Intro to Contractors
Financing costs can add up fast, so try to get your rehab evaluation and bids from your contractors as soon as possible. If feasible, try to negotiate with the sellers so that you can have access to the property to write your scopes of work and meet with contractors before the close of the sale (this may be referred to as an ‘access contingency’). This way you will not be acquiring expenses while you evaluate the property and you can start your rehab the day that you close escrow (or at least as close to it as possible). This will also allow for your contractors to get an eye on the property to point out any repairs you may have missed which could drastically increase the repair costs (this is also why you should have an inspection contingency in your contract).
This “access” contingency makes it easier to implement with an individual seller or a vacant property. There are occasions where the seller is not comfortable with you coming in to the house while they are still occupying it, but if you negotiate this in the beginning you can save yourself time and money in the end. The verbiage for this contingency may go something like, “seller to grant buyer access to property for inspections, bids, contractors, etc.”
Rehab Investor Tip: Before meeting with a contractor go through the property and make a list of items that you see as needing to be completed, and then write down any questions that you have. The contractor should be taking notes, measurements, etc. Establish a strong relationship with your contractor. It is up to them to do quality work for you on time and on budget and because of them you should be profitable. More than likely it will take time to develop a few good “go to” contractors with whom you trust and they are willing to work with you. Once you do then treat those relationships well and they will help you succeed in this business. Make the relationship a win-win. You need to remember that they need to make money on the deal too!
Interviewing Approved Contractors
Choosing the right contractor is the most important topic that I am going to cover in this manual because without the right contractor you won’t have a good product to rent or go to market with. You are looking for someone that has ‘all around’ construction skills, as the more your contractor can do the better. You don’t want to have to do all of the handholding and babysitting to ensure that the project is on track and everything is getting done correctly. The more your contractor has to hire out for different trades the higher your bid will be.
Why you need to hire this out…
- You don’t have time
- You don’t have the expertise
- You should be a manager, not a laborer
- If you get to do more than one rehab at once, then it could be logistically impossible
Real Estate Investor Tip: Even if you got a great bid price, your profits can disappear quickly if you don’t manage the repairs properly.
Where to find the contractors:
- Angie’s List
- Word of mouth through other investors
- REIA’s or other RE investor clubs in town
Referrals from other rehabbers are some of the best referrals that I have gotten, so I would make this your first choice in researching potential candidates.
Angie’s List can be a great resource although it does cost a low fee to join. The thing I like about it is that it has real reviews from people like you and me which are helpful in determining if you want to hire someone. It does work best in larger metropolitan areas as smaller cities and towns may not have that many reviews (if any) for each contractor.
Craigslist is another option, although this can provide some options it is a little more hit and miss and you don’t have any referrals to go off of. If you need to use this then do so, but my advice is to carefully screen anyone that you look to hire off of Craigslist and make sure to call and verify references! One of my biggest mistakes on a rehab was hiring someone off of Craigslist that seemed like a ‘good guy’ so I took his word and didn’t check references; needless to say I regretted it in the end.
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