A Guide to Choosing Contractors for Rehab Projects

by | Feb 15, 2019 | Property Management and Maintenance

Before you start shopping for rehab loans, you need a plan to ensure a successful renovation of your investment property. Unless you work in construction yourself, chances are you will be hiring a contractor. This can be one of the most frustrating parts of the process. As hard money lenders we’ve seen perfectly legitimate investment opportunities turn into financial crises because of borrowers’ inexperience in choosing and managing contractors. If you’re new to this process, don’t worry! Here are a few tips for working with contractors successfully.

Contractors in today’s climate

Anyone that has flipped a home in our current market understands the trials and tribulations of dealing with contractors. The reality is contractors, and sub-contractors, especially the good ones that do quality work fast and efficiently, can charge a premium for their services. At the end of the day to ensure that your contractor is available to work on your project you may need to pay more and be somewhat flexible with your construction contracts, but time is money and getting a project finished faster means you earn more money.

Do your homework on contractors

Don’t just talk to one or two people. Talk to several contractors, asking for references and testimonials about their work and addresses of homes they worked on for other investors. Take time to do your homework and discover who has a great reputation and who should be left off your list. For instance, if your potential candidate works by himself, ask him how fast he can complete your job and make sure his time frame is realistic. Ask to see his current projects. Your investment property is far too important to take risks with someone who’s incompetent or has got himself in over his head.

Make sure you have a thorough contract

The contract should contain a lot of details including exactly what needs to be done, schedules, deadlines, amounts to be paid, and penalties for unmet deadlines. The more specific the contract, the more recourse you will have if something goes wrong. A contractor that can finish the project on time (and hopefully on budget) or even ahead of time will end up saving you thousands of dollars. This really adds up when calculating savings for monthly interest payments on a loan and loan extension fees.

Furthermore, understanding the draw process of your hard money lender is paramount to creating a strong mutually beneficial contract for you and your contractor. Ideally, you can build in incentives for the completion of work by certain dates, and identify penalties if those dates are not met, to cover extra carrying costs for insurance, taxes, loan extensions fees, and added interest payments.

Be careful about how you pay your contractor

If the contractor is asking for a large amount up front, it may be a sign that they lack the credit to purchase equipment or supplies. This could indicate credit problems or a lack of experience dealing with retailers and equipment suppliers. In that case, you may want to seek someone with more experience and a lot more flexibility in their ability to purchase goods. Every dollar spent should be accounted for and any overages should be returned to you. Beware of contractors who immediately spend every dollar you give them, but can’t show where the dollars went.

Be patient but vigilant

Rehabbing properties can be rewarding both financially and emotionally. However, you have to take an active part in the process. This means picking the right contractor and making sure they get the job done right and on time. Our loan originators at Intrust Funding would be happy to discuss any project you have and walk you through the process in order to help you fully understand the financial details to help you make the most money possible on your next deal. As hard money lenders, Intrust Funding and our loan associates are more than happy to share our insight on how to make your next flip a success.

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