How to Choose the Best Possible Contractor For Your Next Renovation

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Most real estate enthusiasts and experts look forward to flipping properties as a means to earn nice, fast income. And why shouldn’t they? After all, flipping is all about buying an undervalued property that needs a good amount of fixing up, then once you have your renovations done, selling it at the market rate. So, once you sell, you make that sweet profit. But that’s quite a misconception, as you don’t ever make money when you SELL, but when you BUY. Buying cheap will leave you enough room for any errors that could potentially arise later down the track. Of course, you’ll need a good margin to operate, and for that you require a great team that makes those numbers work for you.

One of the most crucial team members to help you with successfully flip your properties is your contractor. He won’t be there for the sale, but he will be your main cost. Often the houses that you consider flipping need renovations far beyond what you thought initially. And believe me, it’s not easy to find a good contractor. Want to get a feel of how bad things can get? Check out my previous post on how I got burned on a shady deal.

These days, the low standards and controls on the market allow almost everyone to be in the business of flipping properties. You have to separate experts from novices. So I’m here to help you make that distinction.  To begin, you need to shortlist a few good contractors. There are many fish in the sea, and doing some research will probably get you some great candidates. After you’ve shortlisted the contractors through referrals, recommendations, online research and finally, your gut feeling, you need to make a decision. Which one will you go for?

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Credentials

Before you even begin to think about explaining the issues and work that needs to be done to your contractors, consider their credentials. Not just what people are saying online, but far more in depth. Will they be able to do a quality job within the specified time period? Have they got the necessary license and insurance from state and municipal authorities to be qualified contractors? Contractors need a current Homeowners Warranty Insurance policy, which covers the homeowner for defective results and non-completion of the work, in case the contractor runs away. Similarly, to work as a contractor, they need a license.

Related: The Ultimate Guide to Finding an Incredible Contractor

In addition to these, ensure that your contractor has a clean bill of health from the Better Business Bureau and from your state’s consumer protection agency. These credentials speak a thousand words about the authenticity of your contractor. Once you have taken a look at these things, ask your contractor for references. If he’s good in his profession, he should have no issues in providing at least 20 recent and relevant references. It makes sense to get associated with a contractor with a solid reputation. I suggest you re-read this paragraph. If only I followed my words above instead of rushing. As the saying goes, “Measure twice and cut once.” I wasn’t even measuring–just cutting/hiring. I had houses sitting that needed renovations, and I didn’t spend the time conducting extra due diligence on the contractors I hired. Don’t make the same mistakes that I did.

Price Points

At this point it’s important to mention that though we all look for the cheapest option when it comes to repair work, you should probably curb your drive to go price hunting, at least to some extent. Pricing is an important factor to flipping houses, but only considering the cheapest contractors will set you up for failure. “Cheap Cheap Cheap” is definitely not the way to go. It is always worth spending a few extra dollars on the rehab as long you can completely remove yourself from the day to day calls and constant phone payments. Don’t compromise your time in working with broke contractors just to get a cheaper bid on rehab.

There are three types of contractors: low end, average and high end contractors. The low end guys are those who have fewer tools to work with and are typically not licensed or insured. Even if they do something wrong, you won’t be able to do much about that. It’s best to stay away from these contractors, and if they’re to be involved at all, they should be limited to basic jobs like putting up signs or drilling holes in the walls for putting up decorative fixtures.

The average contractors are usually licensed, insured and work for smaller companies. Their rates are reasonable. Pick one who has worked on flipping projects. They’re the best bet for these kinds of projects. They might not have all the tools they need right at their disposal, but they’ll be able to work on most project types. This is where our “bread and butter” type contractor comes into play. We have had two great crews on board for over 16 months now that have been doing most of our work. We also use the “low end” guys for quick fixes, maintenance and other smaller jobs.

High end contractors are those who work for bigger firms involving million dollar projects. They are sophisticated and charge a whopping sum even for a small job. It’s best to hire them for very high quality jobs with strict timelines. I suggest using these guys for A-class retail flips or $30,000+ rehabs.

Professional Attitude & Other Non-Verbal Cues

This is a big one that is often forgotten. Though credentials are important, it’s not all you should be looking at when choosing a contractor. Non-verbal cues that show professionalism are equally important, and you should not miss those cues. You’re going to spend a lot of time with your contractor. So, think whether you’re comfortable with his methods, his communication skills and his attitude. Some key things to look at:

  • Punctuality: To begin with, after the first meeting or the phone call, when you ask the contractor to send you a proposal or a bidding, look out how active he is in sending you those details. Is he punctual in sending you the document within, say, two days, or is he waiting for your second and third reminder call? Prompt communication is key when problems arise, and trust me, they always do.
  • The ability to listen: This is one of the most underrated qualities required in a contractor. Not every client is clear about what they want, so a contractor is expected to listen patiently to them and articulate those requirements for an efficient work flow. Make sure that communication is clear between you and your contractor and that he’s willing to spend time understanding your requirements. If a contractor rushes through and presents you a proposal that lacks some important details, you have to think twice before hiring him. Also, make sure to have every little detail on paper. If you don’t, you might get into a “he said, she said” war later on with your contractor. Get your MontBlanc pen out and right the bloody thing down.
  • Flexibility: Ensure your contractor incorporates some flexibility in case of unexpected contingencies. Even if there’s a timeline agreed to in the contract, you don’t want him to paint your gate when it’s raining outside. Look out for contractors who take flexibility into account when they’re talking to you and extend it into their written contract. If you can find someone who doesn’t nickel and dime you for every little overage that occurs, I think you might be on to a winner.
  • Project management skills: A contractor is often required to do a number of jobs at the same time, from tile setting to painting to plumbing. He’ll have a team of workers who do the work according to his instructions. Make sure that he’s good at handling several tasks at one go. The best way to find out is by asking him a lot of questions about his previous projects, what hiccups he faced, his most challenging project and so on. Contractors in general like to talk a lot, and once they get started, understand what type of work they do, what type of clients they handle and how much time they require to flip a house similar to yours. While showing him the property to be repaired, get an estimate from him about the budget and the time requirements. You can compare these with the other prospective contractors.

If he’s unable to tell you about multiple experiences he had, it simply means he hasn’t handled many projects. That’s a red flag right there. Also, if possible, request your contractor to take you to one of his ongoing projects. This will give you a good idea of the quality of his work.

Related: 3 Types of General Contractors (& How to Choose One for Your Project)

A Detailed Contract

One of the most crucial things that a contractor gives you before you both agree on terms and conditions is a detailed contract. A contract is a document that outlines the details of your project. Once you and your contractor agree on the terms, it becomes a legal document. Every project should have a contract. Ensure that your legal document includes the following:

  • You and your contractor’s particulars
  • A clear starting and finishing date of the project
  • Final price and allowances
  • Scope of work in detail
  • Payment schedule
  • A change order clause keeping room for flexibility
  • A clause about dispute resolution

Taking into account all the previous concerns, if a contractor prepares a detailed contract that contains all this, there’s no reason to delay further in signing the dotted line and seeing your house getting renovated to your satisfaction.

Conclusion

Flipping properties often requires a lot of repair work before you can sell for a profit. Quality and speed are the two most important considerations when flipping. Get a contractor who understands the value of these two and has a professional attitude. Do this, and you’ll have fewer surprises and higher profits.

Investors: What are your best tips for finding top-notch contractors?

Be sure to let me know with a comment!

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

17 Comments

  1. Curt Smith

    Engelo, An important omission in your mention of the contract bullets is the penalty clause. Aside from the problems I mention below, the 2nd biggest problem with contractors is completing on time. A completion date is only FYI. The contract HAS to have penalties for each week the project is late. It’s also useful to offer $500 bonus for finishing a week early. And $100 a day loss in the final draw for each day the project runs late. You can not run a flipping business without teeth in completion dates. LOL I’ve heard of 6 month rehabs for only $30k of work!!!! $30k is just 3 weeks for a top crew! Most experienced flippers with a known crew should do $30k-$45k rehab in no more than 5 weeks being generous. Yet too many I hear let their rehabs run on, and on and on.

    Contractors need to sign your contractor agreement as well as the contract. The contractor agreement says: yes I’m a contractor not an employee. I must have my own insurance, any accidents are my own responsibility. etc etc.

    Ben, nice tip re asking for references to current projects.

    My contractor failures could all be traced to not asking for references or ignoring weak references. And why would otherwise skilled workers have no references and they are 40 yrs old? Drugs, alcohol or mental problems and usually a mix of all three. I just worked my rear off this Sat finishing a job myself that I more than paid for labor wise yet they couldn’t get them selves up before 10am and actually do complete work. “just give me a chance” is a dangerous phrase. Your project (and financial health) is on the line with flips. You can’t take chances. I’ve found that workers with “problems” can fake it through your small test tasks, then their problems come into play on the more important large tasks. Usually after a few “draws” and they got the cash to feed their problem, boom, now they are late and no-show.

    I wish there was quick test for drug or alcohol use that could be used in the screening process.

    The indirect method is our only tool, — good references — from jobs in the past 2 months or shorter period of time. Given the percentage of contractors with varying problems, the good ones end up working all they want and should have 4 references from the last month, 2 months at most.

    Engelo, nice tactic to get the contractor talking!! Help them start bragging about their current and most recent gigs. Ask them “what did you think of the last / current rehabber you’re working for?” The nuts might out themselves by going nutz over their past investors.

    In my neck of the woods, GA, and my area where my projects are at, rural and small towns, one of the differentiators between low end and medium end contractor is whether they have a bank account, further having money in that account. :-0 It’s easy to ferret money management info out of an interview.

    For smaller projects, which mine are, under $5k labor, I take a chance with the contractor vs employee issue (note my comment re the contractor agreement and what happens if there’s an accident) by buying materials myself and staging at the job. Then my labor punch list is chopped up into Sat to Sat to Sat task lists and labor price for each Sat’s inspection and pay out. I pay ZERO up front and only on teh next Sat for completed work. Never give in to the whinning and drama and pay any amount ahead of actual completed work. I work all over GA and never can use the same crew twice so I get 100% of the low end types. You can’t work them the same as the medium to high enders. You can’t give them 30% up front nor even a nickle head !!!! I re-learn all these points I just mentioned over and over. LOL

    • Engelo Rumora

      Thanks Curt and some great points mentioned.

      Agreed on time frames regarding the work.

      $30,000 in work is 2-3 weeks. $45,000+ is 4-5 weeks.

      We would find it hard having penalties in place. Its a different market here in Toledo to implement such terms. Most wouldn’t care to honor them IMO and many would just walk off site leaving you in an even bigger mess.

      We have 3 great crews on board now and might look to add a few more.

      On track to do around 50 deals per year and that will be our sweat spot or the Toledo market.

      Thanks again and have a great day.

    • Engelo Rumora

      lol Katie,

      Gotta love Ohio.

      We can almost do a full blown renovation on any house here for around $20,000.

      Keep in mind its very basic and for rental purposes so no flashy light fixtures and porcelain toilet seats haha

      Thanks

      • Katie Rogers

        My question is why the difference in costs. The median salaries here are the same as everywhere. In fact, my city recently passed an ordinance requiring contractors with city contracts to pay their workers at least $15/hour. A full-time employee of a contractor on a city project would thus make around $30,000 per year, which is significantly less than the $50,000 median salary. The materials cost the same here as anywhere. So why are all the bids so high, and this for only basic but durable materials.

        • Engelo Rumora

          Thanks Katie,

          There are many folks here in Ohio working for $8-$10 per hour.

          Decent laborers also.

          Our materials are also much cheaper here IMO.

          Thanks

        • Katie Rogers

          My point is most of the workers on your rehab will be paid $8-$10/hour by their employer. It is only the workers on city projects whose employers are required to pay the $15/hour, and then only when they are working on a city project. So I still do not understand why rehab cost here should be many times what they are elsewhere.

  2. Pingback: How to Choose the Best Possible Contractor For Your Next Renovation | Rio Vista Home Pro

  3. Hello,

    I am a General Contractor, Electrical and AirContractor here is South Florida. Most of our remodels are around 35k-50k on a quick face lift.
    10×10 kitchen $8000-15k
    bathroom $7500-9500
    floors 2000 sqft @$4. tile 20×20 demo rip and $2.50 install $0.50 for setting materials $8000
    paint $1700-$2000
    prep walls $600(unless a nightmare then up to $2000)
    remove popcorn and add knock down $2500
    new baseboards @$4 remove, replace

    All contractors are different and specialize in different things. Some contractors specialize in custom cabinets and I would not have them install a bathroom. If they specialize in painting don’t have them lay floors. Everyone says they do everything but a lot do not.

    Some contractors sub all there work out and have a 20% mark up. Others have there own employees and cost are less. For this reason I have 9 licenses and certificates to help lower cost to my clients. The more you take on the more headaches you have as well!

    If I were to look for a contractor, I would go ask for two simular jobs they just recently done w pictures or ask to go see it in person.
    I would ask for license info and see if it is theres and they are not borrowing it from a friend( more then you think).
    I would make sure they are relaxed person and not high strung (you don’t want to argue everyday).
    I would make sure the contractor has workers comp insurance to protect there workers if they get hurt on your job!( if not then homeowner is liable…trust me it happens a lot )
    If they have workers comp exempt then it is for the owner of the company only and they are running an illegal practice. ( “subs” could be 1099 if they have own insurance and specific license then you have to check it is current and up top date).

    -Brent Dudley

  4. I love how you mention finding a contractor that is punctual. I think this is important because it’s good if the contractor is punctual in the case of problems. I’ll have to make sure that I find a good contractor that is willing to work with me.

  5. I like the tips to include clauses allowing flexibility and conflict resolution. As hard as teams work to get the project done on time, sometimes circumstances arise that make that impossible. If it\’s agreed beforehand to be understanding of each other, the conflicts that might arise later have already got solutions in play.

  6. I agree that you would want to check if an electrician has the proper insurance and licencing before you hire them. I would imagine that if they have these credentials they could provide you with a quality service. I need some electrical work done in my home so I\’ll have to find someone who is properly insured to do the job.

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