Buying investment properties and rehabbing them can be very profitable. But a single mistake by an incompetent contractor can wipe out your profits on the deal, and possibly result in losing money.
So here are six questions to ask your contractor before starting to rehab an investment property, especially if you have never worked with him before.
#1 Are You Licensed and Insured?
Whether you work with a licensed and insured contractor is your decision. Besides complying with state and local laws, you’re more likely to have a competent contractor if he is licensed and insured.
A contractor who cuts corners by working outside of the law, and is unwilling (or unable) to get the required insurance, is not a person who will do an outstanding rehab while saving every possible penny.
#2 Have You Done Similar Rehabs?
Different contractors have experience doing different types of rehabs. So ask a prospective contractor if he has done a similar rehab before, and then check the quality of his work.
Even if you have used a contractor on previous jobs, and know he has done a good job on them, a different type of rehab could become a problem. Such could be the case if you use a contractor who does a great job with investment property in middle class neighborhoods, but has never rehabbed an opulent home requiring a Level 5 drywall finish.
#3 What’s the Best Workflow for this Rehab?
A good contractor has an efficient workflow, and may use a workflow chart for the rehab. Though you won’t micromanage the rehab, you need to know that the contractor has a well thought out plan to maximize your budget and finish the rehab as quickly as possible.
At the end of the rehab, you can use this information to analyze whether the contractor did a good job, and whether he is a good candidate for upcoming jobs.
#4 How Long Will the Rehab Take?
A good contractor will tell you how long the rehab should take when initially walking the property, excluding possible issues he identifies that need further investigation.
Though rehabs often go over budget and don’t finish within the original timeline, this information is valuable when evaluating the contractor during and after the job. A good contractor sets a timeline that reasonably allows for delays.
#5 How Will You Itemize the Bid?
There are pros and cons when it comes to itemized bids, mainly because some investors want contractors to anticipate the number of 2x4s for a job, and others want contractors to disclose costs.
Realistically, expect a contractor to give a total price for the job and to break it down by room. Then with the price for each room, expect a detailed explanation of what will be done, without breaking down the cost for every single item.
With a reasonably itemized bid you will know the quality of materials going into the job, and you can hold the contractor accountable during and at the end of the job.
#6 How Do You Handle Change Orders?
When rehabbing an investment property, you will have to make changes. There are always unknowns when starting a rehab that will not be answered until later.
As a result, it’s important to have a policy regarding change orders in the contract, which should stipulate that changes affecting the rehab cost must be priced in writing and countersigned by both parties.
Graystone Investment Group
Graystone is an Investment Group, wholesaling properties in the Greater Tampa Bay market.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.