Tips for Real Estate Investors who Want a Successful Working Relationship with Contractors

Communication is the key when working with any vendor, but is especially imperative with a contractor. Investors are suspicious of contractors, worrying that they’re about to be taken advantage of. Contractors may have valid concerns about working with investors as well. Everyone wins when you are both working on the same page.

Here are some tips for successfully working with contractors.

1. Know What You Want – Have a Documented Scope of Work

This is critical. Too many people sign up with a contractor to have a certain job done, and in the middle of the job they realize that they want something else. That’s a big deal, and can wreak chaos on a contractor’s plans, perhaps causing him to have to undo some of what he’s done or to spend more time than he’d budgeted on your home. Changing the scope of work can cost you a lot. Keep it simple. When rehabbing investment properties remember – clean and functional, you will not be living here.

Tile the living room, kitchen, bathrooms and high traffic areas. This is better for a quick clean and turn around when you are doing a make ready, reducing vacancy hold time. Have a good scope of work that everyone bids off of so you can compare apples to apples. When you decide who you are going to hire give the contractor as much notice as possible so they can lay out their work schedule and crews accordingly. You will have a signed contract with that vendor stating when things will be completed, what’s expected from them as the contractor and from you the customer. This contract will also include pay schedules. NEVER PAY A CONTRACTOR IN FULL UP FRONT. You can put a deposit down, but no more than 50% I like 25% depending on the job and size. I will say that it is safer to use a contractor with a good credit line and insure, even though it may cost more.

Know the plan for repairs.

We have a rule of thumb when it comes to the rehab process. Foundation is first and foremost. Without a solid foundation, nothing else matters. The second major improvement is the roof. I have seen properties completely rehabbed inside that have water marks running down the wall because they didn’t fix the roof before they fixed the interior.

Next, some people say you should complete the exterior quickly so people know something is going on… changes are coming. Put the rent sign in the front yard and clean that puppy up! You don’t have to do overboard on landscaping just make sure it is clean. Now that you have reached the interior start from the top and move your way down. Paint and replace fixtures as a simple guide-line. Paint, replace fixtures (while painting take down old and put up new).

Making a property modern is inexpensive. I replace all brass fixtures and install brushed nickel or stainless steel. I also make sure to carpet the bedrooms and put ceiling fans in every room. Ceiling fans add value to your property, especially in Texas. Your tenant’s cooling bill will be less because of the fans and tile floors. You can use the ceiling fans as a selling point when showing the property to your future tenants. Floors are the last to go in. Make sure you plan for a good cleaning at the end, this including windows, there is usually a lot of dust all over the place.

2. Don’t Believe Everything Rotates Around You.

You may/should not be the only client of the contractors so sometimes they may have to leave your job to handle warranty work for another client, or they may have to check the progress of another job. We should all be aware of, start time changes and they may have unexpected things come up as well. In Houston it can rain for several days in a row.

Temperatures also matter — it might be too cold to paint, for example. Even indoor work can have such delays — sometimes wood that gets installed indoors (floors, cabinets, etc.) needs time to dry out warm up or otherwise get comfortable before being locked in place. Also a job could get held up because the contractor is waiting for the cabinets to be installed before flooring can be put in. Make sure you are speaking the same language as the contractor. When they say the job will be done in 15 days, is that business days or is that 2 weeks. When using a good general contractor they know how to keep work flowing versus you hiring the sub contractors on an individual level. This could slow you down and even cost you more money in the long run.

3. You Can be a Bigger Problem than Solution

Watching a contractor work on your property is not a good idea. You hired them, now let them work. If you do a walk through before the contractor is done it could create problems for both of you. Unless you see something major don’t bring it to the contractor’s attention. Major would be putting a window in when you wanted a door. It’s okay to ask clarifying questions here and there, but don’t accuse or get upset and angry with the contractor. Keep your scope of work and your bid from the contractor with any change orders, and do your final walk through when the job is near completion. This is when you create a punch list for the contractor to finish up. DO NOT make a final payment and get a release from the contractor/vendor until ALL work is done.

4. Always Pad Your Rehab Budget

Every house has a surprise for you just waiting to be unwrapped. So make sure you pad the rehab budget 10% to cover any thing that may come up. Be prepared to pay with every change order you make.

5. Not All Contractors are Bad and Out to Get You

We have all heard the horror stories of contractors that ran off with some ones money. This is why we suggest you get 3-5 quotes. Don’t just look for the cheapest contractor, there are many things to consider. For example, if it took you 3 calls to get a vendor to come out and then 5 more calls to get the quote they may be too busy for the work at this time. If you call and they seem too hungry this could be a concern as well. Weigh all the options and remember contractors are in business as well and ideally would like to stay in business. The way to do that long term is to take care of their customers. As investors we are a repeat business for them. So they want to do ca good job for us. Be sure to check references before hiring a contractor, which is a significant advantage of membership in a group like ours. In all your communication always be respectful of the contractor as a person and a business owner and their time, and they should respect yours as well.

Know that there can be disagreements; it is how you manage your own demeanor that promotes a rapid and fair resolution, ending up in court is a waste of time and money…. There will be compromise. Remember, as you are hiring contractors, they are evaluating you as well. Do they want to work with you, or will you be a pain in their rear? The door swings both ways. A contractor is a very important member of your team especially if you plan to continue investing, so work on long lasting relationships. But aware and always shop around for your contractors. This will keep you on your toes and the contractor as well. Anything else is just lazy.

6. How to Find a Good Contractor

Investor contractors are not always the same as retail contractors so make sure you know the differences. Investor contractors frequently do not, have a full team of staff behind them such to take care of customer service, accounting and so on. They usually have less overhead and pass the savings on to you. When you are hiring for your personal residence know that you will need and want more than you do for your investment properties’ rehabs.

• Do try to find a contractor you can communicate with easily. Find someone you trust and understand.

• Don’t just rely on one source for contractors. Make sure you check out Lifestyles Unlimited® Vendor List, but also use the Greensheet to get an additional quote.

• Ask around. Talk to other investors and find out their experience.

• Make sure you do your due diligence. Do not assume everyone is licensed and insured. One investor may not need all of that, where another wants that. Also if you are working in the city make sure the contractor you are working with knows how to pull permits, or deal with those areas requirements. For example if you are close to the coast you may need wind storm certificates for your roof. Be aware not cheap.

We have great vendors at Lifestyles Unlimited®, many of them offer classes to our members educating them in their area of expertise. Lifestyles unlimited spends over a million dollars each year in advertising to broaden our membership/investor base and grow our vendors businesses.

Lastly, we always ask our members to do their homework, take the care and give the attention their investment deserves and always check references. There are multiple opportunities to network and mingle with our vendors giving you an opportunity to meet them, and build a relationship before you decide to who to hire to your team.

Comments

  1. Chris Robinson says:

    Great Article Nat!

    We see way too many people out there that do not know how to correctly work with contractors. Real Estate investing is all about people and correctly dealing with those people on every level.

    Setting expectations up front is imperative. Know what you expect from the contractor and let them know your expectations as well. Written scopes of work are great to avoid any misunderstandings. Many people skip this step cuz they think that it shows distrust towards the contractor, but it is in everyone’s interest to have this laid out in advance.

    I also want to reiterate the concept of “don’t go cheap”. I have too many stories from my previous investments before Lifestyles of times when I tried to save a few dollars by using unprofessional labor to get things done cheaply and it always costed me more in the long run.

    The old saying of “You get what you pay for” is exactly true in this business. Save yourself the headaches and find someone who is a turnkey provider and can handle the entire project with minimal involvement from you.

    CSR

  2. Thanks Chris,

    As with anything managing expectations on the front end is key to any good relationship. In the member area under downloads we also have a bid request tracking sheet, contract agreement and much more information!

    Natalie

  3. I agree whole heartedly as well.
    If we can ever be of any help please allow us. It’s been a pleasure being associated with the club and some of its members.
    Good luck,
    Danny Engram
    DKL Contracting, LLC

  4. I have been hearing that many of the best sub/scontractors are very busy. How do u find good ones that are not unmanageably extended. It seems that once they have a partcular backlog of work that they may have to use unfamiliar and untried extra resources.

  5. As a contractor,if we find ourselves in that type of position we have reserves of smaller subs that we have worked with in the past that will come through for us. If I put in an estimate for a project,I usually know how we are going to have to man it based on final schedule and negotiations.
    We are very honest with our clients when they ask questions based on schedule start and completion dates. If you want to start on a Wednesday but we can’t start until Monday,I tell you then we figure it out from there.
    We also provide a no fail zone. This means that if we fail to complete a project according to the time schedule that we agreed upon then the owner recovers liquidated damages to the tune of 50-100.00 per day that the job goes over schedule. Just another incentive we like to offer to stand out a little bit.
    Take care,

  6. Natalie – I read your article and thought it was very well done and comprehensive. You touched on the many aspects of contracting that members need to understand. Cris also did a good job on the radio today (2/2/10) explaining the key points. I printed it off for my personal reference to remind me also how to give our members the best service we possibly can. Jerry Plake/ Start2Finish Please visit our website to find out more about our services and to see before and after photos.

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