Originally Posted by John Dessauer on November 30, 2015
After purchasing a property, especially a badly neglected foreclosure, investors are usually faced with the task of renovating and improving the property to rent or resale. Unless the investor plans to do the work and save money, the services of a trustworthy contractor will be needed to improve the property and increase the profit margin.
The two types of contractors are a general contractor and a subcontractor. A general contractor assembles and oversees a crew of subcontractors that completes a job. A subcontractor works either with a crew or solo.
One of the best places to find dependable, affordable contractors is to ask local real estate professionals for referrals. Real estate agents do a lot of business with contractors regarding repairs and renovations to the houses of their clients, as well as for their own investment properties. They will know from past experience which contractors to avoid and which ones are trustworthy. Also, ask friends, neighbors, and colleagues for referrals. Ask if the job was a success or if there were problems, and if possible, view some of the contractor’s completed work.
After gathering referrals, interview some of the contractors on the phone to discuss the job. Which ones communicate well in a clear and concise manner? Do they take the time to discuss the job in detail or are they in a hurry to get off the phone? Set up a time to meet face to face and discuss the job further and get an estimate, as well as a breakdown of the costs.
Don’t pick a contractor for the job just because their estimate is cheaper. The reason may be that inferior building materials are used or the contractor employs an inexperienced crew that will work cheaper, but not necessarily do a good job.
Only hire contractors that have personal injury, worker’s compensation and property damage insurance and always ask for a copy of written proof of coverage. With no personal injury insurance, the investor will be liable if a contractor is hurt on the job. Worker’s compensation insurance is needed, when a contractor, sub-contractor and/or any one of their employees gets injured on the project. Property damage insurance is needed to cover the loss or damage of the investor’s property through accident or neglect on the part of the contractor.
After discussing the job with the contractor be sure and get all proposed work and the total price in writing with the signatures of both parties. Putting all details in a signed contract will help ensure the job is finished to the investor’s specifications, in a timely manner, and for the price agreed upon by both parties. Also, the investor should ask for receipts for all materials the contractor purchases for the job.
Make sure the contract highlights specific timeframes for the project. You may want to implement a penalty system if work is not completed in a timely manner. Make sure the contract states that the project will be built to a specific spec, blueprints, and/or building/zoning codes. Also, on larger projects the job may be paid out in draws paid by a title company. This way the progress and completion can be monitored, inspected and approved, before any payment is released, with proper lien waivers signed.
To save money on needed repairs, the investor can assume the role of general contractor, thus eliminating the cost that person’s salary. With careful research and planning, this method can cost significantly less than hiring a general contractor to bring in a crew to do the work. However, investors should not overlook the fact this method may be cheaper, but the job will take longer to complete.
“Remember, wealth has nothing to do with money, failure has everything to do with success, and life is as simple as you make it.” – John Dessauer