02/01/2022
Tips for Effectively Managing Contractors as a Real Estate Investor
Effectively managing contractors is an afterthought for many eager real estate investors. But having the right contractor on your side can be one of the best ways to ensure remodels or repairs are a success. Whether you’re looking to renovate an entire rental property or just need some repairs, this blog will explore how to find a qualified contractor, establish a contract, and manage projects on-time and within budget.
Do Your Due Diligence
A simple piece of advice is to take your time before hiring a team. It can be tempting to jump right into a renovation or repair project — after all, the quicker the job is done, the quicker you can start turning a profit. But neglecting to do your due diligence when looking for the right contractors can cost you a lot of time, money, and headache in the long run.
Get Several Quotes
One of the first things you want to do is reach out to a few trusted contractors for a quote. Even though you may think you’ve found the perfect fit the first time around, it never hurts to get to know a couple contractors to learn about their rates, qualifications, and way of conducting business. You can do this by gathering referrals from like-minded investors or homeowners, or searching online for licensed contractors in your area.
At J&L, we make it easy for real estate investors and homeowners to find trusted and licensed contractors with our “Find a Contractor” portal.
Select a Qualified and Licensed Contractor
Finding a licensed contractor isn’t a one-size-fits all approach. Depending on your job and budget, one type of contractor may work better for you than another. Generally, there are three types of contractors:
- General Contractors. Typically the more expensive option, general contractors manage the entire project for you and bill their project management costs and the cost of their subcontractors’ work. While it’s more affordable to hire and manage subcontractors for yourself, this is an attractive option for a property owner looking to be hands-off.
- Subcontractors. Perhaps the most popular option, subcontractors are often specialists in various areas, hired to complete specific parts of a repair or remodel. Depending on the size and scope of your project, you may need anywhere from one subcontractor to a small team.
- Handymen. This is the most inexpensive option, and is sometimes used to complete a quick, once-and-done task. However, a handyman is generally unlicensed and isn’t a great idea for bigger projects where elements like liability and other potential legal disputes are on the table.
Regardless of the type of contractor you find to be right for your project, the most important component of any business venture or working relationship is to partner with trusted and licensed individuals.
Avoid Paying Ahead
Unless you’re close with the contractor and have worked with them on a number of projects, it’s a good idea to avoid paying for the entire project upfront. Contractor scams aren’t uncommon, and one popular tactic is for an alleged contractor to offer their work on a project at a highly discounted price because of supposedly leftover materials they have from a previous job. Once doing so, they take the full down payment and disappear without completing any work.
Similar to other areas in life, if it sounds too good to be true, it may be. This is another reason drafting a contract that is air-tight legally is so valuable. You want to make sure the relationship you develop with your contractor(s) is beneficial for all parties involved.
Develop the Relationship
When thinking through how to effectively manage contractors, we can often miss the more personal elements that help make a working relationship run smoothly. The more you get to know your contractor’s work and communication style, the better you will work together and the easier it will be to manage your contractors effectively. This means less back and forth throughout the project, quicker project completions, and less money spent dragging a job out for months past its due date.
Part of developing a strong relationship starts with the basics. Simple steps like creating a contract and keeping a project journal can be the difference between costly job disasters and legal fees.
Create a Contract
An important rule of thumb in business is to get everything in writing. The best way to protect yourself against misunderstandings, mistakes, or scams is by drafting a contract that holds both parties accountable to agreed upon terms.
It’s always important to get your estimates in writing, map out the project expectations in detail, and make sure the contract is clear before signing. Contracts must include, but are not limited to:
- Parties associated with business addresses.
- Fines for exceeding the terms of the contract.
- Scope of work, including a complete list of all work that needs to be done.
- Insurance and license requirements.
- Terms of payment, including how much the entire work costs and when and how payments will be made.
- Location/address of the project, start date, and end date.
- Who should provide tools and materials?
Establish Clear Communication Guidelines
A key component of effectively managing contractors is establishing clear expectations and rules for communication. You don’t want your contractor(s) calling you about every little thing, but you also don’t want them to be completely unresponsive to your outreach should you have a question or a concern.
A lack of clear communication can easily delay a project and increase the budget, so it’s important to set expectations upfront about how important communication is to you and how often you’d like to keep in touch throughout the project.
Keep a Project Journal
As work is being completed, it’s a good idea to keep a simple log of how the project is progressing and whether or not it’s going as planned. You can also use it as a place to jot down any questions you may have for your contractor(s). Whether you choose to keep your project journal in a notebook, text document, or on your phone, it’s there to help you keep track of how things are going.
The Qualities to Look for in a Contractor
Experience
It’s tough to beat experience. Working with a contractor who knows how to handle all the moving parts of a project, is experienced working within different budgets, and understands construction safety management can go a long way. Realizing that the unexpected can happen, it’s also a benefit to work with an experienced contractor who can stay nimble and quick on their feet when last minute delays or reroutes pop up.
Qualifications
Again, finding a contractor with the proper qualifications and licensing is one of the most important details to look for. You want to ensure the contractor(s) you partner with have the necessary requirements from the State License Board, as well as the proper insurance coverage.
Proof of Work
Partnering with a contractor excited to provide proof of work is a good sign. Similar to referrals, knowing firsthand the person you’re heading into business with has completed similar projects before is reassuring. It’s also nice to work with professionals proud of their work and eager to tackle their jobs with precision, skill, and care.
Contractor Management 101
Below are some important FAQs that homeowners or real estate professionals may run into when working with a contractor. Operating above-board isn’t just about your reputation, it also will help you avoid costly mistakes and legal battles.
Is the Homeowner or Contractor Responsible for Securing a Permit?
When creating a contract between a contractor and a homeowner, it’s important to specify who is responsible for securing the building permit. It’s important to note that unlicensed contractors cannot secure building permits.
Do You Need a Letter to Terminate a Contract Between a Homeowner and a Contractor?
Understanding your homeowner’s rights with a contractor is invaluable. To know how to get out of a contract with a contractor, you must go through the terms of the contract and review the wording of the cancellation policy.
All contracts should include the “Notice of Right to Cancel Policy.” Although each state has its cancellation deadline, most states allow customers to cancel signed contracts within three business days, with no further action required on the part of the consumer.
You’ll only need to mail in a signed and dated written notice of cancellation on or before midnight of the third business day following the signing of the contract. Once mailed, the notice becomes valid, as long as it is sent to the contractor’s correct address.
Does Homeowners Insurance Cover Unlicensed Contractors?
Many unlicensed contractors do not maintain an insurance policy, which can lead to out-of-pocket expenses for homeowners. Faulty work completed by an uninsured and unlicensed contractor is not covered by your homeowner’s insurance. Additionally, product warranties can be voided due to the work done by this type of contractor.
Can a Contractor Sue a Homeowner?
Yes. If a contractor believes they have found the homeowner to be in breach of the contract, they can file a lawsuit. The same applies to a homeowner who thinks the contractor hasn’t held up their end of the contract.
Can a Homeowner or Contractor Write a Release of Liability Waiver?
Liability waivers are only as effective as they are enforceable. To draft a proper release of liability waiver, you’ll want to work with an attorney experienced in this area of legal documentation.