6. 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. 7. 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. 8. Building Inspectors Here’s one 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 or 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 teamwho’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 contractor 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 ... Cover article continued
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 itemwith 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 upfront, 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 howmuch you trust the contractor, make sure the house has been inspected before paying each draw. “Trust but verify,” as Ronald Regan said. Never write a check before someone on your team has inspected the work that’s been done. WhenThings GoWrong 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 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 teamwent 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 need 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 and maintain a good working relationship with that contractor.
To your success!
–Jay Conner
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