There are too many contractors out there (everywhere) who are notorious for underperforming and making your life very unpleasant.
I’ve been a licensed contractor in the state ofMassachusettsfor over 18 years now. I got my start investing in real estate by doing contract work for banks during the downturn of the early 1990’s.
I wasn’t licensed when I started. I actually had no idea how to do contract work but I saw an opportunity in the market and I went for it. The banks needed repairs done on houses they took back in foreclosure and I needed money. The two went together nicely. I learned fast, read everything I could, watched all the video’s I could find at Home Depot on how to do house repairs and I got other people to do the work for me.
I got good and eventually ended up being a lead contractor for Freddie Mac and Fannie Mae during the last big round of foreclosures, at that time. I needed to have my contractor’s license so I studied hard, took the test and passed.
I have become very savvy in dealing with contractors because I have hired so many of them to do work for me, not just because I earned my own contractor’s license. At the height of my contracting days, I was working on 12 to16 properties per month and had 35 to 55 sub-contractors – carpenters, electricians, plumbers, etc. I have been through the trenches and I survived, learning many lessons along the way. Here are ten tips you should adhere to when dealing with contractors:
1) Licensed and Insured – be sure your contractor is licensed and insured so he/she is always accountable. To ensure you have the proper insurance, request that the contractor have his insurance agent directly send you the policy binder. This prevents forgery by the contractor.
2) Specialist – make sure your contractor specializes in the type of work you need. Get references and call those references! You will be surprised what the references will say!
3) Who is Going to Do the Actual Work – Would you believe a contractor would sign a contract with you after you have checked his references and checked out his work, and then sub-contract out to another company to do the actual work? Ask this important question because this happens a lot. Be sure your contract has a no sub-contracting provision without your written permission.
4) Penalty Clause – Put a penalty clause in your contract so your contractor is penalized if he does not complete the work before a certain date. Let the contractor choose the date. If they howl about how why they do not want the penalty clause in the contract, there is a reason!
5) Up Front Money – Never give 50% up front because you may never see that contractor again! He is probably going to use the money to finish his last job and then he will be upside down on your job. This is the way many contractors work.
The best way to pay a contractor is 30/30/30/10. Give 30% up front to start the job, for materials and employee pay. Then 30/30/10 based on certain milestones in the job. I like to set my milestones to be the same time the property might need to be inspected by the building department.
6) Permits – This brings me to permits. Always pull permits for your jobs. You will stay on the good side of the locality, and it’s the right thing to do. Also, always have your contractor pull the permits because therefore, the contractor will be liable for the completion of the permit, not you. Permits cost money.
7) Mechanics Lien – Ensure you have a lien waiver signed each time you give your contractor money. This way, he cannot put a mechanic’s lien on the property for lack of payment (even if you paid them—this is a common contractor scam).
8) Broom-Swept Condition – You should have a clause in your contract that states the property should be in broom-swept condition each time they leave. If you don’t, you will end up with a big, big mess. You never know who might come to look at the property to buy, or when. It should always look its best, even in the midst of construction.
9) Multiple Bids – Always get multiple bids on a project, and let the contractors know that they are competing against each other. This will lower their price.
10) Use your gut – You have good intuition. Even if the contractor is the low bid, use your gut to decide who to give the job to. Most times your gut will be right.
11) BONUS TIP: Use a Good Contract: Make sure you use YOUR contract, rather than the contractor’s. Make sure your contract controls the entire process– from daily clean up, to change orders to lien waivers – it should be complete and, it should control the contractor like controlling a dog on a leash.
Dave Lindahl has been active in investment real estate for nearly 20 years. Within his first 14 months of investing in apartment buildings, Dave earned a positive cash flow of more than $10,300 per month. Within 3½ years Dave Lindahl became a multi-millionaire. To discover how to take advantage of this recovering market and get a five-step proven formula to show you how create a $9,700 month to month passive income, go to www.rementor.com/freebookoffer and receive a FREE copy of David Lindahl’s new book “Massive Passive Income – The Real Estate Investors Guide To Prosper In A Recovering Market.” Available FREE while supplies last!
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