When "Crappy" Contractors Can Make You Money

You started investing in real estate to make money, right?  Well, a there’s a part of the equation that determines your bottom line that’s just as important as purchase and sale price on any property you flip, and that’s the contractors you use.  Your contractors could very well make the difference between a deal that banks and a deal that tanks.  And a profitable investor knows how to find contractors that work well for every kind of exit strategy.

So what type of contractor works for your exit strategy of choice?…  read on.

5 Tips for Finding Good Contractors:

Before we find a contractor that matches the exit strategy, we have to find a contractor that’s honest and reliable, no matter the caliber of work. Simply hiring the first contractor you stumble across in the Yellow Pages or that stumbles on your site, asking for work is a recipe for total disaster!

So, here are a few ways to find and vet contractors before you hand them the house key:

  1. Hit up Google and the BBB

-Leverage the power of the internet to get the skinny any contractors you’re considering.

  1. Find out who the competition is using

-If a contractor’s working out for them, they could work out for you too.  Plus, they already understand an investor’s state of mind.

  1. Attend local real estate investing groups

-See who’s already doing work, and what rates they’re charging.

  1. Ask others for referrals

-This is one of the fastest ways to find the cream of the crop.

  1. Do your own due diligence on them

-Meet them, face to face.  Stay away from the ones who show up late, look unkempt, or smell of booze.

Odds are you’re going to be working with a contractor again and again, on multiple deals and for years.  Considering the extreme cost of choosing the wrong one, it’s well worth spending a few minutes to check them out.

But, just as important as finding a good contractor, is finding the right contractor.

You’ve heard of “using the right tool for the job”, right? The same principle applies here. Different real estate investing exit strategies benefit from different contractors.

How to Choose the RIGHT Contractor

When it comes to choosing a contractor, you get what you pay for, and that’s a good thing…

For Prehabbing Houses:

Prehabbing houses is all about speed, maximizing profit and light-weight, minor property improvements. This generally doesn’t require the most skilled contractors, so beware of overkill. Keep costs down (and profits up) by delegating down to lower quality and cheaper contractors. If a contractor pulls up in a 50,000 dollar truck, they’re probably not the guy for your prehab.
These are the “crappy” contractors. Their work would never pass muster for full rehabs. Their paint lines won’t be perfectly strait. Their countertops may not be scribed to the wall. Their outlet covers might not be perfectly horizontal. But their work is a perfect fit for the exit strategy… Fast, cheap, and good enough.

For Rehabbing Houses:

If you’re planning to flip houses on the retail market, and especially if you’re working at the higher end of the market you’re going to want to bring in your better contractors.  Be ready to pay for the quality you need.

Even though you may not be holding onto these units, you don’t want shady work to come back and haunt you in the form of a lawsuits.  Plus, halfhearted improvements could end up being wasted money on work that needs to be redone or doesn’t get the property sold.

For Renting Houses:

If you are planning on renting your houses out long term, you might need to be even more strategic in your choice of contractors. If you are dealing with middle to low end renters you know that the place could well get seriously trashed, fast. That means you aren’t going to want to invest heavily in cosmetic repairs like flooring, cabinets and countertops. You want the work done fast and have the place rent ready ASAP.

However, if there are issues with bigger items like roofs, plumbing, and major appliances you want a good contractor to ensure these items are handle right the first time and will last.

4 Critical Tips for Working with Contractors:

Choosing a good contractor and the right type for your project is a good start, but no matter who you choose and how great their reputation, there are 4 absolutely critical factors for avoiding disaster and maximizing profit…

1. It’s Not Finished, ‘Til it’s Finished!

Make sure your contractors get YOUR expectations of what finished really means. You can’t have missing handrails at an open house, unless you really like getting sued.  And I always expect my contractors to handle cleaning. Why should I have to hire, pay for and manage someone else to clean up their mess?

2. You Need a Work Schedule

Whether you do the ceilings and walls, or flooring and glass, first or last something is always going to be at the risk of getting messed up. Make sure you plan, and time your contractors to minimize these risks.  Oh, and little things always go wrong.  So leave time for touch ups before showing the property.

3. Time is Money Baby!

Every day is money, regardless of whether you are prehabbing, rehabbing or renting houses. Why should I have to lose money because the contractor didn’t finish on time, no matter what his excuse is? I use a contractors agreement that charges, or penalizes them $100 for each and every day they run over deadline. I should probably add a lot more just to stay on par, but this is usually a pretty good motivator to getting work done on time. You might even want to bonus them $100 a day for getting done early.

4. Waivers

Perhaps the most important piece of paper you’ll ever kick yourself for slacking on is the ‘Unconditional Waiver of Lien’. Cover your backside by making sure you get this signed at the time of final payment, or risk mechanic’s liens that can tie up your property up for years and cost you tens of thousands in legal fees.

Check out my video on A Document YOU WILL Need to see just how much not getting serious about these items cost me when I started in real estate investing!

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