Safeguards against Contractors Taking Advantage of You and Your Project Profit
There are many reasons most investors will not invest in properties that need repair. They can't find one on the MLS where the numbers work, they have little or no construction experience themselves, and the main reason is probably the tale of a family member or friend who was taken advantage of by a contrator who stole their money and didn't complete the job, whether it was for investment or personal, many hae heads these stories.
Contractors are one of the main reasons why many investors fear real estate investing in properties that need repair. They have all heard the horror stories from others who got taken by their contractor and now believe that this is the risk that goes with real estate investing. Many resort to wholesaling while others stand by and watch leaving thousands of dollars on the table as a result of this fear.
If you intend on being a good investor in this business, you will need to learn how to find and correctly deal with good contractors. Whether you are finding full rehab properties or just minor paint and carpet type jobs, sooner or later you will come across a deal that you need the services of a contractor or face losing a lot of money. Contractors are people too and good ones are out there that are willing to provide quality work, complete the job on time and finish the job with no cost overruns. Does that sound like only a dream? It can be a reality, only if you follow these tips:
- First and foremost - Be sure to check the contractors references
- Go see a previous job completed from one of his references you checked
- Get a good “Independent Contractors Agreement” – Sample available from EDC
Make sure that everything is spelled out in the construction contract to include:
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- Complete Scope of Work – Example Available from EDC
- Draw Schedule and description of how contruction draws are to be disbursed (Example Available from EDC)
- Change Orders — For any necessary changes to the scope of work that are agreed upon
- Contract Deadline for work completion
- Penalty Clause for work not completed by scheduled date
- Reward clause for contractor completing job ahead of schedule
- Damage Clause
- Clean up Clause
- Never give a contractor money up front prior to work
- Visit your job site at least every other day
- Weekly meeting on job site for progress inspections
- Take pictures of progress each and every week
- Always get a copy of contractors license, insurance, bond, home address, contact numbers, email
- Always demand a mechanics lien waiver signed for each payment made (Example Available from EDC)
- Make sure all permits needed have been obtained & posted on the job
- Never pay a contractor for work completed until city approval for permits obtained
- Make sure to hold back 10% of the contract amount at the end of each job for any punch list items as these are the hardest things to get a contractor to complete
EDC’s staff includes seasoned lenders, investors and mentors that are here to help our clients be profitable. Please utilize the expertise that is provided to you free of charge by consulting with the EDC Territory Director in your area. There is a lot of money to be made in real estate investing if you work with the right professionals and also take an active role in your projects.
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