Episode 13: Real Estate Development- Finding The Right Contractor, Part 1

One of the most difficult tasks as a real estate developer is finding the right contractor to support the work you need to do. So where do you start?  How do you find these contractors?  How do you screen them?  How does your specific scope of work help find them?  We discuss how to make sure your contractors are credible; also we help make sure that all items are in writing.  If it's not written down, it didn't happen.  We also talk about following a pay schedule, which is also in the written contract, to ensure you don't overpay your contractor.

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Full Episode Transcription

Welcome to My Life as a Landlord, where we untangle all things housing and educate the curious. If

you're looking for some entertainment with some honest, awkward conversations, you've come to the

right show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it.

Welcome to this episode of my life as a landlord. This is Episode 13. And this is Real Estate

Development. Finding the Right Contractor part One. Now, for those of you who've been with me for a

bit, you know that I've got five content buckets talking about landlord issues, tenancy issues, real estate

development, real estate investment, and then other Salisbury adventures. So today's episode is for the

real estate element, folks, finding the Right Contractor. Now, I must tell you, when I brought this up to

Michael that I was going to do this podcast, he said, well, wait a minute, shouldn't that be for the real

estate investor? And I said, Wait a minute. 1s Real estate developer is developing. You're actually

improving a property to its highest and best use. But a real estate investor is not doing that. A real estate

investor is mostly paperwork, money, work, but not doing the development part. So I want to be real

clear here, because the lines get blurry, and often a real estate developer and a real estate investor are the

same person, but they don't have to be. So we had this discussion, and Mike finally agreed with me,

which is good. But he also mentioned, he said you're going to go through three points about finding the

right contractor, but there's way more than that. So that's why I added the part one. So this is finding the

right contractor, part one. All right, point one where do you start? Where do you even start? Let's say you

want to renovate a bath bathroom. You know nothing about contractors. You know nothing of where to

go. Maybe you see a commercial on TV. Where do you even start to find a contractor that could renovate

the bathroom that you need to be done? You could, you could go through word of mouth, maybe your

neighbor just did some work and they had a great experience with a contractor. That's okay. Your

Chamber of Commerce is another good spot. You can call your local chamber of commerce or your

regional chamber. They will very likely have some resources that they could send you to find a

contractor. There might be either a contractor board or a contractor association that is nearby your area

that you can reach out to saying, this is what I need done. I need a bathroom remodeled. Who can help

me do this? And they will very likely be able to point you in the right direction. And then of course,

there's good old online, good old Google, Facebook, Craigslist next door, wherever you're at. Let's say

you're in Dallas, Texas. Dallas, Texas, bathroom renovation, contractor, something like that. And I

guarantee you, you're going to have some good results. You're going to have some results. They may not

be good, but you're going to have some results. And so the whole idea here is that when you get a name

or multiple names, hopefully you have three or four names of contractors that are possible people who

can help you with your bathroom renovation. Take a look at some of the reviews on reviews online. Are

they good reviews? Are they bad reviews? Remember, angry customers are probably going to be the

most vocal. Good customers who are satisfied are very likely not going to say anything. Every once in a

while you'll get a testimony which is good. And so if you find a contractor that has quite a few good

testimonies either on their website or on Yelp or however many Angie's list, whatever, 1s that is a good

credible option as a contractor for you. But at this point, you want to research as much as you possibly

can about these contractors that you found, whether through word of mouth, the chamber, contractor

association, online, whatever it is you want to review on them, you want to see what's been their results.

The other thing you can do is you can look with the Better Business Bureau and see if there have been in

any complaints. There's also usually, depending on where you are, like in state of Hawaii, there is a

contractor board. If there has been complaints, you can search those complaints. They're public. It's free.

You can search the complaints and see if a contractor has had complaints waged against them. 1s Or if

they are supposed to be licensed. You can see if there's been licensing issues there. Now, what about

places like Texas where you don't need a license? Well, you could go to the Chamber Better Business

Bureau. You can see what's their Better Business Bureau rating right? There's actually a rating with

Better Business Bureau. But the biggest thing is when you say I need a bathroom remodel, you need to be

as specific as possible on your scope of work. What is it that you need done before you seek out that

contractor? So you're already looking for a contractor, but you need to be very specific. So let's go back

to the bathroom remodel. What is it that you need done in there? Do you need the entire bathroom gutted

and redone? Like gutting? Take the drywall out, take the flooring out, take the cabinet, the toilet. Let's

say you want to move the toilet and the bathtub around. Well, guess what that means. Now you're

moving plumbing, you very likely may need a plumber as well, right? So you need to be specific on your

scope of work. So do you need a framer? Do you need a finishing contractor? Do you need a drywall

contractor? Do you need an electrician? You need to be as specific. I want to take out my flooring. I want

to take out the tub surround. I want to put tile in. I want a new vanity. I want a new toilet. Depending on

your scope of work will depend on how many contractors you need. Again, if you need to be starting to

pull permits to move plumbing, that may change who you need. But the scope of work don't just say I

need a bathroom remodel. If you say I need my bathroom redone and we're going to remove the tub,

remove the surround, remove the vanity, remove the toilet. We're going to put in a new bathtub with new

tile. You see how I'm getting more detailed? This is how you need to be. And the contractor will

understand. He needs to make sure he has a tile setter that can do the tile work for you. He needs to make

sure that he's got the ability. Do you want a specific brand new bathtub? Maybe you want a bigger or a

smaller or a walk in bathtub. That means very it might mean that you need to reframe your walls. This is

all going to depend on what the contractor can offer, how much time they're going to need, and this is all

going to impact the cost. So the more specific, more detailed you can get to give them your scope of

work, the better. Okay, so first item, where do you start? You actually start looking for a contractor,

but at the same time you need to detail on your scope of work. Second thing. You need to check the

shortlist of credentials. Meaning? Are they licensed, insured, bonded? Is it required that they be licensed?

Sometimes you don't need to be required, but, like, for example, in the province of British Columbia, you

might need a home protection office builder. This is a very special thing that certain contractors have and

many contractors don't have. Is this something that your bathroom renovation requires? Do you have to

have an HPO builder? I don't know. Depends. Insurances. Do they have work comp? Do they need work

comp? Do they need general liability? It depends on where you are. Depends on the insurance

coverages and how it's all covered. Some places require a bond, some places don't. But what you're

looking for at this point, when you've got your short list of potential contractors, your scope of work that

you've got now, you need to call the contractor. Call them and say, look, I'm vetting you for a potential

bathroom remodel with a specific scope of work. Just talk to them about what you want to do, and

then ask them. Straight up, ask them. I would like references from clients, current clients. That have

used your services successfully. Can you give me the names of three clients and then call the clients? 1s

This is the whole idea is you need to understand who you are going into business with. You need to be

very specific on your work. You want to do. You want to make sure that other people have had success

with them. And if they haven't had success, they probably shouldn't be using them as a reference. But you

want to make sure that you have got knowledge that other people have successfully used this contractor.

Okay, so first point, where do you start? Second point, check out the credentials, contact the contractor,

tell them the scope of work, learn a little bit more about them. And the third thing, request an estimate for

your specific scope of work to include. And you must think of the things power, bathrooms, rubbish

removal, expected delivery dates, time frame, pay schedule. All of these things are important if you're

doing a bathroom remodel in your house. Are you guys going to be okay living in a bit of a mess

without your bathroom and having workmen walk through your house? If the answer is no, then maybe

you guys need to go on vacation for a week while they do this. But you need to have a specific scope of

work for this job, okay? Now let me tell you this. Do not pay upfront unless or until you have made an

agreement with the contractor, okay? Now, what do I mean by that? There's a lot of contractors that will

say, okay, that's fine. I need a 50% deposit. If they say that, run. Don't take 50% deposit. Unless if you've

got some kind of materials. Let's say you're going to buy the bathtub, you're going to buy the tile, you're

going to buy the flooring, you're going to buy stuff to help. That's fine. Give them pause it, and then store

the materials at your house, right? You are actually having materials. But don't give them 50%. Do not

give them 50%. There's got to be something. So here's how I just created this little work schedule or this

pay schedule. Contractor would get 10% at job start when they show up on time, give them 10%.

Okay. Halfway through. So halfway, let's say you're gonna, you're putting tile down, meaning you're

actually the, the plumbing is in. You're ready to put the vanity in you're. You're doing the tile on the

walls in the shower. And let's say you have a tile floor, you're tiling. Let's call that halfway. Give them

another 40%. Ah, 35%. I would give them at punch list meaning everything's grouted, you're getting in,

it's time to clean. You're starting to critique the final finishes of this bathroom renovation. 35%. And at

the very, very end, the walkthrough. Pay them the last 15%. Now in this podcast, I keep talking about a

bathroom renovation. I'm trying to simplify this in a very easy way because you and I both know that the

projects get bigger and bigger and bigger if you start making it too complicated and the pay schedule gets

too crazy. What will happen very often is you will overpay the contractor and the contractor can and

some of them do ghost you, meaning you've overpaid them. They are leaving and they're going to block

your number. And that's the last you've heard of them. This happens and it happens a lot. The other thing

that you might do and that you should do before you actually give them any money, take your estimate

from them and consider a legal review with your lawyer. You want to sign an agreement with them

saying, this is the scope of work. This is exactly how we're going to do it. This is the pay schedule and

have them sign the agreement. And if they don't want to sign the agreement, that's fine. That's not your

contractor, your game, your rules. You want to have an agreement with them and make sure that

you're clear on what the deliverables are. Okay. And in your agreement, you need to say, okay. If you

don't have the deliverable by this day, what is the problem? Why do you not have the deliverable? Was

there an issue? Was there a logistics issue? What's the problem? Okay, so that's how you do Finding the

Right Contractor, part one. This is just the first part. There's many more to come, I guarantee it. Where

do you start? How do you actually find this contractor? What's your detailed scope of work? How do you

vet them? And then how do you move forward from an estimate to an agreement to then an invoice

according to your pay schedule? That's the first part of finding the right contractor. But just like a

landlord vetting their tenants, if you are a real estate developer and you must check references, you must

check credibility for your contractors, if you do not, you have a very high chance of getting losing money

and losing time, and you're going to not get the item that you want done. So here's your call to action. In

your state or province, I am betting there is a template for a contractor agreement. It is very likely that it

is available for free on Google. Google contractor Agreement in your province or state. 1s And

potentially you could complete that, have that reviewed by a lawyer for a minimal fee instead of having

them draft the agreement. It is an option, and I'm betting that there are several agreements out there that

you can work with. The biggest thing is you want to have good communication with your contractor and

you want to understand who you're getting into business with. Remember, this is a business transaction.

You don't want to start doing business with someone that's got terrible reputation, terrible credibility.

Okay? I hope that helps you find the right contractor moving forward. Next episode next week, episode

14. As an investor, how do you pick your advisors? How do you pick your advisors? We're going to talk

about that next. We'll see you then. Thanks for listening. Thank you for joining us this week. To view the

complete show notes and all the links mentioned in today's episode, visit our website at www.

mylifeasalandlord.com. If you're looking for educational resources for getting into real estate, investing,

becoming a landlord, or even a better tenant, then I have a page on my website to get you started looking

for a solution to the pickle that you're in. I have suggestions for that too. You can throw your situation on

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this episode of My Life as a Landlord. I'll see you next time.