I Heart Contractors: 16 Secrets Learned the Hard Way

You get that the value-add model of BRRR works!

You want to implement it in your business. This means you buy properties below market value that are distressed, rehab them so you force appreciation and get automatic equity once the repairs are done. Great! 

But that means you need to work with contractors. I know, I know… it doesn’t have to be a nightmare.

I have learned every mistake the hard way and I’ll share with you so you don’t have to repeat it:

1. Never pay contractors before they complete their work. This also means you can’t directly giving them money for supplies. Open up a Home Depot or Lowes account and have them go to the Pro Desk. They gather their supplies and then the cashier calls or texts for payment.
2. Go to the job site every day. Inspect the work. Work with the mantra of “Trust but verify.”
3. Don’t be afraid to fire a contractor. When something starts going south early - like they don’t show up without letting you know, you need to move on. Rip that band-aid off sooner rather than later.
4. Pay contractors promptly (weekly). Have them submit an invoice for the work done and pay them via check. If they accept credit cards, find out if there is a fee that is added.
5. Never pay contractors in cash. They will “forget” that they got money from you. Having them sign is one way to go, but protect yourself by giving them checks.
6. Before they start the job, make sure the job is going to be completed in a timely manner. Pay a bonus if it’s done prior to that timeline
7. You get what you pay for. Those really cheap guys that work on houses but aren’t licensed? Those can be your demo guys. Or jobs that require little supervision. Never let them touch major systems.
8. Hire licensed plumbers, electricians, HVAC, roofers, engineers, etc. The major systems need to have permits pulled. This will be helpful if (when) you eventually sell your property as well 
9. For your “make ready guys” - the contractors that do the painting, tile work, flooring, etc, pay them well and don’t nickel and dime them on every job. Figure out a price that will work for both of you. Keep in mind you want to develop a relationship with a handful of subs - if they are any good, they will have a lot of jobs to pick from. If you pay them well, they will put you on top of the pile of jobs they can do.
10. Text all of your subs together on one group text. Make sure they all communicate with one another. You want them to pick up the phone or text each other (copying you) when there are issues or they need to meet one another. However, encourage them individually to critique each other’s work. The carpenter will tell you if the paint job is sloppy. The electrician will let you know if front of the house is left with junk on the porch. Your plumber will alert you to cigarette butts in the house. Ensure them that you will not let the other person know that they tattled. Refer them to other good investors when they have downtime so you can trade back and forth while keeping them busy and happy.
11. If there are any disagreements with subs, hear both sides, make a decision on how to move forward them do a conference call. Don’t get caught up in the he said/he said but find solutions to move the project forward.
12. Develop a list of products to use in every rehab. Email and text to every subcontractor and post a laminated copy at the job site. This way you will not get creative colors, brass and nickel hardware, etc.
13. When you find good subs and have done several jobs with them, ask them how things can be improved. Ask them if they have friends that they like to work in other fields. My make ready guy has gotten me great electricians, cement workers, sewer line, roofers, etc.
14. Take an interest in them as people. This is Management 101. Treat them how you want to be treated. Hot day? Bring by an ice chest with Gatorade or ice cream. Is it their wife’s birthday? Bring flowers to the job site for him to take home. Have a holiday party for all of your workers and have them invite their families. This will cost you less than $1,000 and they will remember it all year long.
15. Make sure all of your contractors have filled out 1099s before they start work for you. It will make your life much easier at the end of the year if they are all on a file in a computer.
16. Network with other investors. Get to really know them and who they use for contractors. Ask for recommendations. Then ask other investors about these contractors. I have seen investors screw over other investors by recommending them to friends that are shady contractors. See their work and ask for other references. Trust but verify… always.