If you’re looking to hire a contractor for a job, big or small, this blogpost is a must read for you. Dealing with contractors can be a source of a lot of anxiety and stress in the world of real estate investing. They can be masters at making the maximum amount of profit, while putting in the least amount of work. These 7 tips will enable you to develop a mutually beneficial relationship with your contractor.
This information may be offensive to some contractors, but that’s a small price to pay for sharing the truth. I have dealt with hundreds of transactions involving different contractors and have also been screwed over by a lot of them, which makes me uniquely qualified to educate you on what not to say to contractors.
Seven Things to Never Say to a Contractor
1. Never Tell a Contractor They are the Only One Bidding on the Job
The more bids you get the better. Always get a minimum of three bids, separating each bid into the cost of labor and the cost of materials. This will be a great help to you when comparing each contractor.
Never tell a contractor that they’re the only one bidding on a job, because that gives them too much power and they will take advantage of you. They need to think that you are considering other contractors for the job and that will keep them accountable for their bid.
2. Don’t Tell a Contractor Your Budget
If you tell a contractor that your budget is a certain amount, they will find a way to make their bid that amount, even if it should be lower. Instead tell them you have hired them to give you a bid because you need to know how much it is going to cost to get the work done.
They need to provide a bid for the labor and materials, allowing you to compare it with other bids to make an informed decision.
Cost of Materials:
Many contractors will upcharge you for the cost of materials, so it is important to personally verify the cost after receiving a bid. Contractors have blatantly lied to me, telling me that materials cost $850, when I know for a fact the cost is only $550. I refuse to hire contractors that lie to me about the cost of materials, therefore I always confirm the costs.
3. Never Ask a for a Discount if You Pay Upfront
Some real estate traders on YouTube teach people to do this in order to save money. It is so unwise to offer to pay a contractor the entire amount owed upfront. If you do this, they will not be motivated to do a good job, and some may even take your money and disappear.
Paying a Contractor
You must be very careful about payments to your contractor. Personally, I give my contractors some money upfront and then pay them over the time it takes for the job to be finished. I always wait to make the final payment until after the job is completed. This protects me from being scammed.
An example of why this is so important happened to me in hurricane season. As a hurricane began to approach Florida, my family and I decided to evacuate early in order to get ahead of traffic. I hired someone to put approximately 50 hurricane shutters up around my house. He was only about 3/4 of the way done when it was time to leave, so I ended up paying him before he was finished.
As a result, he never finished putting up the rest of the shutters once we left. I was lucky and was able to get some of my money back. That doesn’t always happen because some contractors just disappear. If you pay somebody upfront, there is no guarantee they will finish the job. Do not give a contractor their final payment until after the project has been completed.
Paying for the Cost of Materials
You will have to pay some money upfront to cover the cost of materials, however I try to work out deals where I am purchasing the materials myself. Often contractors will use materials leftover from another job or purchase materials cheaper than requested, yet still charging the full amount. If you decide to let the contractor purchase the materials, have them provide receipts to prove each material cost.
Now, there may be some attorney reading this, that would argue that the moment you purchase the materials, the contractor can now be considered an employee. I think this is nonsense because the contractor owns a contractor’s license and works with many other clients. I have the right to purchase my own materials and know that they are purchased correctly.
4. Don’t Tell a Contractor That You Aren’t in A Hurry
If you tell a contractor that there’s no hurry to complete your project, your job will become their lowest priority. They will spend their time doing other things and take on other jobs. You need to set timelines, and even chart out weekly expectations in terms of job completion. Setting dates and deadlines, and letting the contractor know they will lose money if the job is not completed, will ensure the work is done in a reasonable amount of time.
Never tell a contractor that you’re not in a hurry, or else your project can end up delayed and you will begin to lose money.
5. Do Not Let a Contractor Choose the Materials
It is crucial that you choose the exact materials you use for your project. Educate yourself on the difference between the high and low end products, so that you can choose based on your needs. Allowing the contractor to make these choices for you gives them the opportunity to use materials from other jobs or choose materials that are too expensive or even too cheap. I specify which materials they are to use in my contracts. Choosing the right materials can make all the difference to the quality of a project.
You need to choose the materials. Be specific on what materials they purchase, where they purchase it, and the price they pay for it.
6. Never Hire Anyone Illegally
Some contractors might suggest bringing in laborers that aren’t legally licensed to work on your jobs. You should never hire anyone that cannot legally do the job. This is an issue of liability. Make sure that the contractor is licensed and insured and has shown you evidence of an insurance policy. Make certain any subs brought in by a general contractor are covered under their policy.
Also, you must ensure that the subcontractors hired by the general contractor are getting paid. To avoid any problems, I always pay the subs directly. By only paying the general contractor, you have no guarantee he will pay the subs. If the general contractor neglects to pay the subs for whatever reason, you risk having a lien filed against your property. Always pay the sub contractors yourself.
7. Don’t Agree to a “Gentleman’s Agreement”
I cannot stress this enough; always put your agreement with a contractor in writing. It can be a simple, one-page piece of paper, just get the deal in writing. Having everything in writing is not necessarily an issue of trust. What it does is ensure that everyone is on the same page. It also serves as a reminder of what the agreed terms are so that months down the road there isn’t any confusion to what was agreed to in the beginning. I write out detailed contracts, with my exact expectations and a list of all expenses.
You can click the link above to download a copy of a contract I use with contractors. It is very simple and ensures that you and the contractor both understand what you are agreeing to.
These 7 things never to say to a contractor may seem simple, however they are difficult to practice in the real world of real estate investing. Often, we get busy and try to take shortcuts in life. Do not take shortcuts with contractors or you will regret it. Take the time to do things right and be very careful when working with contractors.
To give you some understanding and context, a lot of contractors have a criminal background. This doesn’t make them bad people; it is just important to know someone’s ethical history when so much money is at stake. You will be taken advantage of if you do not understand how serious working with a contractor is.
A Mutually Beneficial Relationship
On the other hand, don’t take advantage of your contractor and try to screw them over. It is crucial that the people you hire make a profit. I actually have a great video that further explains why making a profit is a good thing in business. I encourage contractors to make a profit, just not at the expense of you.