I’ve discussed this topic many times before, but today, I want to do a deep dive. Strap yourself in, because today we’re going to learn how to find a contractor and how to work with the contractors you hire, whether they are general contractors or subcontractors. Over the years, I’ve developed a strategy for finding contractors I can trust, putting the right agreements in place, and seeing my project gets done right.
The WORST Time to Start Locating a Contractor
In order to identify the best time to start locating a contractor, I’m going to point out when you absolutely don’t want to be looking for a contractor: After you have closed on a house.
If you have bought a house that needs rehab, renovation, or repairs, and you don’t already have good relationships with contractors in place, then that house it’s probably going to sit there for a while. Or maybe you’ll find yourself under the pressure of having a house just sitting there, and you’ll lower your standards. Now you’ve hired the wrong contractor and have a whole new mess of problems.
If you decide to not just do pretty house business, but also go into rehab, then you need to start locating and nurturing relationships with contractors now. You should already be looking for contractors at least 30 days before you think you will be closing on a deal.
Where to Find a Contractor
In my career, I have identified eight different places you can search to seek out a good contractor. If you do all eight, you’ll open yourself up to a large selection of contractors to choose from.
- Local Builders’ Association
Some of you may have heard me talk about this suggestion before, as it’s one of my favorites. What’s great about your local builders’ association is you don’t need to be a contractor or subcontractor yourself to visit or join the association. Anyone can join. Now, you might be the only real estate investor in a room full of contactors, plumbers, electricians, and landscapers and that’s a good thing.
When you attend meetings, which are usually just once a month, and you are networking, let people know who you are. Introduce yourself as a real estate investor looking for a general contractor to do business with. Meet as many people as you can, contractors and subcontractors alike.
- Local Real Estate Investor Association (REIA) or Monthly Meetings
This one is sort of obvious once you think about it. Whether it is an REIA group or a meetup group, go to where people are meeting once a month. And when you’re there, the people you want to ask about contractors are the people who run the meeting. Chat with the president or the person in charge of education. These are the movers and shakers actually doing business.
- Realtors Who Work with Real Estate Investors
Find Realtors who are listing agents for bank-owned properties. We have a realty company in our area that specializes in bank-owned properly — it’s practically all they list. They see real estate investors all the time, and in all likelihood, these Realtors will know the contractors the real estate investors are working with. Networking with these Realtors is a good way to learn about reliable contractors who have experience with real estate investors.
When you are networking with plumbers, electricians, HVAC, roofers, and other subcontractors, ask them about the reputations of general contractors. Subcontractors will know which general contractors are the most reliable regarding finishing jobs on time and whether or not they pay on time.
- Home Depot Pros Desk/Lowe’s Pro Services
Home Depot and Lowe’s Home Improvement both have contractor or commercial desks where you can go to for recommendations on general contractors. The hardware stores will know who good contractors are because they are the ones who repeatedly buy products from their store. (As a side note, you can also go to other places that supply contractors, like lumber yards). The reason the people at these businesses will tell you about the best general contractors is because, by hiring the contractor they recommend, you are indirectly bringing more business to their store when that contractor needs more supplies.
- Friends, Family, and Neighbors
Who do you know who has had work done on their house in the recent past? Simply ask them, “How did you like the work?” If you see work being done on someone’s house in your neighborhood, go ahead and pull in the driveway, knock on the door, and ask how they would rate the work they are getting done.
- Civic Groups
I talk about civic groups a lot in regard to private money, but these are also networking opportunities to find good contractors. There’s the Rotary Club, BNI, and, the biggest of all, the chamber of commerce. If you only join one of your local civic groups, I highly recommend the chamber. A lot of good, professional contractors and subcontractors who are interested in networking will be members of the chamber of commerce.
- Building Inspectors
Here’s one you which you may not have heard about. Reach out to your town and county building inspector and ask what general contractors or subcontractors they recommend. You know the building inspectors will only recommend good contractors, because they don’t like having to go to the same house three of four times and repeat themselves to subpar contractors who have difficulties complying with codes and/or making necessary corrections.
Signs of a Good Contractor
Once you have located a contractor you are thinking about working with, the vetting process begins. This process can take some time, and you can have someone on your team handle this for you, but you don’t want to cut corners here, because that’s how you end up with a contractor who cuts corners themselves.
First, you want to make sure the contractor is licensed and has workers comp to cover every member of the team who’s under them. A good, reputable contractor will be willing to show you their workers comp paperwork and licenses up front.
Next, no matter where the referral comes from, ask the contractor for references. I want at least three references from customers they’ve done work for. While I know the contactor is only going to send me to their best examples, it’s a good sign that they can do so confidently. You may also want to look up the contractor on the Better Business Bureau and ask for additional references from vendors they work with.
By reaching out to vendors, such as a plumber, electrician, or HVAC person that the contractor has worked with and asking if the subcontractor can recommend them, what you’re really asking is, “Did they pay you on time?” In the past, I worked with a contractor who didn’t pay their people on time, and I had some problems when the vendors I wanted to use did not want to do business with the contractor.
Lastly, don’t be discouraged if you talk to a contractor and they say, “It’s going to be a month before I can start on your project, because I’m currently working on another project.” This is a positive sign! It shows the contractor can practice good communication, and that they are dedicated to their clients and finishing what they’ve started.
Contracts and Contractors
So, you have a contractor lined up, now you want to make sure the work is going to get done. Get a detailed agreement in writing, listing a detailed scope of work, a timeline of when the work will get done, and a budget sheet. On that budget sheet, the contract should list every line item with a price of what it will cost them as well as what their markup is.
Speaking of money, you do not want to work with a contractor who says, “I need money up front, and then the rest when the job is done.” Any contractor who wants money before doing any work is running their business on a shoestring budget and they’re not a contractor you want to do business with. Instead, depending on how big a project is, I’ll have three draws. Now what I mean by that is, when a contractor or subcontractor gets a certain amount of work done, they get paid a draw. They’ll get paid again when the next percentage of work is done, and then get the rest when the job is completely finished.
No matter how much you trust the contractor, never pay them before the house has been inspected before paying each draw. “Trust but verify”, as Ronald Regan said. Never write a check before you are someone on your team has inspected the work that’s been done.
When Things Go Wrong
To keep things on track, I encourage you to have a penalty clause in your contract, especially if you are working with a new contractor. Many of my friends who do a huge number of deals have clauses in their contracts that state, after a one-week grace period, if the contractor goes over time, they are penalized $100 a day on houses valued at under $200,000 and $150 a day on houses valued over $200,000. This is a smart move because if a contractor tells you a job is going to take six weeks and they’re still working 12 weeks later, you have a big problem.
Now, I’m not talking about a change order that extends the original timeline. For example, not long ago, my team went into a house I’d bought, and they found the exterior wall had been eaten up by termites and had to be replaced. As you’d expect, that job took much longer than the contractor had originally estimated. But if there isn’t a big change order during the job, it’s not professional for a job to take longer than estimated.
On that note, make it clear that any failed inspection or work that needs to be redone will be at the contractor’s expense.
Protect Yourself and Your Property
There is one more thing we to keep in mind. Require all your contractors, generals and subs, to sign lien releases on every draw and on the final payment. That protects you from having a contractor file a lien against your property and potentially holding up the sale.
Working with a contractor is a huge part of being a successful real estate investor. Once you’ve located a reliable contractor, it is just as important to establish a good working relationship with your contractor as it is to maintain a good working relationship.
To your success!