Selecting a Contractor

Filed in Fix and Flip, General by on September 20, 2012 0 Comments

Written by: Justin Walker – Happy Canyon Group

There are three things every real estate investor needs in their arsenal: money, deals, and a good contractor (there are probably others, but these are key). Good contractors make life much easier. All too often people – myself included – don’t like the idea of hiring or interviewing people; it’s a daunting process. Unfortunately, this can lead to rushing into choosing the first contractor that gives a bid just because it’s easier. We all know – even though we may not admit it out loud – that a little due diligence up front often pays off in the end. Hopefully this article will shed some light for those starting and maybe even some for the experienced investors out there. But, before we get started interviewing, take a deep breath and relax – this is fun!

Tip #1: Set up interviews for 4-6 contractors; 5 is often the sweet spot. Yes, this will ultimately mean that you have to tell someone they are not getting the job, but that’s okay. It’s business, and as long as you keep it that way, you shouldn’t shy away. As a general rule, if you call 4 contractors, 1 will not show up/cancel, 1 will show up but not bid and 2 will give you bids. I don’t mean to insult or bring down contractors with this, but it’s often what we see. The idea behind calling 4-6 is to get 3 bids total. If you get many more than three, it’s too much time and work to compare. Plus, if a contractor knows he’s bidding against 2 others for one job and 6 others for a second job, which one is he more likely to put the time into bidding on?

Tip #2: Have a detailed scope of work and provide each contractor with that scope for bidding. It’s really easy to walk into a property and say, “Here’s my project. I want some new lighting here, new kitchen there, some carpet and some paint.” This will only lead to confusion and an impossible comparison of contractors’ bids. Take the time to develop a clear, detailed scope of work. This can be anywhere from 60-120 lines on a spreadsheet, depending on how big the job is. After you’ve developed a relationship with a contractor, then this may get a little more lax, but err on the side of details! Having a detailed, line-by-line scope will ensure that you and each contractor are on the same page both through the bidding and when the work is done.

One last note on this point is that contractors will often have their own way for bidding jobs. I understand that may be easy for them, but this is your project and if you want to be able to compare apples to apples, they need to use the scope you give them and price it the same way as everyone else. If you aren’t in control for something as simple as the scope of work, what’s going to happen when you have a difference of opinion on where that wall goes or when something needs to be completed?

Tip #3: Cheaper isn’t always better. Don’t be afraid to pay your contractor for good work (you’re welcome contractors…). A good contractor can be worth what he charges. And you also have to consider the nature of the relationship early on. If this is the first job you’ve given a contractor, he’s probably not as keen to give you great pricing until you are able to keep him busy.

There are always exceptions to this, as sometimes the lowest bidder will do nice work. That’s great- hold on to them. But I think it’s more often that the lowest bidder gets selected, only to end up either over in time or budget, or even too difficult to work with. Getting references can often help with foreseeing these issues and that leads us to our next Tip.

Tip #4: Make sure your contractor is willing to provide license, insurance, W9, and references. Any contractor that is serious will have each of these things and not shy away from providing them. License and insurance are pretty self-explanatory. You want to make sure your contractor is skilled in what he or she claims and is covered by insurance if there’s an accident. The W9 is so that you aren’t paying his taxes at the end of the year. Equally important- if not most important – is the references. Get at least 3 references for good work and at least one for something that went wrong. Why something that went wrong? Because it is always going to happen- miscommunication, error in ordering, etc. It’s important to know how the issue was resolved. Don’t be afraid to have the contractor show you some of the jobs that they are currently working on.

Tip #5: The contractor needs to be okay with your contract documents and the requirements in it. A good contractor will be okay with your contract; make sure it’s fair for each side. You may want to include a daily penalty for late work and/or a bonus for early work. Just make sure both sides agree and are happy with it.

Tip #6: Follow your gut. This is the last tip I have for you. Sometimes you’ll get to the end of your contractor selection process and the differences are negligible on paper. In this case, go with your gut. How did you feel while talking with them? Doing the walk-through? Go with that little tingle you feel in your gut, it’ll steer you where you need to go.

Thanks for reading! Hopefully, I’ll see you out there…

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