delay as a viable reason to cost more in holding costs). 

As for paying a contractor- some contractors will have enough capital to cover materials up front (usually anyone doing enough jobs has this kind of funding available), some however do not and it's okay to be asked to pay for the product/materials upfront - especially if you're ordering anything custom that costs more (again, either buy the materials yourself or ask for an itemized receipt at order, not upon delivery). 

But usually never pay for work upfront/give advances- that's how you get your job 'spiked' (they will start your job and move onto the next, finishing yours when they get around to it)

But no, never usually ever paying for an estimate! If you're asked to pay for one, I would suggest moving along to another contractor. 

Having said that, be ready with what you want in mind exactly, know your city ordnances about permits and those timelines, ask for copies/proof of information on being licensed/bonded/insure and be crystal clear on how much communication you expect.

Once you've found a great contractor to work with- you've made a friend for life in a working relationship! I hold a great deal of respect for upstanding and honest contractors as my father was one for 30 years and that's how I got my 'real estate' start, gowning up on the job site. 

Hope that helps!