Below is version of an excerpt from Cliff’s book, Successful Real Estate Investing.
In six years as a property owner, Jules had been faced with numerous challenges with his vendors. One of his apartment properties had its own sewage pump because the sewer line at the property was located below the city’s gravity-fed system. The sewage pump failed over a long weekend, so Jules called a plumbing contractor who wanted $5,000 to replace the sump pump. The cost for the pump was $1,000 so the labor charge alone was $4,000 for about give hours’ worth of work.
Jules was shocked, but he needed it replaced immediately, so he agreed. He later learned that this plumber earned a commission of 50 percent from the company he contracted through … no wonder he set his bid so high.
Another time, one of Jules’ houses needed a new roof. A roofer installed it and included a ten-year warranty, but within a year, the new roof started leaking. When Jules tried to call him, the roofer had gone out of business so the warranty was worthless.
A painter bid a strip-mall project and asked for half the money up front to cover painting expenses. After Jules paid the down payment, the painter ignored the project, took the money and went on vacation. Jules sued the painter.
His most recent issue was when he hired a drain cleaning company to clear a drain line. Unfortunately, the blades on the drain cleaner destroyed the pipe. Was the pipe old or did the company destroy the pipe? Jules felt it was operator error since the property was only ten years old. He was still in the midst of trying to sue that vendor.
As an astute manager of real estate investments, Jules knew it was important to limit errors and improve operating returns. So far, though, the vendors he had hired had mostly just cost him a lot of money.
Specifications and Scope
From the drainage experience, Jules learned that he needed to improve the instructions he was giving vendors, no matter what he was hiring them for. He had a printing project coming up so he started by learning everything he could about paint. He knew his properties needed the exteriors repainted every seven years. But he didn’t know how to find a painter who would do a good job or how to define the specifications and scope of each job to help the painter do the job right. When Jules looked for answers online, he soon found himself overwhelmed.
So he went to a paint supply store and asked questions. The saleslady was very understanding and the first thing she did was give Jules a copy of the store’s paint specifications worksheet to detail the work that needed to be completed at any property.
“It’s easy,” she said. “Fill this worksheet out and just about any painter should have a firm grasp of what you need done.” Jules looked the worksheet over and agreed it seemed easy. It read:
Surfaces to be Painted. In the following lists, indicate the specific materials of each interior and exterior surface – for example, brick, wood, plaster, metal, cement, render and so on – and whether they are new or previously painted. The material and condition of the surfaces will impact the level of preparation required, the sealing process required and the number of finishing coats needed – and ultimately, the final quality and cost.
- Gutters/drain pipes
Preparation is critical for long-lasting results.
- Re-puttying of window glazing
- Mold removal
- Washing/cleaning surfaces
- Dust, grease or scale removal
- Rust removal
- Loose or flaking paint removal
- Holes, cracks or broken plaster patching
- Fitting removal
- Priming and sealing
- Window and door caulking
- Soffit and siding repairs
Selection of Painting Materials and Colors
Some surfaces and colors will require more coats than others. The more specific an owner can be about colors and materials, the more likely the painter will be able to achieve the desired outcome.
- Color palette
- Paint brand
- Gloss level
- Depth of paint application
- Surface priming
- Number of coats
- Paint samples
The best method of application will depend on the type of finish being applied, the desired results, the type of surface and your budget.
- Powder coating (for railings, doors and playgrounds)
Site Preparation and Cleanup
Ensure that the quotes include information on protecting plants and landscaping as well as necessary tree and bush trimming to access paintable surfaces.
- Rubbish removal
- Paint disposal
- Splatter removal
- Landscape/outdoor furniture protection
Vendor Name: ________________________
Jules learned how important it was to communicate these specifications and the scope of the work up front. He also made a note to check in with the vendors often as they worked on the job to make sure they were completing the work in sync with the specifications and scope.
The clerk also gave Jules a list of reputable, licensed, bonded and insured painters in the area. “Thank you so much.” He was relieved to have such solid guidance in hiring a good painter and he went about collecting similar materials for roofers and plumbers too.
The list of painters that the clerk gave Jules was a great start, but he still needed to build up his list of potential vendors in all service areas. He started by asking his friends and other property owners to recommend a few vendors. Whenever he worked with a vendor he liked, he also asked them if they could recommend vendors for noncompeting services. Then he joined his local [apartment association] and found that other members there were often quick to recommend their favorite vendors.
Building his lists by word-of-mouth recommendations seemed to be working well. “Keep in mind, though,” warned one of the property owners, “that some people make recommendations because the vendor gives them a referral kickback. Those aren’t true recommendations, so always ask if someone is being paid to make a recommendation”.
Most property owners are driven by vendor pricing. Investors always want the least expensive price and the best value they can find and Jules was no different. Unfortunately, low prices sometimes mean substandard work due to lack of licensing or insurance, a misunderstanding or plain old inexperience.
By now, Jules had learned that it made sense to meet with at least three vendors and obtain three bids, at least on larger jobs. Good vendors know it is just business and you have to do what’s best for your project – they always have references you can call.
More Than the Bid
Over the course of the plumbing, painting and roofing fiascos, Jules had learned that price was not the only thing to consider when choosing which vendor to hire. Other key factors included professionalism, recalls, cleanliness, response to emergency situations and the fine print in every vendor’s contract, specifically with an eye to liens and lien releases as well as quality and timeliness of the work. [Some things to consider are:]
- Will they issue a warranty or guarantee of more than thirty days?
- Do they have general liability and workers’ compensation insurance?
- Do they have a contractor’s license and are they bonded?
- If they hire subcontractors, who is responsible for liens and quality control?
- Does their contract’s “fine print” make sense?
- Are they available for emergencies and if so, how much extra do they charge?
Now that Jules was collecting at least three bids on every big job, he was learning that the process of researching, interviewing and considering bids was somewhat time consuming but well worth it. Now he could identify which vendors were knowledgeable about their services understood what he needed to be done and collected the best – (which was not necessarily the cheapest) bid.
Clifford A. Hockley is President of Bluestone & Hockley Real Estate Services, greater Portland’s full service real estate brokerage and property management company. He is a Certified Property Manager and has achieved his Certified Commercial Investment Member designation (CCIM). Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM). Cliff’s book, Successful Real Estate Investing is available online.