How to Manage Contractors as a Real Estate Investor

Before you start your next renovation project, make sure that you have the right contractor on your side, as this can be one of the biggest challenges when investing in real estate. Since renovations are an inevitable part of real estate investing, it is important to know how to best find and manage contractors to ensure your projects are delivered on time and on budget. Whether it's an extension to your main residence or renovating a rental property, you must manage your contractors well to keep things on schedule, on budget, and in line with the original project specifications.

1. Avoid Paying Ahead.

Never pay upfront for a project that is not yet completed, as your contractor may be in a desperate situation for any number of reasons. And you don't really want to run a business with limited capital. By paying for the work as it is completed, you force the contractor to work for their money, where he will be motivated to come to work and finish the project on time.

2. Rules for Communication. 

Communication is one of the biggest challenges between contractors and investors, where poor communication, like unanswered phone calls, where they are not being able to communicate when problems arise, could delay and increase the budget of your project. So during the screening process, make sure to be clear about your expectations about the communication and how often you would like to be contacted about the project.

3. Keep a Project Journal.

Check the property regularly to ensure that the project and work are progressing as planned and you can do both scheduled and casual appointments, which lets the contractor know that you're watching and can drop in at any time. If the project is out of the city or too far away to be monitored regularly, consider hiring a project manager. 

Some bigger projects may require careful oversight and project management, especially if you choose to hire and manage your own subcontractors. So make sure to have a project journal, which is simply a notebook or text document that you use to record progress, record questions you want to ask your contractor, write down project ideas, product numbers, or take notes on a schedule. It would be a good idea to hire a dedicated project manager to oversee the project if any of the following applies: 

• You have a project outside the city.

• You are short on time. 

• You are simply not the best project manager.

• You have many projects running at the same time.

4. Do Your Due Diligence.

You can avoid many problems by doing due diligence when hiring the right contractor for the first time. And you can start your search by asking trusted friends, investors, family members, and neighbors. If you know someone who works in the construction industry, they may have several potential referrals for you and you can also search the Internet for contractors with positive ratings and reviews. Once you've made a list of them, take time to verify their credentials and make sure they are licensed and registered with the state.

Take a few minutes to interview each of the contractors to better understand the situation, and ask them to provide you with a quote. General contractors are the most expensive option as they control the entire project for you and add their project management costs to the cost of their subcontractors' work. It is more cost-effective to hire and manage subcontractors yourself, but you also need a lot more work and whichever route you choose, the general contractor or subcontractors must be licensed and insured and must be able to provide this information to you upon request.

Hiring a handyman is the cheapest option, but they are generally unlicensed and can only do certain tasks, like inserting a door, fixing drywall, installing flooring, or do other simple renovations. But know who to hire will save you a lot of money in the long run.

5. Get Everything in Writing.

The question is, will the contractor follow up on what they told you they will do? And in many cases, they won't. So the best way to protect yourself and hold the contractor accountable is to get all the project details in writing. Get your estimates in writing and make sure they are in great detail. Also, if you don't understand something in writing, ask them for clarification, as a good contractor will wait patiently until you are ready.

Contracts must include, but not be limited to:

• Parties associated with business addresses.

• Fines for exceeding the terms of the contract.

• Scope of work, including a complete list of all work that needs to be done.

• Insurance and license requirements.

• Terms of payment, including how much the entire work costs, when, and how payments will be made.

• Location/address of the project, start date, and end date.

• Who should provide tools and materials?

6. Use Management Sofware.

You must hold your contractors accountable and having management software can help you monitor and track each contractor and is great for investors who have multiple projects running at the same time. The software will allow them to submit important items, prior to signing a contract or receiving payments. The software will also set reminders for payment due dates and if they need any additional appointments. It also allows you to track costs and material costs and keep you informed of project progress by adding images. Not having management software can put you in a position where they can take advantage of you and spend time in the workplace with another homeowner who holds them accountable.