Investing in real estate can be a profitable venture, but it comes with its challenges. One of the most significant hurdles for real estate investors is finding reliable contractors. Whether you’re flipping houses, managing rental properties, or developing new projects, your success largely depends on the quality of the work your contractors deliver. Hiring the wrong contractor can lead to delays, cost overruns, and substandard work, all of which can erode your profits.
Here are the best practices for real estate investors to follow when hiring contractors:
1. Conduct Thorough Research
Before hiring any contractor, it’s essential to conduct thorough research. Begin by gathering a list of potential contractors from referrals, online reviews, and industry contacts. Once you have a list, dive deeper into their backgrounds. Look for contractors who specialize in the type of work you need, whether it’s plumbing, electrical work, or full-scale renovations. Check their online presence, read reviews, and seek testimonials from previous clients.
Key Tips:
- Use platforms like Angie’s List, Yelp, and Google Reviews to gauge the reputation of potential contractors. (always ask for references, as reviews can sometimes be skewed)
- Ask for referrals from fellow investors or real estate agents who have a history of working with reliable contractors.
2. Verify Licensing and Insurance
One of the most critical steps is ensuring that your contractor is licensed and insured. A valid license indicates that the contractor has met the necessary qualifications and complies with local regulations. Insurance protects you from liability if accidents or damages occur during the project.
Key Tips:
- Ask for copies of the contractor’s license and insurance certificate.
- Verify the insurance coverage, including general liability and worker’s compensation.
3. Request Detailed Bids and Compare Them
Before committing to a contractor, request bids from multiple contractors. The bids should be detailed and itemized, breaking down the cost of labor, materials, and any other expenses. This allows you to compare bids more effectively and understand where the costs are coming from. Be cautious of bids that seem too low—these might be red flags for cutting corners or potential upcharges later on.
Key Tips:
- Ensure that bids are comprehensive and address the full scope of work.
- Don’t automatically go with the cheapest option; look for value and quality.
4. Check References
Always ask for references from contractors, and make sure to follow up with them. Speaking with past clients provides invaluable insight into the contractor’s work ethic, reliability, and quality. Ask specific questions about their experience, such as how the contractor handled changes to the project, whether the work was completed on time, and if there were any unexpected costs.
Key Tips:
- Call at least three references and ask for details about their experience.
- If possible, visit a past job site to inspect the quality of the work firsthand.
5. Create a Detailed Contract
Never start a project without a written contract. A well-crafted contract protects both parties and sets clear expectations for the project’s scope, timeline, and payment structure. The contract should also include specifics on materials, warranties, and procedures for handling any changes or disputes.
Key Tips:
- Have a lawyer review the contract if the project is particularly large or complex.
- Include penalty clauses for missed deadlines or poor-quality work to protect your investment.
6. Establish a Payment Schedule
Avoid paying the full amount upfront. Instead, establish a payment schedule tied to milestones in the project. For example, you might pay 10% upfront, 30% when a specific phase is completed, and the remainder upon completion. This incentivizes the contractor to stay on track and ensures you aren’t left out of pocket if problems arise.
Key Tips:
- Hold back the final payment until you’ve thoroughly inspected the completed work and are satisfied with the results.
- Include a retention clause, holding a percentage of the payment until a set period after completion to ensure any issues are resolved.
7. Communicate Clearly and Frequently
Good communication is key to a successful project. From the outset, establish clear lines of communication. Regular check-ins, either in person or over the phone, help ensure that everyone is on the same page and that any issues are addressed promptly. Misunderstandings or assumptions can lead to costly mistakes, so keep the dialogue open.
Key Tips:
- Set expectations for how and when updates will be provided.
- Don’t be afraid to ask questions or request clarification on any aspect of the project.
8. Inspect Work Regularly
As an investor, it’s crucial to stay actively involved in your projects. Regularly inspect the work as it progresses to catch any potential issues early. Don’t wait until the project is finished to address concerns—by that time, it may be too late to make changes without significant costs.
Key Tips:
- Visit the site regularly to check on progress.
- Bring in a third-party inspector if you’re unsure about the quality of the work being done.
9. Build Long-Term Relationships
Once you find reliable contractors, strive to build long-term relationships with them. Trustworthy contractors can become key assets to your real estate investment business. By fostering strong relationships, you may benefit from preferential treatment, better pricing, and a higher level of commitment to your projects.
Key Tips:
- Show appreciation for good work, whether through referrals, positive reviews, or bonuses for meeting deadlines.
- Be respectful and fair in your dealings—contractors are more likely to prioritize your projects if they enjoy working with you.
Conclusion
Hiring the right contractor can make or break a real estate investment project. By following these best practices—conducting thorough research, verifying credentials, creating clear contracts, and maintaining open communication—you can reduce risks and set your projects up for success. Real estate investors who take the time to hire reputable and skilled contractors will not only complete projects on time and within budget but also enhance the overall quality and profitability of their investments.
Ask us about our contractors, who we use and why. We believe in complete transparency and we are happy to share our processes and experiences. Our goal is to provide our investors with a high-quality investment that will continue to grow in value.
With over 15 years of experience in real estate investing and property management, I’ve seen firsthand the incredible opportunities this industry offers. I’d love to share my story with you and explore how we can make real estate investing a successful part of your journey.
