With housing demand still running high throughout most of the U.S., there are many opportunities for current and aspiring investors. Buying an old house that needs some updating can be very profitable if you know what to look for. And Buying a House for the Price of a Car, doubly so!
When flipping a house, there are many important decisions to make. One of the most important is whether to hire a contractor or do it yourself. While on the face of it, it seems cheaper to do it yourself, there are a number of trade-offs and considerations to keep in mind. At MY SMART COUSIN, we help you build wealth and Buy a House for the Price of a Car by being your Real Estate Investment Coach.
In this blog post, we’ll go over some tips for hiring a Real Estate Contractor. So, whether you’re just starting or have been flipping houses for years, read on!
WHAT IS A RESIDENTIAL REAL ESTATE CONTRACTOR AND WHAT DO THEY DO?
When you’re looking for a contractor to repair or rehab your investment property, you will most likely need to hire a residential real estate contractor. Residential contractors also called Home Improvement Contractors in some states, will manage and perform the overall renovation work for a residential property. The licensing, certification, and insurance requirements for residential contractors vary from state to state, so you will want to check with your state’s department of labor and industry for a list of registered contractors.
A real estate contractor is responsible for making recommendations, identifying the need for additional specialized contractors (for instance, plumbers or electricians), and obtaining any required permits for the renovation and construction work. A real estate contractor can also be a great resource for identifying financing options, providing input on what’s hot in housing design, and discussing housing market trends in the city or neighborhood of your investment property.
If you are unsure of where to find a capable contractor or how to evaluate them, a Real Estate Investment Coach such as My Smart Cousin can pay dividends in conducting detailed due diligence, providing a written assessment, and helping you to negotiate a strong contract.
HOW TO FIND THE RIGHT REAL ESTATE CONTRACTOR FOR YOUR FIX & FLIP PROJECT?
Flipping houses is not an easy task and requires patience to complete. Finding the right contractor can make all the difference between a house that is renovated quickly and with quality workmanship versus one that is always ‘almost done’ according to your contractor and yet looks nowhere near so. As such, it pays to invest time and do your research at the front end to help ensure a smooth renovation process.
The list of challenges may seem long and daunting when hiring a new contractor. Before committing to a neighbor’s handyman or throwing your hands in the air and choosing the first person who calls you back, remember these tips:
· When hiring a contractor, you must ask for references from people who know the contractor well and can give an honest assessment of their workmanship. Call at least three of the references, don’t satisfy yourself with just one. Also, conducting a little bit of detective work in terms of searching for online reviews regarding your potential contractor can shed light on any issues. If a contractor is unwilling or unable to provide you with references, you should think long and hard about hiring them.
· Punctuality, both in terms of showing up to the job site on time and putting in a full day’s work, and completing the job on or ahead of schedule, are critical determinants when evaluating contractors. For Flips, it’s especially crucial because you need assurance that your house will be ready during key market windows such as the all-important spring and summer months when families are looking to move. The best way to make sure that your contractor values your time and deadlines is to make payments, including incentives and penalties, that are based on firm dates and specific milestones.
· When you’re ready to hire a contractor, don’t let price be your pone and only guide. Yes, price is important, but the old saying of being penny-wise and pound-foolish is particularly so when it comes to hiring a contractor. It pays to hire a contractor who is licensed and insured rather than the cheapest vendor who might be unlicensed and/or uninsured as licensing and insurance-speak to the credibility and additional investment that the contractor is making in their business.
· When negotiating the terms of the contract, ensure that you make payments for completed work rather than for mobilization and other forms of advance payments. Proof of completion can take place through a video, but an on-site walkthrough by you is best. If possible, seek to pay for the materials, based on receipts, to ensure that profit is not calculated on these. Also, when the job is completed, if you have paid for the materials, then any leftover materials belong to you and as such, you should store them so they may be used for future repairs or renovations.
· Contractors are in very high demand. To ensure that your contractor completes your project rather than leaving you high and dry when another one comes along, have your final payment for the completed project be at least one-third and preferably half of the total project cost. Final payment of only ten percent or fifteen percent of the project cost might cause your contractor to continuously delay completion.
HOW TO WORK WITH YOUR CONTRACTOR DURING THE RENOVATION PROCESS?
The working relationship between an investor and their contractor can be amicable, but it takes time and determination on the part of both parties. Your goal in creating a constructive working relationship with your contractor is a relationship that is friendly but business-like, with expectations regarding the product, services, laborers/crew, timetable, price, deposits, materials, and liabilities clearly spelled out in writing.
Communication, and really, over-communication, goes a long way in heading off problems. Following up verbal discussions with an email or text summarizing what was agreed to can ensure that everyone stays on the same page.
THE IMPORTANCE OF HAVING A GOOD RELATIONSHIP WITH YOUR CONTRACTOR
Healthy relationships between contractors and clients are important to the success of any project. You can pave the way to having a great working relationship with your contractor, or improving an already rocky relationship, by following the below steps:
· Maintain open lines of communication- when problems arise, take time for discussion immediately so they don’t worsen over weeks or months. Misunderstandings can usually be corrected when addressed openly and with a spirit of goodwill.
· Establish realistic expectations – no matter how obvious an issue may seem on paper, it is bound to be open to interpretation. If something goes awry during the contracting process and is out of step with what has been agreed to beforehand, work hard to resolve it amicably. Taking issues to court always adds expense, not to mention time and bad feelings, to the process.
· Always try to create a pleasant work environment for your contractors. Making them feel like a valued member of your team rather than just a paid laborer can go a long way toward having your contractor go above and beyond in their work. Avoid confusion and disagreements by sharing your vision and discussing important factors continuously.
· When you work with a competent and qualified contractor, it is important to remember that they are an expert in their field. This doesn’t mean that you can’t question them— questions are welcome and expected. But you will not want to be overly prescriptive in defining how they wedding and implement their work as doing so might compromise the quality of the work as well as any warranty associated with it.
· Disagreements and disputes can easily arise between an investor and contractor when it comes to money and payment issues. Setting up a schedule for payments that are based on the achievement of certain tasks or milestones is one way to avoid confusion and problems down the line. It’s also important not to needlessly, or worse, intentionally delay payments to your contractor when a project or milestone has been completed to your satisfaction. Finding good contractors is particularly difficult these days, and word gets around fast regarding investors who are slow to pay.
FINAL THOUGHTS
So, should you hire a real estate contractor for your project? If you want to save yourself time and hassle, then the answer is most likely yes. By working with a contractor who understands the Fix & Flip process, you can focus on finding the right property and managing your budget while they take care of the renovation work. Keep in mind that it’s important to have a good relationship with your contractor; this will help ensure that the project goes smoothly from start to finish.
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