Contractors and Your Investment: 8 Key Considerations

Not all of us invest in the same market where we rest our heads at night, and that means a couple of things. First, if you're investing in a distant market, you've got some challenges a local does not. Second, that's going to make your relationship with your contractor absolutely foundational to your success.

Here are 8 key points to keep in mind as you search for this important partner:

1. Get those quotes!

More properties + more markets = more time spent tracking down people to do the work in the first place. You might start out with best intentions, reaching out to a handful of contractors. But when only half of those get back to you, and only a quarter actually present you with a workable quote in a reasonable amount of time, you're going to be tempted to pick one and run with it, just to keep the ball rolling. Resist this urge. Make sure you've got at least three solid quotes to compare. While you're at it, use this process as a litmus test for prompt, clear communication.

2. Yes, you need (somebody's) eyes on previous work.

You can talk to client references from a distance, but are they as detail-oriented as you are? Do they have the same priorities when it comes to the finished project? Quality is subjective, and work others find perfectly acceptable might not be up to par for you. You also need to know how the contractor you're interested in runs and maintains an active worksite. Disorganization can result in hour inflation, or even liability risks.

If you're in Miami, and your chosen market is Indianapolis, are you willing to make a trip to the area? You can check out some of your top picks' previous projects, and even tour your potential investment with a finalist or two. If that's not a possibility, do you have a trusted colleague in that market who could tour sites for you? What about the real estate agent who sold you the property? He or she will, in theory, sell it for you when it's ready to go back on the market, so they have a vested interest in making sure your investment shines.

3. Leverage technology

If you send a surrogate to tour a site, use Skype or Facetime to put you there with them, so they can show you any high points, or areas of concern. This way, you’ll be able to ask questions and get answers in real time, while your colleague and the contractor are both present. There are also apps out there, like our own Brizzo, that simplify region-specific estimates and help you fact-check as you talk to contractors. Then there are services like Google street view, which allows you to "drive" around a neighborhood. That can yield valuable insights. This high-caliber technology makes physical distance much less of an issue.

4. Take Charge of the Supply End.

Job quotes have a tendency to range widely. Supply cost is certainly not the only reason for this, but it's a line item that can hide a multitude of sins. If you're already familiar with the materials you want to use, then choose your own supplier. If not, make sure materials are itemized, so that you can identify discrepancies between those multiple quotes you're going to seek out.

5. Stay In Touch.

You're a busy person, and no one investment property is the sum total of your responsibilities. But if you're still new to investing in remote markets, resist the urge to take your hands off the wheel and let your new contractor handle things.

When it comes to a new business relationship, your initial interactions are going to set the tone. A hands-off approach allows bad habits to develop, and leaves you out of the loop. Maintain consistent, even daily contact with your chosen contractor. Ask specific questions about the work as it unfolds. You should know what's being done, how many people are involved, and when each task is expected to be complete. And make sure you've got crucial information in writing. If something important comes up during a phone call, follow up with an email summarizing the discussion.

The more informed you are, the more accountable your contractor is. Deadlines are more likely to be met. Unavoidable issues are less likely to be a nasty surprise. And you'll develop a good sense for your contractor's strengths and weaknesses, so you can decide whether to stick with him, or try someone else for a future job.

6. Time IS money, but not the way you think

When it comes to investing in real estate, your time is every bit as crucial as your money. To make your investment experience a positive one, budget the hours you'll need to stay on top of things...and be generous. Investors whose operations "run themselves" didn't get there overnight. They cultivated the relationships they wanted with contractors, and developed practices that worked.

Your goal here is to find a general contractor you can depend on over the long haul. Someone who does quality work and meets deadlines. Someone with leadership skills, who can oversee sub-contractors so you don't have to. A gem like that can handle your projects in the area on an ongoing basis. It's a mutually beneficial relationship, too, because the contractor can spend less time looking for jobs. On those first few jobs, actively manage your contractor relationship from quote to completion-- it will pay off for both of you.

7. Avoid Changing Horses Midstream

Why? Because you'll take a bath.

You know what's more expensive than hiring a contractor in the first place? Extricating yourself from a bad one. Disputes between you and your contractor can result in liens on your investment property, court filings, and delays.

This is another reason why it's important to learn your market. State laws can complicate firing a contractor. For example, states like Wisconsin have what are called "right to cure" laws. These require you to give your existing contractor the opportunity to fix any defects in the work before taking actions such as firing them, or hiring someone new to complete the work, and billing the previous contractor.

This is why we recommend so much diligence on the front end of this process. Thorough vetting and careful documentation will prevent a lot of headaches.

8. Know your liability

Obviously, you want to work with someone who's licensed, bonded and insured, but if you want to be sure you’re protected, dig a little deeper.

Worker's compensation is one area that can cost you big bucks. Any contractor you hire should be intimately acquainted with the laws in their state, and maintain appropriate relationships with employees and subcontractors. If they don't, any resulting liability could kick back to you, even if you think you've got all your bases covered.

You could also be liable if your contractor does damage to others' property. For example, what if you're renovating a duplex or condo, and your contractor or his surrogates damage common areas? If you haven't been added to their liability insurance as additional insured, you could be on the hook for damages.