Contractors and subcontractors can be the bane of a real estate investor’s existence. Yes, there are plenty of good ones out there, but there are also a good number of incompetent, unscrupulous or simply unqualified ones as well.
Real estate investors need to find the best balance of quality and price. You can go to the big firms, and they will almost certainly do good work. But it will cost you an arm and a leg.
You can also find some Joe on the street corner to do it for next to nothing. Of course, you’ll have to redo the entire project after Joe butchers it. Details, right?
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7 Tips for Finding (& Keeping) the Best Contractors For Your Team
1. Ask for Referrals
The best way to know a contractor is good is if that contractor has been good for another investor. I cannot stress this enough; the best way to find quality contractors is through referrals.
There are two great ways to go about this. The first is right here on BiggerPockets. Go to the Forums and ask for a recommendation or message an active investor in your market. Don’t be shy. We’re all one big, happy family here.
The other is to go to your local real estate club and ask around there. I’ve found quite a few quality contractors this way.
2. Don’t Settle for One Bid
If you have found a quality contractor, he can become your go-to guy, and you don’t need to shop around every time. But when you’re still looking, don’t get just one bid. Get a couple and compare them against each other. This way you can learn costs better and don’t needlessly delay a project if the bid doesn’t come in right. It also allows you to meet and at least partially evaluate other contractors who could become backups. And it’s definitely important to have backups (see #7).
On another note, the cheapest bid is not always the best. If a contractor comes off as unprofessional and doesn’t have good references (see #3), don’t go with him just because his bid is lower than the other guy. Sometimes, you get what you pay for.
3. Ask for References
A while back, I was looking for a new general contractor. He came as a referral (of course), but I asked for some references from him anyway. I called them, and they were all great. The next day, I talked to the contractor and he mentioned that some of his references called him to tell him I had talked to them. He said this was the first time that had happened in over a decade.
“You have got to be kidding me!” I replied.
It’s amazing how often this step gets skipped. I guess some people think that the references will just tell you what you want to hear. This has not been my experience. Usually, if they weren’t great, you can pick up signs of this. Something like, “Well, if you don’t mind X, then he’s fine.” That kind of phrase is a big warning sign. Sometimes, references will just out and tell you the contractor wasn’t any good. If they were good, you’ll usually get a glowing description and examples. If they were mediocre, you’ll get vague, empty verbs and the like. You have to read between the lines a bit, but it’s not that hard. So don’t skip this step!
4. Get the Documents Up Front
You always want to get a copy of the contractor’s liability insurance up front. If they have any employees, they will need workman’s comp too (or the workman’s comp insurer will charge you for their work). In some states, contractors will need a license and bond too, or you’ll need to get proof of a specialized license (say, with an electrician). Get these documents up front because if you don’t and the contractor wasn’t be straight with you, you’re out of luck.
I would also write out a scope of work and give it to the contractor to write their bid on for any larger project. Then you can compare their bid directly with other contractors (as some won’t bid certain items or may add things). And you should sign a contract with them at the beginning to make sure there are no debates afterward about what was and was not agreed upon.
5. Never Pay All Up Front
A guy walked into our office once asking if we managed properties. “We only manage for ourselves, sorry,” I replied. He looked utterly dejected. He lived out-of-state and had two houses with a property management company here. He paid them to rehab both, and then the company went dark on him. So he flew out and realized that neither house had even been touched.
Never pay all up front. With any smaller job, you shouldn’t really pay anything up front. Sometimes with larger projects, contractors may need a partial payment to get started. But try to avoid paying up front at all and never pay everything up front!
6. Don’t Cut the Last Check Until the Job is Completely Done
Good luck trying to get a contractor to come back out and finish something after you’ve paid him the last check. More often than not, it won’t happen. And if it does, it will take a while.
Related: 8 Simple Tips for Managing Contractors Without Losing Your Mind
Go through the property with the contractor once he says it is complete and check off every item to make sure every last thing he agreed to do has been done. Then, and only then, can you cut the check.
7. Don’t Get Complacent
It’s amazing to me, but many contractors start feeling entitled once they’ve worked with a particular client for a while. Their prices start creeping up, and their quality goes down.
Unfortunately, just because you found a good contractor doesn’t mean that contractor will stay good. And even if they are good, a watchful eye keeps honest people honest.
So, 1) Keep an eye on each project. Make sure it is progressing at a good rate (and consider putting a time incentive into the contract). Evaluate any change order closely and while projects usually have change orders, don’t just rubber stamp them. And 2) Keep an eye out for backups for each type of contractor. Every once in a while, have them bid against each other and even use your backup from time to time.
After all, there’s nothing like a little good old competition to keep a contractor in line.
What tips would you add for finding (and keeping) great contractors?
Let’s talk in the comments section below!