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8 Simple Tips for Managing Contractors Without Losing Your Mind

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP
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Contractors are difficult to deal with.

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It’s just the nature of the beast.

But if you are a landlord, or any kind of real estate investor, dealing with those in the construction trade is part of daily life. This is especially true for landlords, like myself, who choose to invest in fixer-upper rentals to gain that extra equity push. (See How to Make $100,000 Per Year with Fixer-Upper Rental Properties for more info on this “BRRRR” strategy.)

But how do you start?  How do you know they aren’t ripping you off? How to do you decrease the stress and make the process streamlined?

The truth is, there is no perfect system. But hopefully these eight tips can help.

Related: The Ultimate Guide to Finding an Incredible Contractor

8 Tips for Managing Contractors and Handymen

1. When to Use Bids vs. Hourly Pay

Larger jobs tend to work better by “bid” where smaller jobs tend to work better by “hourly” pay, but there is no hard and fast rule for either. Some contractors prefer one method over another, but it’s usually negotiable.

Having a contractor bid a job helps you estimate exactly how much the job will cost before the contractor begins, which can help you budget and plan a rehab project. You can also compare multiple bids to see which contractor will be the best.

For other jobs, however, a bid is just overkill. Why get multiple bids from contractors just to fix a leaky sink? Other jobs are too difficult to bid until work has begun – such as water leaks or issues behind walls.

Typically, anything that will be over $500 I try to get a bid for, but things under $500 I will usually just pay hourly. And unless you plan to flip houses or do a lot of total rehabs, 90% of the work you’ll need finished will be hourly.

2. Always Sign a Contract

When you finally select a contractor to do work for you, make sure you get everything in writing in the form of a contract. It doesn't matter if you are hiring by the hour or by the job, just be sure the conditions are spelled out in a contract between you and the contractor. Most good contractors should have their own contract, but if not, you can pick one up online through websites like www.uslegalforms.com.

The contract should outline what work will be done, deadlines for getting the job finished, the compensation for the work being performed, and when that compensation will be rendered. This contract will keep everyone honest and remembering exactly what was agreed upon, as well as give you legal ground to sue the contractor if the work is not performed according to the contract. Also be sure that both you and the contractor sign the document.

Also be sure that both you and the contractor sign the document.

3. Be Clear with Instructions

When dealing with contractors, you must be 100% clear about what you want completed. Don't simply say "paint this room," but let them know what color, if you want the ceiling and trim painted, and even spell out that you don't want paint on the carpet. It may seem silly to spell everything for the contractor, but trust me: the more detailed you can be with your instructions, the less risk you have of something going wrong.

4. Keep the Contractor Hungry

This tip is incredibly important: keep the contractor hungry. If you pay the contractor upfront for the work, they have very little motivation to get the job done fast or right. They've already been paid. Therefore, as the landlord, it's wise to always give the contractor just enough to get by but not so much that they aren't motivated to work. Work out payments on large jobs so that there are benchmarks to hit before payment is rendered.

Also, on big rehabs it's typical to get "1/2 down" so the contractor can pay for materials, but, at least in the beginning of a new relationship, I'd recommend paying this 1/2 directly to the store they plan on buying the materials at (so they don't pocket the money.)

5. Ask for Invoices

Don’t rely on your memory to know who to pay, when. Not only is this a quick way to get taken advantage of, it will also bring hell upon your bookkeeping. Require all contractors to give you detailed invoices for the work they do and keep an accurate record of all the money you spend.

6. Get a Lien Release Signed

When a client doesn't pay a contractor, that contractor can place a lien on the property they were hired to do work, making it difficult to ever sell the property until they are paid. This is known as a contractor's lien or a mechanic's lien. Therefore, when a large rehab project has been completed, always get the contractor to sign a lien release form. This form simply states that the bill has been paid in full and the contractor releases their right to file a lien on the house.

7. Verify All Work Before Paying

After a job has been finished, always check to make sure the work was done correctly. You'd be surprised at the number of times we've received a phone call that the work was "done" only to find out the contractor had left a lot of loose ends not yet tied up. Sometimes the work hadn't even been started! Therefore, always verify that the work is done and meets your expectations before you hand over the final bit of cash.

8. Reward Great Contractors

Finally, when you find a good contractor, do everything you can to hang onto them. Perhaps the best compliment you can give a contractor is fast payment. Many property management companies wait 30 days or longer to pay a bill, so stand out from the crowd by paying quickly.

Also, don't be afraid of doing other small things to make the contractor feel valued, such as the occasional thank-you note or small gift card after a big project. Good contractors never need to fight for work, so make sure you are their favorite client and you'll never need to fight for it either.

Conclusion

Dealing with contractors may not be the most glamorous part of your real estate business, but it is one of the most vital.Working with the wrong contractor will not only cost you money, it could cost you your entire business. Finding and working with a great contractor can help you make more money, work fewer hours, and have far less stress doing it. The good news is: dealing with contractors is a learned skill, something you will get better at if you make an effort to improve.

With that, what questions do you have? Leave your comments below and let’s talk!

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Darren Sager Realtor from Summit, NJ
    Replied over 4 years ago
    Very smart about getting that lien release form signed. I would say less than 1% of people do that. Going to add that to my list!
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied over 4 years ago
    Contractors love food! Some banana bread or chocolate chip cookies are great rewards.
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    Hah! I love it, Dawn! They also tend to like beer… my contractor was over the other night to sit around my firepit and enjoy some 😉
    Jason Miller Investor from Aurora, Colorado
    Replied over 4 years ago
    You laugh, but on a big local job, I will often times buy lunch for my contractors. It goes a long way.
    Page
    Replied over 4 years ago
    I would add “Don’t hire friends to do the work.”
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    GREAT addition 🙂
    Aleksandar P. Investor from Chicago, Illinois
    Replied over 4 years ago
    Great tips Brendon. Thank you. I think this is one of the hardest aspect of being a landlord – how to find and keep good and reliable contractors. As you said, there is no definite answer to that. Learn as you go. But your tips are definitely valuable.
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    Thanks Aleksandar! Yeah, it’s definitely one of the more difficult parts of my life!
    Barry O. Investor from Imperial Beach, California
    Replied over 4 years ago
    Another tip. If permits have been pulled make sure they are cleared before you pay. My abatement contractor pulled demo permits and did not clear them, much to myself and my construction contractors surprise. Of course this was on a Friday and of course the city permit guy was the one telling us this! So a stop work was issued until the Demo contract was cleared. 5 days stall time, I think I will have trouble finding the Demo contractors bill and have to ask for it multiple times before it gets paid!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied over 4 years ago
    #7 is key (well many of them are, but 7 is especially so). Good luck getting a contractor to come back and finish a job after you’ve paid him.
    Kyle Doney Flipper/Rehabber from Golden, CO
    Replied over 4 years ago
    For some reason they don’t understand the power of referrals and repeat work..
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 4 years ago
    Absolutely. Draw up a payment schedule, have them sign it, and then don’t write any checks before they hit their marks. My last guy kept asking for checks. “Can I just get $100?” All because the first time he asked, I said yes. Sigh.
    Kersten Harries Real Estate Investor from Sleepy Hollow, New York
    Replied over 4 years ago
    Awesome tips! I can attest to the importance of tip #3- clear instructions. As an architect, it is my job to create documents and drawings that are clear and detailed so that the contractor and owner are on the same page. I highly recommend that even if you don’t hire an architect, make sure that the scope of work is written out specifically, for example as part of the contract you sign with the contractor (tip #2). Doing a walk-through (both while getting quotes and before starting works) is a great idea too, so that what is on paper is discussed onsite to make sure that it is as clear as possible what you want done and how. Also for #7-verifying work is done before payment is important, and can be accomplished during another walk-through once the contractor thinks they are done. At that point write down items you see that need to be fixed or completed still and hand that punchlist over to the contractor. Do not make the final payment until all punchlist items are completed. Hence you’ll need to verify and walk-through at least one more time.
    Tatiana R. Investor from Lawndale, California
    Replied about 4 years ago
    This is a great to-do list! It’s disappointing that so many contractors are difficult to work with, but I think most of those problems are coming from unlicensed contractors that swindle investors by their lower bid prices. It makes for a bad reputation for the entire trade. Of course, I love the conclusion of the article: There are really great and honest contractors out there! Good contractors want repeat customers and know how to get the client good deals and still make their profit. Win-win! For investors to find trustworthy contractors, I think they need to find people that have worked with investors in the past. They know what the timeline is, they understand that delays cost money and decrease the owner’s profit margin, they want to work on more projects with you, they specialize in where to get the deals for what a flip house should look like. (Flip houses are very different from the personalized tastes of a homeowner that is remodeling to a unique style.) As we get most of our referrals from Real Estate Agents, I suggest Investors seek RE Agents that work with Investors and get their recommendation for trustworthy, fast, and experienced Rehab Contractors. Then, get several bids. Ask the referred contractor specifics about why their bid may be different from the lowest bid. Most often, we find that the low-bidder has left essential items out such as demo cost or -seriously- completely left out the cost of cabinets, etc. Lastly, always check that the Contractor’s License is legit. Thanks for the great article!
    Wendy Harris Real Estate Investor from South Lyon, Michigan
    Replied about 4 years ago
    Lots of great advice here. I’d add to always make sure to verify that all your contractors are properly licensed for their particular trades in your state, if that is required, that they carry at least the minimum required amount of liability insurance, and are bonded, where applicable. Be sure they also carry worker’s comp on any employees they have, too. Also look into what, if any, requirements or restrictions your state has regarding payment schedules and deposits, and don’t pay them any more at a time than your state law specifies. Consider adding a “drop dead” date in your contract, too – a specific date by which the job *must* be completed – with a specified monetary penalty for each day it is late. Obviously this needs to be reasonable, and is best set by asking the contractor himself how long the job should take – and then holding him to it – unless you have your own specific deadline, and know that that is doable. Likewise, you can add an incentive if they get the job done early, if you want (as long as all of the work is done properly and completely, of course). You may need to alter the drop dead date if unforeseen major problems turn up, or you decide to change the scope of the work, but be sure to do it as part of a change order or preferably a contract addendum. And however you come up with a contract, please, please be sure to have an attorney in your state review it before you use it!
    Pyrrha Rivers Investor from Yokosuka, Japan
    Replied almost 4 years ago
    I am looking for a detailed punch list I once saw for the final walk through before making the last payment. It is a room by room document. Does anyone know where I can find it? Thank you