“Associate yourself with people of good quality, for it is better to be alone than in bad company.” — Booker T. Washington
Finding the right contractor is the most important decision a real estate investor can make. Selecting a contractor that fits the investor’s specific criteria is well worth the effort.
Before purchasing an investment property, develop a network of contractors because, like it or not, every piece of real estate will require some type of repair work.
How Do I Find a Contractor?
Referrals From Family, Friends, & Neighbors
Did someone you know recently hire a contractor? If so, talk to the person about their experiences with the contractor. Try asking them the following questions:
- Were they satisfied with the contractor’s work?
- How did the contractor handle customer service?
- After the work was completed, did the contractor clean up the job site?
- Was the project completed within budget?
- How long did it take the contractor to finish the job?
- Would you hire the contractor again?
Referrals From a Contractor
If you have previously worked with the contractor, and a project requires work to be completed that’s outside of his expertise, ask the contractor for a referral. A good contractor has an extensive network of other reliable contractors specializing in different trades. Typically, a good contractor will refer her clients to quality craftsmen because the contractor wouldn’t risk hurting his relationship with current clients.
Redbeacon, Homeadvisor, Homewyse, and Handy can be used to find contractors. Enter the project details in the websites, and they will provide a list of contractors to complete the job. From there, you can reach out to the contractors.
Once you have found referrals, it’s time to interview the contractors.
Should I Use My Property Manager’s Contractor?
Before you make this decision, be sure to keep the following in mind:
Make sure the property manager doesn’t receive a finder’s fee or commission from the contractor they refer you to.
If the contractor works for the property manager, the property manager has the incentive to over-bill the project.
If the property manager finds a contractor, ask for an itemized quote to compare so you can compare bids with other contractors.
Questions to Ask a Contractor
Is the contractor licensed, insured (liability and worker’s comp), and bonded?
Check the contractor’s license number, insurance policy, and bond. If the contractor isn’t licensed and insured, walk away. If the contractor will be working on a small job, a bond isn’t absolutely necessary. In order to enforce your rights, you must obtain a certificate of insurance in the name of your job for both worker’s comp and liability insurance.
A California State Contractor’s License requires a minimum proficiency in construction and an understanding of state and local regulations within their speciality. Check the contractor’s license number with the state’s licensing board’s website to see if any complaints have been filed against the contractor.
A licensed flooring contractor shouldn’t install 200 amp electrical panel. Confirm under which trade your contractor is licensed.
A liability policy ensures if any damage is done to the property by the contractor, the customer can file a claim against the contractor’s insurance for damages.
Worker’s comp insurance pays any claims related to injuries related to the job. If the contractor is injured during the project and doesn’t have worker’s comp insurance, the customer will be liable for the medical bills.
A bond provides the investor with insurance in case the contractor is unable to complete the project due to insufficient funds or other issues. If that happens, the bond company is liable to pay for the work. Example: You hire a contractor to complete a $500k job. The contractor runs out of funds to complete the work. You sue the bond company to fulfill the contract.
Who will be completing this job?
You might speak to one person to negotiate the terms of the work, but then another contractor could be completing the work. If the contractor is hiring subcontractors, ask for their names and confirm they are licensed and insured. If the general contractor (person in charge of the project) doesn’t pay the subcontractors, you could be liable to pay them. You should require the general contractor to provide you with proof of payment to the subcontractors before the final payment is given to the general contractor.
How can the contractor be contacted?
Does the contractor prefer phone calls over email? Or does the contractor like to be texted? When are the best times to contact him? Will the call be returned within 24 hours? These are all great questions to confirm with your contractor before signing any contract.
Does the contractor guarantee or provide warranties for his work?
The contractor should give you a guarantee or warrant on his work. It’s up to the investor to determine if this is a legitimate guarantee or warranty. The State of California requires warranties for certain types of work, but it’s your responsibility to conduct the due diligence.
Also, some warranties claim the work is guaranteed for a certain time period; however, the warranty might only cover the cost of materials, but not the cost of labor involved to repair the work.
How to Bid the Work
Once you have created a short list of potential contractors, it’s time to ask for quotes.
Make sure the quotes are itemized by labor, materials, and other fees related to the job so you can compare the bid to other bids.
The quote should have a final price. An agreed-upon price will pressure the contractor to finish the job on time and within budget.
Confirm the bid is the final price. If it’s an estimate, the price will most likely increase.
What about small jobs or handyman work? I still would ask for a quote or a ballpark figure not to exceed a certain amount.
Now That I Have the Bids, Who Do I Choose?
Review the bids to see which types of materials they are using, how they are billing potential labor costs, etc. If you see a deviance from other quotes, ask the contractor why. If their rationale isn’t substantiated, odds are, they are padding their numbers.
Redbeacon and Homeadvisor provide users with calculators to determine how much a project should cost. This can be used as a guide, but shouldn’t be the sole reason for choosing a contractor. If you go back to an experienced contractor and tell him to lower his price, this can be seen as an insult, and the contractor could decline the job. Remember, quality is remembered long after the price is forgotten.
You Must Have a Written Contract
Confirm all of the discussed details of the project are included in the final contract. If the contractor verbally added sweeteners to the deal, ask him to add that to the contract. If he won’t, I wouldn’t sign the contract.
The final contract should include at the minimum:
When the job will start
When the job will be completed
Which materials will be used
Cost of the job
Creating a Work Log
Once the work begins, you should create a written log of all communications between you and the contractor. For each entry in the log, include the date, time, person you spoke to, and the details of the conversation. This log can be used as a journal to protect you from any misunderstandings.
- Do not pay the contractor until the work is completed. (See above.)
- Conduct a final walkthrough once the work has been completed. Meet with the contractor for a final walkthrough. The walkthrough should be used to inspect the project and discuss any changes or improvements that might have been missed or need to be done.
- Pay the contractor and refer her. Once the work has been completed and meets the terms of the contract, make the final payment for the contract. If you were happy with the work, spread the word. The more work this contractor has, the more likelihood he or she will prosper and will be able to stay in the business longer and will never forgot your help.
How do you go about finding your contractors?
Let me know with a comment!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.