SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

contractors

Working With Contractors: How to Pay Them

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Having a good contractor that you can trust and rely on makes any real estate investor’s job easier.  It is a big comfort to know that you have someone you can depend on to do the job, big or small, right the first time.

I have already written about how you should go about finding good contractors.  In this post I want to talk a bit about another just as important aspect, and that is how you should pay your contractors.

Let me start off by telling you the last thing you want to do.  That is to pay them up front in full.  Anyone worth their weight in salt is not going to ask for full payment up front.  If they do it is a huge RED FLAG.  Run away and start the process to find another contractor.

Smarter landlords want to pay as little upfront as is possible.  Actually, it is best if you can pay nothing upfront and the balance of the bill upon completion.  On small jobs, say less than $500 to $1,000 that may actually work.  But it does not always work so well with larger jobs.  The contractor is likely going to need some money to get supplies.

Until I get to know a contractor, and even later on, I like to give as little as possible upfront.  See if they will agree to 10% or 20% of the quoted job price (you got a quote right?).  As you work with the contractor more and more and as the relationship builds, you can increase this a little, but I never go over 1/3 of the price on big jobs.

So how does the remainder get paid?  The best way is to pay it upon completion of the job and for smaller and midsize jobs that can work.  Major jobs though are often going to require draws so the contractor can pay his crews and purchase more materials.

Usually there will be three or four draws totaling a 1/4 or a 1/3 of the total job price.  These draws are often paid at agreed upon steps as work gets completed.  For example, you might permit a draw once all drywall is hung, sanded and primed.  Or, you might allow a draw once a kitchen floor is tiled and cabinets are installed.  It is up to you and the contractor to work these details out in your contract (you are using a contract right?).

The last draw should be upon completion of the job.  This is your last chance to go through the property and make sure everything was done up to your standards.  Walk through the property, make a punchlist of items needing to be fixed or completed.  Once that list is completed, pay your contractor.

Here are some other smarter tips.

  • Always use a contract.  Specify in that contract who gets paid, how much, when, how and upon completion of what specific work.
  • Pay your contractors promptly and in full according to your contract.  Don not jerk them around.  They have done the work, so pay them promptly.
  • Consider giving them a bonus if they do a great job, that is on budget and finished early.  After all time is money to you and them and you should reward them for finishing quickly.
  • Be fair and respectful.  Kind words and understanding can go a long way.  Remember you are trying to build business relationships here.  You want to use these contractors again if they do a good job.  Treat them right so they will answer the phone the next time you call.
  • Sometimes no matter what things go south.  If they do, cut your ties quickly and move on.  Don’t hold a grudge, just move on and find someone else.

Demolitions: Don’t Pay Money; Make Money

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Every successful business person knows to solicit multiple bids from contractors. (Need help finding good contractors?) You do this to find the market price of services and to feel out the knowledge and competency of your potential help.

I’m no fool. I did the same thing with my triplex once I had a comprehensive repair list. The various estimates for my carport demolition surprised me though. They ranged from $1,000-2,500.

 

PSHH!

(if you don’t know what that means, please consultant urbandictionary)

 

We decided to complete the carport demolition ourselves, and it was one of the best decisions we’ve made so far. Granted, the demolition was spread out over several weeknights, and a contractor could have had the job finished in a day. We were perfectly ok with the delay though. The carport demolition wasn’t preventing us from renting out any units.

The best part: instead of paying a contractor over a thousand dollars, we ended up coming out ahead!

The first thing we did was throw a crowbar party! Four of my macho friends came out and competed to see who could take down the most boards as fast as possible. In retrospect, I could have charged a dollar a sledgehammer hit since they were all so amped to be the first one to take down a support beam.

Don’t believe me? Check this guy out 

After the wood was stacked, I posted an ad on craigslist for reclaimed wood. I offered it for free, and I had quite a few craftsmen come out and take a load off of my hands. This saved me from hauling debris and paying dumping fees.

The roof of the carport was made of corrugated aluminum. I also posted this on craigslist asking for people to make offers on the 26 sheets that I had. One person made an offer of $4 a sheet, if it was trailer-ready when he got there. I responded with a lower offer of $3 a sheet—with the understanding that he would be responsible for disassembling the aluminum. I also threw in an offer for free reclaimed wood, should he be interested.

Within 24 hours of him accepting my offer, the debris was gone and I was $78 richer!

 

Pros:

  • I saved money
  • I made money
  • I helped prevent debris from going into a landfill
  • I helped others find affordable materials for their projects

Cons:

  • It took longer than if I had hired a contractor
  • I had to coordinate many moving parts

 

Would I do it again? I saved money. I made money, and I had fun. You bet I would!

Hiring Contractors on Craigslist

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Kevin recently posted an interesting article about How to Find Good Contractors. I have to agree with him; networking with other landlords is the best way to find good contractors. Sometimes, these contractors think like investors. This can be helpful if you’re new to the game, like me.

We have already established that contracting cheap is not worth it for serious repairs: electrical, gas or plumbing.

My triplex needs a lot of miscellaneous work though. I need to repair the trim on doors, replace a cellar door, craft kitchen floor boards, and replace random pieces of exterior wood. This is in addition to the debris remaining from our carport demolition.

These repairs don’t require a lot of skill, but they do require time. So, it’s time for me to find some hired help. Where does a frugal, novice landlord turn?

Craigslist.

Looking for contractors on Craigslist can be efficient and cost-effective. Many people make their entire living off of Craigslist. I guarantee that you can find someone willing to do the work for the price you’re willing to pay. It’s not all flowers and sunshine though. There are just as many dishonest and unqualified people out there trying to make a dime. Here are a few rules to follow when using Craigslist to hire contractors.

  1. Do not post your phone number, email address or property address on your Craigslist post. You’re trying to save time by hiring help. Don’t waste it away answering questions to no avail.
  2. Itemize each repair requested in your post. Post pictures to reference repairs if you can. Transparency allows people to offer honest bids for the work.
  3. Sign a name to your post, but only a first name. You don’t want them to be able to look your property up if they know it’s vacant, right? *Ladies, I don’t sign my name. I use my boyfriend, Eric’s. It makes me feel less vulnerable, and Eric will most likely be on-site directing them anyway.
  4. Do not provide any information beyond what is needed. This is especially important when you’re issuing multiple posts. People who work off of Craigslist can easily piece together your information based on your signature or pictures. I posted once that I had recently purchased a truck. Someone responding to an unrelated post mentioned it. Watch out.
  5. Provide people with specific instructions to follow when responding to your post. Ask that they itemize their bid for each repair requested. At a minimum, I ask that people respond with their first and last name, phone number, whether or not I can text them, and their itemized bids. If they don’t follow directions when responding, rule them out!
  6. Call your Craigslist respondents. Ask them questions like what vehicle they drive and what tools they plan on bringing to the job. You may want to tell them you’ll call them back after speaking with the other potentials. Be discerning.
  7. If they don’t arrive at the agreed upon time, cancel and start over again. Craigslist is less dependable than Kevin’s recommendations, but it can be worth it. I get better deals when people blind bid for the work.
  8. After the work has been completed, pay the agreed upon price. Only pay your contractor for the work that has been finished. If you ask your respondents to itemize their bids, this step will be easy.

I rank my respondents based on their email professionalism and bid amounts. Good indicators are people who sell themselves a bit, people who respond with a business name and people who respond with a picture of their truck, trailer or tools. As Kevin said though, follow your gut. Be guarded with your personal information and property until you have developed a working relationship.

I will concede that buying, selling, and hiring help off of Craigslist takes time and patience. I’m a beginning investor though; all I have is time and patience.

I’m building a Rolodex from the ground up.

 

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How to Find Good Contractors

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Working with contractors is a routine part of the real estate investing business.  Something is always breaking or in need of rehab.  Plumbers, electricians, painters, HVAC, and general contractors are all folks who you will need in your investing career.

To the newbie, finding and hiring these contractors can seem daunting.  You have heard the horror stories.  You don’t want to get ripped off.  You don’t want to appear stupid.  So what to do?

First think about what you need.  You need a variety of people with various skills that can solve your repair and rehab problems quickly, at a reasonable price and without hassle.  You want someone who is reliable, because you are going to go to them again and again as problems arise.  You want to know that the job will be done and furthermore, you want it done right.

Next, follow these tips to find the people you are looking for.

  • Network With Other Landlords – This has consistently been my best source to find quality people.  Other landlords know who will do a good job at a fair price.  Plus, references will open doors.  You can meet other landlords at your local reia club.
  • Ask at Contractor Stores – Ask for references from stores frequented by contractors such as paint, lumber and home improvement stores.  Ask who is reputable.  Ask who pays their bills on time.  Most of the time someone at these stores will point you in the right direction.
  • Hang Out at Contractor Stores – Yep! Get there early when contractors are picking up materials.  Talk with folks.  Tell them what you do and what you are looking for.  Soon you will have a catalogue of business cards to call upon.
  • Talk with Friends and Family – Ask your friends and family who they have used in the past and if they liked the work.  This can be a great place to start.
  • Get Several Estimates – If you can, get several estimates on any project.  Listen to what the contractors say.  How will they do the job?  What materials will they use?  How quickly can they be completed?
  • Get References – Good contractors will be able to provide you with references.  Follow up on these.  If you can, go see some of their work.
  • Use Online Sources – Angie’s list and others rate contractors as well as many other businesses.  Make a post on Facebook asking for references.  Online sources are only going to grow in the future.  Just be careful with the reviews and don’t be attracted to the biggest ad.
  • They Purchase Their Own Materials – Remember you are an investor, not a chauffeur for contractor supplies.  If they cannot afford to get or cannot transport their own supplies, move on.  It is not worth your time.

Here are some more thoughts.

  • Do not always use the cheapest one.  Cheap is not always worth it.
  • If they do not return your call in a timely manner, don’t follow up or do what they say they will do, move on.
  • Don’t worry if they drive a nice truck.  That means they likely do a good job.
  • Realize there is trial and error involved.  You are going to have to try some to find the right one.  Do not be afraid to fire and move on.
  • Some contractors may be good today and tomorrow they flake out.  This just seems to be part of the business.  I have been through many contractors over the years.
  • What ever you do, when you are new to this or working with a contractor for the first time, use a carefully worded contract that spells out who, what, when, where, and especially how they get paid.  I will talk more about that in future posts.
  • Listen to your gut!  If something feels wrong or you are unsure about something, get more info or move on.

Finally, remember contractors are human too.  Most are out there hustling trying to do an honest days work.  They want and need your business!  They will be happy to talk and see if they can meet your needs.  Remembering this little fact can go a long way.

Spring Break

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Spring has sprung here in Memphis, TN.  It came a little early this year after a very mild winter.  I’m sure a lot of people now have spring fever and want to get outdoors or to the beach for spring break.  For me however spring break has another meaning, spring means repairs, a lot of them.

It seems that whenever the seasons change, things start to break.  In the spring with the March winds and April showers it is missing shingles and roof leaks.  With the rising temps, people start up their air conditioners and some will need recharging while others may not work at all.  All of the landscaping and trees turn green again and need cutting, pruning and trimming.  In short, it seems every seasonal change, with spring being one of the most drastic, brings a clump of repairs.

It is uncanny.   As soon as the temperature changes, the phone calls start coming in.  “My AC is out.”  “There is a leak in the kitchen ceiling.”   So far this spring I have replaced a condenser, a fan motor, recharged several AC units, fixed three roofs with two more to go and removed two trees that blew over.  And it is not even April yet!  So what does a smarter landlord do about all of this?

  • First, just know it is coming and accept it.  Things break and spring is a deluge.  In the winter it is the heat and frozen pipes.  This is just the way it is.
  • Second, save up some funds.  In a previous post I have stressed the importance of budgeting 10% of gross rents for repairs and putting away a little bit more each month for major expenses in reserves.  Trust me, spring break it going to make you (and your tenants) glad you did.  Understand that you will not have 10% worth of repairs every month.  Some months may have no repairs, but averaged out over the year 10% is a good number.  My repairs for all of 2011 totaled 10.14% of gross income.  Almost right on the money.
  • Third, have some skilled contractors on your team that you can call to fix the problem quickly.  You will need a roofer, a plumber, a good HVAC person and a landscaper/tree person.  By having these people on your team you can handle repair problems quickly and thus cut down on an even bigger expense, tenant turnover because you did not fix stuff in a timely manner.  Where do you find these team members?  Your local reia is a great place to start.
  • Fourth, take the opportunity to be proactive and do a little “spring cleaning.”  Now is a perfect time to inspect your properties, both inside and out, for damages and other problems.  Contact your tenants and let them know that you will be conducting an inspection.  Then, check their HVAC units and change the filters (tenants never do it), check their smoke detector batteries, check the plumbing for leaks and check around the outside for other general repairs such as fallen limbs, rotten wood, etc.

A smarter landlord has to be proactive and routinely check on their properties.  I would recommend that you conduct an inspection at least twice a year.  Perhaps once in the spring to check their AC, clean the condensers, etc., and once in the fall to check their heat.  Always look at the plumbing under sinks, around toilets, etc.  I can’t tell you how many leaks I have found that had obviously been going on for months and the tenant says “Oh yeah, I was going to call you about that.”

So there you have it: spring break, accept it, prepare for it and be proactive.

Until next time work smarter not harder.