Hiring the right contractors is crucial for running a successful real estate business. It's important to acknowledge that turnover among contractors is common in this industry. Contractors may become too expensive, busy, or their quality of work may decline over time. That's why it's crucial to continuously network and search for new contractors to add to your team.
Finding a Contractor:
- Network at your local Real Estate Investors Association (REIA) to connect with investors who can recommend reliable contractors.
- Join local real estate Facebook groups and seek recommendations from fellow members who have had positive experiences with contractors.
- Utilize websites like Angie's List or Home Advisor to explore contractor options and learn about their specialties and areas of expertise.
- Create a Craigslist ad specifying the type of contractor you're seeking, but be prepared to conduct thorough due diligence when assessing responses.
Due Diligence:
When you connect with a potential contractor, start with an interview to explain your business and the expectations you have when working with contractors. Inform them about your application process and set clear expectations regarding contracts, payment terms, project timelines, and expected quality of work. If they seem like a good fit, provide them with a contractor application and establish a deadline for its submission. Conduct a background check through your local court system website and search for mutual connections on social media platforms. Contact the references provided by the contractor to gain insights into their past work experiences.
Hiring a Contractor:
Once you have gathered information on a contractor and decided to work with them, obtain the necessary documentation before the start of the renovation project. This includes an Independent Contractor Service Agreement, an Indemnification, Hold Harmless & Insurance Agreement, a W-9 form, and a Certificate of Liability Insurance.
These documents serve different purposes:
- The Independent Contractor Service Agreement outlines the start and end dates of the project and may include penalty clauses for delays.
- The Indemnification, Hold Harmless & Insurance Agreement ensures that the contractor holds appropriate insurance coverage and relieves you of liability for any injuries or negligence of their subcontractors.
- The W-9 form is required for tax purposes when paying a contractor more than $600 in a single tax year.
- The Certificate of Liability Insurance lists you as the certificate holder for the property where the work is being done, providing evidence of the contractor's insurance coverage.
Additionally, share your detailed Scope of Work and payment schedule with the contractor, ensuring clarity and agreement on both sides. Consider using partial lien waivers for payments made during the project and obtain a final lien waiver upon completion.
Firing a Contractor:
If the need arises to terminate a contractor, gather all relevant documentation, including pictures, emails, contracts, and proof of performance issues. Having a clear and honest discussion with the contractor is essential. Stick to the facts, provide supporting evidence, and avoid letting emotions guide the conversation. If firing becomes necessary, inform the contractor in person or via phone, followed by written confirmation. Remain calm yet assertive, ensuring you have a lien waiver signed before the contractor's departure.
In uncomfortable or unsafe situations, consider having a trusted individual accompany you during discussions, meet in a public place, and bring the written contract to reference specific agreements. If needed, contact your local police department's non-emergency line to request assistance or have a presence during the termination process.
By following these guidelines, you can navigate the process of working with contractors, building a reliable team, and efficiently managing your rehab projects with confidence and success.