Real Estate Rehabilitation: Dealing with Contractors
July 22, 2013
Posted by on
Rich Dad Education teaches numerous real estate investing strategies. These strategies are taught through Rich Dad Education elite trainings and mentoring offerings. These educational offerings are structured so a Rich Dad Education student can determine which strategies best fit their specific goals and interests. While Rich Dad Education students choose various starting points for their real estate investing education, one of the most popular starting points for new students is property rehabilitation.
The basic rehabbing experience involves three simple steps – buying a property at a discount, rehabbing the property, and then quickly selling the property for a profit. Rich Dad Education offers an elite training in the area of rehabbing which helps students learn to master and maximize their profits during each of these steps. One of the many areas that this elite training assists students with is avoiding one of the biggest pitfalls that inexperienced real estate investors make: spending too much money on their rehabbing project.
Spending too much money on their rehabbing project usually comes in one of two forms. Either the investor pays too much money for the property, or spends too much money on the property fix-up costs. Rich Dad Education’s elite training on rehabbing teaches students to identify potential rehabbing properties, properly estimate repair costs, and purchase the property at a discount. Once the property has been purchased, the task at hand becomes getting the rehabbing work done in the shortest time possible, and within the allotted budget.
While some real estate investors choose to develop the skills necessary to do these rehabbing tasks, many others choose to work with contractors and/or handymen. This allows the real estate investor to focus their time and energies on other aspects of their real estate investing business. The selection and management of contractors you choose to work on your rehabbing projects becomes a critical step in the rehabbing process. Finding an honest and reliable contractor is worth every second you put into the search process. Not only can they dramatically affect your bottom line, finding a good contractor can make your rehabbing projects far less stressful as well.
Here are a few tips in dealing and searching for contractors:
- After you, or a professional home inspector, identify the needed home repairs, obtain bids from several contractors. Ask them to itemize the work and have the contractor separate materials from labor in their bids. For the new real estate investor, separating materials from labor in the bidding process can be a valuable educational opportunity. It can allow you to learn how to estimate the costs for certain repairs.
- When you identify the winning bid, be sure to ask for references from the contractor before letting them start work on the project. The extra time you devote to checking on these references is time well invested. In addition, check with the Better Business Bureau to see if any complaints have been filed against the contractor.
- Double check to make sure that the contractor has their own worker’s compensation insurance and is bonded. This will help protect you in case of an on-site injury, or if any damage is caused to the property during the course of their work.
- Unless you have an established relationship with a contractor you trust, be sure to obtain a fixed-price bid from the contractor. Do not accept time and material bids as time and material bids can dramatically cut into your profits. If unforeseen expenses do occur, make sure that the contractor only adds these to the fixed bid if they are approved by you in writing.
- Make sure all arrangements with you and the contractor are done through a written contract. At a minimum this contract should have completion dates, penalties, work parameters, and legal language indicating that the contractor is an independent contractor and not your employee. It would be wise to consult a real estate attorney to help you create and review these contracts.
- Never pay for the project until a final inspection has been completed. At a minimum, you should never make a final payment until such an inspection has been completed.
There are many outstanding contractors out there, and finding one can be a tremendous asset to your real estate investing business. Once you find one, work hard to maintain this relationship as the contractor will be a powerful member of your power team.