Finding a Reputable Contractor
If your real estate investment project, be it a fix and flip, or new construction, or multifamily rehab, is in your local area, chances are you already know a local contractor who could be a good fit for your project.
If you do not know a Construction Manager (CM) or General Contractor (GC) who can do your real estate investment project, ask around (family, friends, your realtor, or other tradespeople) for recommendations.
Go to local real estate meetups, stop in at local construction sites, or do an online search for contractors in your area.
All of these are great FIRST steps to finding your project contractor.
Once you get good leads on several good contractors, do your own due diligence on his/her company.
Check the web and BBB for any complaints or litigation against the contractor’s company. Ask around about the contractor at the local lumber yard and hardware store.
Request to contact one or two of the Construction Manager (CM) or General Contractor’s (GC) former clients and call them to ask about their experiences with the contractor.
Talk with the contractor about their services and payment terms. (Tip: at iFC, we never pay a real estate investment project contractor upfront. We recommend you pay the CM/GC fee over the course of the investment project at a percentage of completion. See more about this below).
Here are a few things you want to find out:
- How does the contractor handle estimates and change orders?
- What does their contract for investment properties look like?
- What is their timeline for completion of your real estate investment project, and is there any consequence if they do not finish the project as promised?
- Do they have enough contractor’s insurance to cover the investment project?
- Will they be using subcontractors, and if so, how are they insured and managed?
Especially in the booming real estate market, it is essential to vet your contractors for a real estate investment project as much as possible. Poor contractors thrive in hot real estate markets because people are desperate to get work done.
And even good contractors can find themselves in over their heads, so it is best to know that you have done everything you can to make sure that the contractor you are considering for your real estate investment project is a reputable businessperson of the highest integrity.
Getting Dialed in with Your Contractor
Once you have a few potential contractors that you think are good options for your real estate investment project, you can put together your design and plans, and present them for an estimate (bid) and a payment plan.
To get accurate pricing, however, you need to have your investment project plans already in place. This includes all your finishes. If your contractor is working off estimates, the pricing for your investment project will change, and you will not be happy.
As our buddy Sean Pincus of GRIT Construction, a general contracting firm in Philadelphia puts it, “Proper preparation prevents piss poor performance.” He explains, “What that really translates to is that providing your GC the best information possible on your investment project (I.e., documentation for permits, plans, things that your consultant sent you, your Geotech report, etc.,) will help your GC develop an accurate price. If you give them information that is not developed, they are not going to be able to price it accurately and you are not going to get what you want out of it.”
Do a walkthrough of your real estate investment project with your GC and/or subcontractors, and the architect, if there is one involved, to make sure you are all on the same page with the scope of work and the value-add plans for your investment project.
Also, make sure you and your contractor agree on how billing and payments will work. As we mentioned above, at iFC, we never pay a contractor on our real estate investment projects upfront, and recommend you pay your CM/GC fee over the course of the project at a percentage of completion.
You can also have your contractor give you a materials list and labor cost to get started. Then, you can pay the materials list upfront and labor as work is completed. (Keep in mind that most contractors pay their guys weekly or hourly labor rates, so be prepared to pay labor weekly.)
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Then, once your real estate investment project is underway, communicate regularly with your GC. Says Sean, “We strongly suggest setting up a pre-construction meeting so that you are getting the most out of the project, you are getting the communication you want, whether it’s daily, weekly, monthly, and that those things are being met along the way.”
Communication will go far in preventing cost overruns and change orders on your investment project. “It goes along the lines of properly preparing,” says Sean. “If you sit down and review your plans with your GC, you know all of the particulars of those plans, so you will not be making field changes, which causes delays, cost overruns, and is going to bog down the project.”
Once your real estate investment project is complete, do a final walkthrough to view the finished product.
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