How to Build a Great Investment Team: Part 4

In real estate investing, you can be the most creative marketer and the most skilled negotiator, but without a good contractor, you are bound to fail. A reliable contractor can significantly improve your return on investment. In contrast, an incompetent contractor can flush your profits down the drain. Finding a dependable contractor should be your priority if you are a first-time investor. As a seasoned investor, you should concentrate on cultivating a relationship with quality contractors and ensuring you keep them busy and happy.

This article is a part of our series on building a successful real estate team. To learn more about other key players on your team, please visit our previous blogs (Part 1: Financial Advisor and CPA ; Part 2: Attorney ; Part 3: Home Inspector and Insurance Agent).

What makes a good contractor?

The truth is there is no simple answer to what makes a good contractor. If you are an investor looking to maximize your profits, a good contractor is a combination of things. At a minimum, they need to know what they are doing. They also need to be fast and they need to be fairly priced. If you’re lucky enough to have found such a person, cultivate your relationship with them.

On the other hand, do yourself a favor and keep your eyes open for alternatives. Good contractors will invariably get more customers and start charging higher prices. Good for them. However, for a real estate investor operating on narrow margins they might no longer be the right fit.

Take the lead on clear communication.

A lot of success working with contractors will come from your ability to communicate precisely what you want. From the outset, you want to set a professional tone. This person is not your friend. I am not saying you should not be “friendly.” I am saying that they are not your friend. They are hired to do a job, and just like you, they expect to reach a certain return on investment.

Put everything in writing.

With that in mind, ensure that everything you agree with your contractor is well documented. Don’t believe the hype about verbal contracts. Even if both parties are determined to keep their word, there are always possibilities of innocent misunderstandings. So do yourself a favor and commit as much as you can to paper. An example of something you should get in writing is, “Who is responsible for clean-up and disposal of trash?” Another might be, “What is to be done with spare materials?” I have seen more than once where a contractor takes possession of an “extra” stack of plywood that wasn’t needed for the current job. That wood came out of your pocket, are you good with giving away extras? Hard money lenders like us are experienced in making sure that each cost item is discussed beforehand. Visit the Tools and Resources section of our website and download our Rehab Cost Estimate Form to get started.

Get involved.

As a real estate investor and the property owner, you are responsible for everything that happens on its premises and all the decisions being made. So don’t just delegate – especially if this is your first time working with a particular contractor. Get involved and stay involved. Double-check measurements, estimates, and other math the contractor uses to buy materials and pay for labor.

Keep Your Contractor on Schedule.

Agree to a specific schedule and stick to it as much as possible. Specify in advance the expectations of how much the crew will be working. Some crews work extra hard and extra long. They commonly put in 12-hour shifts, arriving at 6 am and leaving around 6 pm. Other contracting crews work at a more leisurely pace. Still, others have multiple jobs and might split their time between various properties. Ask your contractors if they can work on Saturdays and Sundays, and if they can, visit them to keep tabs and provide camaraderie.

Maintain a log of expenses.

During the renovation process, you and your contractor will be spending left and right. You will write checks, charge that credit card of yours, and probably shell out some cash. If you don’t have a good system to get those expenses organized, they will soon overwhelm you. In addition, you will lose track of how much you’ve already paid to your contractor and how much is remaining. This is why it’s important to find an effective way to track your renovation expenses.

Have a backup plan.

I often hear from brand-new investors: “I have an excellent contractor.” To be honest, you don’t know how excellent your contractor is until you go through the process of renovating an investment property with them. They might have come with great recommendations. They might have helped improve your primary residence. Working on an investment property is different and requires a sense of urgency and the ability to work autonomously.

So try not to put your eggs in one basket. Tidious as it might seem, have a backup plan. Keep looking for other vendors, you will never know when you have to call on them.

As the top hard money lender in Maryland, we do our best to educate our clients on how to maximize their return on real estate investment. Here is more information on how to manage your contractor effectively. Let us know if you have questions or want to discuss a scenario. You can reach us at 240.436.2340.