Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

How To Hire The Right Contractor For Your Rehab

Written by Than Merrill

A lot of real estate investors rely on a dependable team of professionals to facilitate timely and profitable transactions. Each phase of a project will most likely call for someone that has been specifically trained in a respective field. Real estate agents find homes, investors secure deals and accountants manage funds. Everyone has his or her place amidst the frenzy of a rehab.

More often than not, every position needs to be addressed prior to initiating a deal. However, some roles are more important than others. It goes without saying, but investors are the catalyst and, therefore, the most important position in any rehab deal. Without an ambitious real estate investor, a deal may never even happen.

Beyond investors, the importance of subsequent roles can be debated. However, one can argue that the contractor is the second most important person in any deal. Just like an investor, the profitability of any rehab is directly correlated to the contractor. Therefore, hiring a dependable contractor is not only critical, but also essential to the success of a rehab.

Locating and hiring the right contractor for your rehab may be less daunting than originally anticipated. Accordingly, with the right system, hiring a good contractor is rather easy. The following will serve as a guide in your pursuit of the right contractor:

Finding Contractors

Rehabs consist of a variety of variables that can potentially make or break the entire deal. While it is almost impossible to account for each, there are certain constants that are all but inevitable. The success of a rehab is generally dependent upon two factors: having a proven system in place and finding a good contractor that is comfortable working within the confines of said system. For the sake of this article, we will assume you already have a system in place. Therefore, we will focus on finding contractors that compliment a good system.

In order to hire the right contractor for your rehab, you need to mind due diligence. It is not something that happens over night, or within the walls of your own home for that matter. You will need to enter their world and see them for what they really are, as this is the only way to preform a true evaluation of their skills. Consider the following locations when looking for the right contractor:

  • Websites
  • Supply Houses
  • Local Building Department
  • Job Sites
  • Real Estate Investment Associations
  • Contractor Referrals

In initiating your search, you will want to focus on a quality contractor. Essentially, a quality contractor is a person who is professional, competent, licensed, and insured. They will have also demonstrated that they have the skills and inclination to work within a given system to do the best and most efficient job possible. Again, a quality contractor in a good system can result in a profitable transaction. The second you stray from this criteria, you are subjecting yourself to the possibility of lost profits and a slew of headaches.

Pre-Screening & Meeting With Potential Contractors

In the event you find yourself enamored with a contractor, it is time to conduct a pre-screening interview. As its name suggests, the pre-screening interview will merely confirm whether or not the contractor is the right fit for your subject property. It will also serve to support or deny your initial impression of the contractor. It is during this interview that you want to build a confidence that the contractor will respect you and the job. However, it is important to understand that this process is a two way street. The contractor will simultaneously be interviewing you as well. You will need to gain his trust and sell him on the fact that he will want to work for you. Emphasize the importance of a good working rapport and the benefits of a long-term partnership with a real estate investor.

During your pre-screening interview, there are certain questions that need to be accounted for. In fact, most contractors will not only be willing to answer questions, but also be expecting them. Knowing the answers to the following questions will make your decision much easier:

  • How many years of experience do they have?
  • Do they own the proper tools and equipment?
  • How many workers are on their team and how many jobs do they currently have under contract?
  • Are they licensed and permitted?
  • Do they have liability insurance and provide workers compensation insurance?
  • Do they enlist the help of subcontractors?
  • Have they ever declared bankruptcy?
  • Are they willing to provide referrals from previous clients and jobs?

The answers to these questions will determine whether or not the contractor is suited to work on your rehab. However, how will you know how to differentiate between a good contractor and a bad contractor based solely on these questions? The answer is simple. A good contractor will answer the previous questions with something resembling the following:

  • Experience: You want to look for at least three to five years of experience.
  • Equipment: The contractor you hire should already have their own equipment (don’t depend on rentals).
  • Employees: A good contractor will have enough crew members to support each job the have lined up.
  • License: Only hire a licensed contractor.
  • Insurance: Liability insurance and workers compensation are required for consideration.
  • Use of Subcontractors: The use of subcontractors needs to be disclosed upfront.
  • Financial Stability: Previous bankruptcies are a red flag.
  • Referrals: They should willingly provide at least three referrals.

Developing A Pitch

While a contractor’s answers should align with your particular strategy and criteria, it is important to remember that they have a decision of their own to make. You need to equally portray yourself as a viable business partner. You need to address items that motivate the contractor and provide them with a reason to choose you over anyone else who may desire their services.

Make it apparent that their cooperation will result in a mutually beneficial partnership. They need to know that value they are providing you will be reciprocated. Remember, they are in the business to make money. The sooner you realize this, the sooner you can move forward with this process.

In order to get their attention, you will require an engaging pitch that generates interest in your property. Develop and practice a simple one-minute introductory pitch that covers the following points:

  • Emphasize your position as a real estate investor. You are not a retail client. This informs them that you will not waste their time and that a potential partnership could prove lucrative for all parties involved.
  • Inform them that you work with a network of investors that could serve as additional streams of income.
  • Disclose your system and approach. Contractors will appreciate the benefits of working in your system.
  • Remind contractors that money is not distributed until the work is complete. However, let them know that you love to pay for a job well done.
  • Leave the contractor with an enrolling question. Let them know that working with you in the future will be mutually beneficial to each of you.

The Bidding Process

Assuming you have managed to compile several viable contractor options, you will need to choose one. Again, this process is as much of you choosing them as they are choosing you.

To facilitate the process of hiring a contractor, make what is known as a bid packet. At the very least, this packet should include your scope of work, a quote itemization form and bidding instructions. Leave several copies of this packet at the project site and inform contractors where to get them. Once in the contractors hand, they will know how to get a hold of you and exactly what to do. As its name suggests, the bid packet will essentially instruct them how to go about making a bid for your project.

Evaluating Submitted Contractor Bids

You will quickly learn that evaluating potential bids is as important as receiving them. In a perfect world, the contractors you pre-screened would provide you with a perfect bid. However, we know that is not the case. You will receive bids that are not even worth your time, but it is up to you to determine. Therefore, when it comes to evaluating the bids you receive, it is helpful to have a system in place. That way, you will know what you are looking for and how to spot it.

Make a list of everything that is absolutely essential for a bid to receive consideration. This may include anything from the amount of money they will work for to the referrals they have. Whatever it is that you require, put it on the list. This will help eliminate bids that do not meet your criteria.

At the very least, you want to make sure the individual contractors followed your bidding instructions, matched your estimates reasonably well, understood the itemization form, disclosed up to date license and insurance information, and provided professional references. Use this information to narrow the bids down to two. If there is a clear-cut winner and you are comfortable with your choice, feel free to enlist the services of the winner. However, sometimes there is no clear winner. When you are unable to differentiate between two qualified contractors, use the referrals as a tiebreaker. Once you have verified the references, make your decision and notify all bidders of their status.

Once you have decided on a contractor for your rehab, the next step is to meet them at the job site for a final walkthrough. This will be your first formal walkthrough with the contractor that will actually be working on your project. Subsequently, review the six critical documents that you will have them fill out.

Enlisting the help of a qualified contractor is not an easy task, but having a system to do so alleviates a lot of headaches. Furthermore, if done correctly, you can establish a lasting partnership that will benefit everyone involved for years to come.