I’m about to embark on my first rehab. I’m quite excited about it. However, I don’t want to get burned by contractors. Do you have any advices on how best to protect myself against potential problems such as them not performing their duties or running away with my money and not complete the work?
Also, I have the following questions:
When you have them quote you separately for labor and materials, do they give you the receipts afterward or do they keep it?
How do you handle payments? Do you pay them according to milestone based model such as 25% per milestone achieved?
Do you charge them a certain amount per day if they don’t meet deadlines?
Do you know where I can get a good contractor’s contract that would protect me against them filing a lien after the work is done?
I don’t micromanage contractors because is a waist of time and money. They can get many times the material cheaper because the buy volume so I let them keep the difference. I give them a budget for material and labor and they have to agree to it if they want to work with use. I also give them a very specific scope of work and anything beyond the SOW is considered a change order that has to be approved by both parties.
I do 10%-30%-30%-25% and 5% after the buyer’s inspections.
3.Yes I charge them $1,000 per week that they go over the due date.
4.You can find a lien waiver online but most important is that they are wroth trusty contractors because even if they signed the lien waiver you still can be in trouble with them if they are not honest.
From a contractor’s perspective (18 years GC) who is a fellow investor. Have all bids include labor and material then you can compare apples to apples and if the contractor’s material estimates are off it doesn’t effect the overall price of the project. I have had many investors present me with contracts that included time penalties. I tell them I am happy to sign as long as there is a production bonus of the exact equal amount. Once we agree to this system and a reasonable time line there are no problems. If I complete a week early I expect the exact amount as a bonus that a week late will cost me as a penalty. The best clients hand me a finish schedule on the first day of the project including all paint colors and sheens, all fixture model #'s and finishes, all lighting fixture heights, tile heights, hardware finishes etc. 95% of the time this level of organization is from female clients. Then we aren’t wasting time waiting 3 weeks on special order fixtures, they are ordered on day 1 of the project. Change orders are video documented and contracted on a separate contract signed by both parties with the price every time no exceptions. (Not even this once in the interest of time). Finally, details, details details, if you want 5 can lights in a room tell me where you want them. If you want a switch added know where you want it, I’m not your designer, your spouse or your sounding board I’m your contractor, know exactly what you want and tell me exactly how you want it in detail and it will be done. Don’t assume anything. My $.02
You make some great points from the Contractors perspective, thanks for sharing. Time, Quality and Cost are the all important elements of the rehab and all 3 need the attention of the investor.
I see too many new investors focus on cost so much that the the rehabs take a lot longer than they should and quality is neglected. It is a balancing act for sure, but focusing on all 3 is very important. The contractor is a very important member of the team.