Do you ever wonder why some people feel insecure in the daily operations of their businesses while others seem to manage just fine? Have you ever stopped to think why some people lose money, lots of it, year in, year out, while others seem to move along methodically, with less struggle?
As a newbie or someone who has been in any business and still struggling, these are questions you may confront from time to time. In real estate investing, since people deal with big dollar items, business challenges can be daunting. There are usually many moving parts to real estate investing. There is buying, rehabbing, renting, and selling. In all these processes, you can say that a contractor plays a pivotal role at every stage. A contractor could help with analysis before buying. A contractor could be key to your success or failure in the rehabbing process. A contractor is key to your maintenance issues in the rentals. A contractor could also help with the building design that keeps prices low so you can make a profit when you sell.
In the field of real estate investing, mastering the art and science of dealing with contractors can make or break your business. Many contractors are aware of their enormous power in real estate, and they wield it to maximum advantage no matter your situation. Some contractors are decent and they will advise and work well with you. Some are horrible, to say the least. Many are somewhere in between. The challenge is determining which contractor you end up working with. That’s the six-million-dollar question. That’s the question this book will help you answer.
This chapter outlines the framework that you will need to go through to learn to work with contractors in amicable and less confrontational ways. In all facets of life, starting a new business can be scary, even to a seasoned businessperson. Like in any business, some education is necessary, whether that is through a formal classroom structure or through the school of hard knocks. Street smarts, as some may say! In a formal classroom setting, or even through other media outlets like the internet, you usually pay upfront unless you get some funding or waiver. The key thing in this setting is you are paying upfront unlike the school of hard knocks, where you leave yourself exposed to the world to teach you. As many street-smart learners will tell you, the world can be unforgiving. If you leave yourself at the mercy of the world, you may have to go through some tough lessons that may take a long time to learn and may involve heavy, heavy losses before you find your footing.
This is what some people call paying at the backend. You lose first, then double pay to cover your losses and then some. When paying at the backend, getting in may not be that expensive, as you cut out initial educational expenses, but you will pay for your mistakes dearly. Typically, the choice is with the investor. This is how I got into real estate, and I paid dearly for setting myself loose to the world to teach me. I went into business without the necessary education first. To this day, if a new investor comes to me for advice on how to start any business, I usually stress the importance of including the educational and consultancy amounts as part of the start-up capital. This way, they prepare themselves to hit the ground running, armed with some knowledge that will help them make informed decisions from the get-go when dealing with sellers, mortgage bankers, and contractors.
Getting some education before starting a business and getting familiar with the landscape in which you and your business will operate is key to answering these basic questions: Do you ever wonder why some people feel insecure in the daily operations of their businesses while others seem to manage just fine? Have you ever stopped to think why some people lose money, lots of it, year in, year out, while others seem to move along methodically, with less struggle?
Relevant business education and familiarity with the landscape in which you will be operating provides good grounding. As opposed to people who may start their business without the necessary knowledge, you will have your foot anchored in solid foundation and not in sand.
From my experience and from talking to many real estate investors whose businesses are struggling, there is usually one overriding problem they struggle to solve: they need to know how to find good contractors who’ll get their jobs done on time so they don’t lose their investments. The process of interviewing contractors so an investor ends up with good ones is a major dilemma for many investors. The majority of the investors have one simple dream: to have great contractors that get their real estate projects done on time.
Although the field of real estate investments is large and varied, the area of rehabbing may be narrowed down to three key aspects: contractor, contractor, and contractor. Indeed, many rehabbers dread the thought of dealing with contractors, yet many people who cannot build properties on their own have to use them. It’s kind of a love-hate relationship. You hate the contractors, but you need them.
As you look back on any building projects you or anybody close to you have undertaken, you may want to see if you have had the same questions on how to find a good contractor and if you shared the same dream outlined above. This book will help jog your memory to see if you have had the same questions and how you handled them. These questions should be helpful to you:
- Do you dream of hiring great contractors that get your real estate projects done well and on time, but have no idea where to start?
- Do you constantly lose your investments because of hiring contractors who are not suitable for your jobs?
- Do you know that it is possible to learn a streamlined, practical and well thought out methodology for finding the appropriate contractor for your jobs?
To help you answer these questions, this book will give you a framework of how to approach the contracting process with ease and confidence.
This chapter presents the road map of how you proceed to master the process of hiring the right contractor, who will finish your projects in a timely manner, so you can stay in the investing business. The steps below, when followed sequentially, should place you in the right path of profitability with peace of mind:
- Find a contractor you can trust
- Spot when contractors start to lie
- Make sure your project gets completed perfectly on time
- Avoid end-of-contract arguments or lawsuits
Finding a contractor you can trust starts with knowing what you want the end product to look like. You also need to know the landscape in which you are operating. For example, what do the kitchens in the newly built houses look like? How much does it generally cost to build or rehab a house like the one you want to purchase or already purchased? What types of materials will you need, where do you buy them, and what might they cost? Other questions include which type of contractors you need for this project and how you find them. These questions, together with some decent skills of hiring contractors and concentrating on their track records, can help you zero in on the right ones you can trust from a crowd of many.
Spotting when a contractor starts to lie takes some experience and skill. To even have a shot at this skill, you need to ask yourself if you are good at spotting liars in general. A discussion with a psychology expert might reveal some tips. Such tips include lack of direct eye contact, playing with the fingers while talking to you, constantly repeating some phrases and biting the lip repeatedly. Now, you don’t have to be a psychology expert to figure out contractors who lie.
While some of the psychology methods of detecting liars may work for you in this context, there are some specific real estate pointers: trying to rush to consummate a contract and always talking about the pictures of their supposedly past work in their phones when you ask them a question. The pictures of past work on the phone or a camera can be good to help gauge someone’s capabilities, except that you may not know if that was their work or if they just took pictures of someone else’s work. You need to ask additional questions to verify the authenticity of the photos. For example, you could ask how long the work took, how many people worked on the project, if he still works with the investor – if not, why not? You may also ask for the project’s total cost. If the contractor appears edgy and evasive, then you may not rely on the pictures for your decisions.
You could also spot when a contractor starts to lie when after signing a contract and taking the down payment, he comes up with several amendments that he claims he just now realizes should be amended in the contract or stricken out. He misses work, without real reason, on the day you propose to have a major meeting to sort out work issues. When you ask him a question, he blames his employees or subcontractors when he’s the boss. When you meet him at the project site, he concentrates on issues unrelated to the work at hand. These and some other indicators you will discover as you run your business will help you spot liars before they mess up your business too deeply.
Sometimes, the lies may be serious enough to contravene the contract. Sometimes, these lies may raise a red flag signaling that you need to be careful when dealing with this contractor. Sometimes the lies are too many, it may be a clue to hire another level of supervision so there’s more than one person dealing with him. Many liars fear a crowd because more than one person is a witness to their lies. Sometimes, you may need to tape your meetings with him. Sometimes, you may need to document construction progress in stages so someone is not pointing to what they did last week as having been done today. At any rate, once you spot the lies, you can decide how to handle them according to the prevailing circumstances, which you will be aware of as you continue reading this book. Some lies, like those involving massive theft of your resources, can be documented and may be too damaging that you need to terminate the contract instantly.
After hiring a contractor, or even before the hiring, you should have an idea, a road map so to speak, of how the project will begin and end perfectly on time. This expertise could come from training, experience, or consultancy. Assuming you have done your homework on how to find a contractor you can trust, proper work progress requires making sure the contract is watertight and there are specific inspection and payment triggers and times. You also need to outline contract termination procedures and conflict resolution mechanisms. When all these procedures are in place, the web that combines and allows for smooth interaction is communication. Make sure you clearly state how communication is to happen: how many times you may need to have meetings, inspection times, payment schedules, how to amend the contract, and chain of command if working with different layers of contractors and subcontractors. Also, you need to make sure the contract includes clear communication procedures and properly defined timelines. Always, as the investor, you need to continually pay attention to the task at hand and not take your eyes off the ball at any time. This close supervision can ensure quality and timeliness, and results in a properly completed project.
A project that is well-done according to the contract and ends on time minimizes end-of-contract arguments and potential lawsuits. All the moving parts covered so far are interrelated. When you hire well, you minimize lies because you weed out the liars from the get-go, and even if they sneak through, you are able to spot them and handle them promptly and accordingly. Clearly defined and communicated procedures also help minimize conflicts, as everyone should be aware of what is expected of them. The contractor is supposed to work well according to the specifications in the contract. You should be strict on the timelines.
The goal is that the contractor holds their end of the bargain through providing great and timely work, and you hold your end through prompt supervision so that you detect anomalies in time for corrections. You should lead by example by sticking to timely payments as agreed upon in the contract. Eventually, when the contractor announces the end of the building process, you both do a final walk-through, as outlined in the contract. You need to have a checklist covering all the processes. A checklist ensures that no item, no matter how tiny, is ignored. When all the parties to the contract are in agreement that the contract has ended per the contract provisions, the contractors and the subcontractors will sign off on the lien release document. The final payment will be made, and the project is closed. Don’t forget to celebrate a job well done!
The Results You Will Get
This is the framework that highlights the problems and solutions you encounter as you learn the ropes of mastering the best methods of hiring and retaining the right contractors. By the end of this book, you should have a streamlined, practical, and well-thought-out methodology for finding a contractor with a good track record by asking the right questions for different types of jobs, seeking and verifying appropriate documentation, getting detailed written estimates, and managing relationships with contractors properly. This book provides a reference point for all those wishing to enter into contractual obligations with contractors so they have the necessary knowledge to approach the contracting process with ease and confidence.