Having bought and sold residential investment properties full-time for over six years now, there are certain lessons that I have learned that have made me a better investor. When I was starting out in the renovation business, I managed my renovation costs very closely and unfortunately erred on the side of cutting corners in an effort to bolster my profit margins. Over time, I began to learn that cutting corners or using sub-par contractors to do the work ended up costing more in the long run.
For those investors that are just starting out in the rehab business, it is very tempting to use sub-contractors who will get the job done for the lowest price. It’s understandable; we are in this business to make money. If you have an opportunity to use a contractor who happens to have some experience in a certain area and is willing to do the job for less – it’s very tempting to use them rather than a licensed professional who may charge more. However, you’ll quickly learn that this approach to rehabs will eventually catch up with you. Whether it’s through faulty workmanship, unprofessional behavior, or just sloppy work, the benefits of saving a few dollars typically doesn’t outweigh the cost.
At the very least, I would recommend that investors use licensed professionals in these 3 areas:
Electrical: Almost every house that I’ve renovated over the last few years has had some amount of electrical work to be done. With all of the dangers associated with improper electrical work, this is probably the most important aspect of a renovation that should be done correctly. It’s simply not worth the risk to allow an unlicensed electrician to repair or rewire electrical lines in an effort to save a few bucks.
HVAC: The heating and cooling system in a house can be a major expense. I know first-hand how tempting it can be to use Joe Blow working out of the back of his van who can install a used unit for half of the price of a new one. Aside from the fact that most used units sold in this manor are probably stolen, an improperly installed HVAC system can have a huge impact on utility bills for the next owner or tenant. In addition, the maintenance costs associated with an older unit will eventually catch up with you.
Plumbing: There are many handymen out there who know how to solder copper or glue pvc pipes, but most unlicensed plumbers do not understand the mechanics behind proper plumbing (i.e. venting, pressure, siphonage, etc). As an investor, the last thing you want to do is cut open a wall to fix plumbing issues; or worse yet, deal with flooding as a result of poor workmanship.
Most investors don’t realize the extent that a good or poor renovation contributes to their reputation in a local market. The longer you are in this business, the more you begin to rub shoulders with the same industry professionals. The last thing you want to do is sabotage your future business by developing a reputation for cutting corners on your rehabs. Spending a few extra dollars to work with knowledgeable, professional contractors may cost money in the short run, but will ultimately pay off in the way of referrals and a solid reputation.