Finding Reliable Local Contractors: A how-to guide for real estate investors

Over the years, I’ve developed a strategy for finding reliable, local contractors I can trust; putting the right agreements in place; and ensuring my rehabs and repairs are done right. My strategy works whether you're finding and hiring general contractors or subcontractors. And today, I'm going to share that with you.

How to Find a Contractor

In order to identify the best time to start locating a contractor, I’ll first tell you the absolute worst time to be looking for one: after you have closed on a house.

If you bought a house that needs rehab, renovation, or repair, and you don’t already have a good relationship with a contractor in place, then that house is probably going to sit there for a while. Or maybe you’ll lower your standards when it comes to finding a good contractor. That might work out. Or you'll realize too late you hired the wrong contractor and have a whole new mess of problems. 

If you're going the rehab route and want to find homes to fix up in order to make a profit, you need to go ahead and start locating and nurturing relationships with contractors in your area. Ideally, you should have a contractor lined up at least 30 days before you think you'll be closing on a deal. 

Where to Find a Contractor

In my career, I have identified nine different places you can search to locate a good contractor. By fully utilizing this list, you’ll open yourself up to a large selection to choose from. 

1. Local builders’ association 

The local builders' association is one of my favorite places to look for new contractors. What’s great about the association is you don’t need to be a contractor or subcontractor to visit or join. You may be the only real estate investor in a room full of contractors, plumbers, electricians, and landscapers—but that’s a good thing!

When you attend meetings, you are networking. Introduce yourself as a real estate investor looking to hire contractors. Meet as many people as you can, contractors and subcontractors alike.

2. Local REIA or meetups

This one is sort of obvious once you think about it. Whether it is a local Real Estate Investor Association or an informal meetup group, go to where people are meeting monthly. The people you want to ask about contractors are the people who run the meeting. Chat with the president or the person in charge of education. These are the movers and shakers actually doing business. 

3. Realtors

Find Realtors in your area who are listing agents for bank-owned properties. They see real estate investors all the time, and these Realtors will likely know which contractors the investors are working with. Networking with these Realtors is a good way to learn about reliable contractors who have experience with investors. 

4. Subcontractors 

When you are networking with plumbers, electricians, roofers, and other subcontractors, ask them about the reputations of general contractors in the area. Subcontractors will know which general contractors are the most reliable when it comes to finishing jobs and paying on time. 

5. Home improvement store service desks

Home Depot and Lowe’s Home Improvement both have contractor or commercial desks where you can go for recommendations on general contractors. The hardware stores will know who good contractors are because they are the ones who repeatedly buy products from their store. The reason the people at these businesses will tell you about the best general contractors is because—by hiring the contractor they recommend—you're bringing more business to them when that contractor needs supplies for your job.

6. Wholesale supply locations

Similarly to home improvement stores, you can also visit local lumber yards and other wholesale material locations. Representatives at these places will also likely know reputable general contractors. If they have good relationships with these contractors, they want to send more business their way because it keeps them coming back for materials.

7. Friends, family, and neighbors

Who do you know who that has had work done on their house recently? Ask them, “How did you like the work?”

If you see work being done in your neighborhood, go over and ask the homeowner if they would be recommending the person working on their home to other people. If they want to brag about the contractor's work and send them to their friends and family, that might be a good contact to have.

8. Civic groups

Local civic groups are great networking opportunities when it comes to finding good contractors. Among others, you might find the Rotary Club, Business Network International, and the local Chamber of Commerce. If you only join one of your local civic groups, I highly recommend the chamber. A lot of good, professional contractors and subcontractors who are interested in networking will also be members.

9. Building inspectors

This is an important one you may not think of at first. Reach out to your town/city and county building inspectors and ask what general contractors or subcontractors they recommend. You know the building inspectors will only recommend good contractors, because they don’t like having to go to the same house three or four times. They are unlikely to refer you to sub-par contractors who have difficulties complying with codes and/or making necessary corrections.

Signs of a Good Contractor

Once you have located a contractor you're thinking about hiring, the vetting process begins. This process can take some time. You could have someone on your team handle this for you, but you don’t want to cut corners. That’s a good way to end up with a contractor who cuts corners themselves. 

First, you want to make sure the contractor is licensed and has workers' compensation for themselves and their entire team. Good, reputable contractors are willing to show you their paperwork and licenses up front.  

Next, no matter where the referral comes from, ask the contractor for references. I find that three is a good start. While I know the contractor is only going to send me to their best examples, giving references upon request—and without hesitation—shows confidence in their work. You may also want to look up the contractor on the Better Business Bureau and ask for additional references from vendors.

By reaching out to vendors, such as a plumber, electrician, or HVAC technician that the contractor has worked with previously, you're able to ask if the subcontractor can recommend them. What you’re really asking is, “Did they pay you on time?” In the past, I worked with a contractor who didn’t pay their people on time, and I had some problems when the vendors I wanted to use did not want to do business with the contractor I hired. 

Lastly, don’t be discouraged if you talk to a contractor and they say your project may take them a bit to start because they're currently working on another project. This is a positive sign! It shows the contractor can practice good communication, and that they are dedicated to both their clients and finishing what they’ve started.

Contracts and Contractors

Once you have a contractor lined up, you want to make sure the work is going to get done. Get a detailed agreement in writing, listing the scope of work, a timeline of when the work will be done, and a budget sheet. On that budget sheet, every line item should have the cost for the contractor to purchase the item as well as the contractor's markup. 

It's also important to note that you do not want to work with a contractor who says they need some money up front in order to take the job. A contractor who wants money before doing any work is running their business on a shoestring budget and they’re probably not a contractor you want to hire. Depending on how big a project is, I’ll have three draws. A draw is when a contractor or subcontractor gets paid for completing a certain amount of work. They’ll get paid again when the next draw is done, and get the rest when the entire job is finished.

No matter how much you trust the contractor, never pay them before the house has been inspected. You can choose to do this at each draw. If you choose to pay for the entire job in one payment once everything is done, order an inspection to be completed before writing the check. Never write a check before you or someone on your team has inspected the work that’s been done. 

When Things Go Wrong

To keep things on track, I encourage you to have a penalty clause in your contract, especially if you are working with a new contractor. Many of my friends who do a large number of deals have penalty clauses in their contracts. It could state that if the contractor goes over time, they have a one-week grace period before being penalized $100 per day on houses valued less than $200,000, and $150 per day on houses valued more than $200,000. This is a smart move, because if a contractor tells you a job is going to take six weeks and they’re still working 12 weeks later, you have a big problem. 

Penalty clauses are different than change orders that extend the original timeline. For example, my team once went into a house I’d bought, and they found the exterior wall had been eaten by termites and had to be replaced. As you’d expect, that job took much longer than the contractor originally estimated. However, if there isn't a big change order during the job, it’s not professional for a job to take longer than estimated. 

On that note, make it clear that any failed inspection—or work that otherwise needs to be redone—will be completed at the contractor’s expense.

Protect Yourself and Your Property 

One more thing to keep in mind: Require all your contractors and subcontractors to sign lien releases on every draw and on the final payment. That protects you from having a contractor file a lien against your property and potentially holding up the sale.

Working with a contractor is a huge part of being a successful real estate investor. Once you’ve located and vetted a local, reliable contractor, it's just as important to establish a good working relationship as it is to maintain that relationship. 

Have you regretted hiring a particular contractor before? If so, let me know how any of these tips could've saved you time and effort. If not, congratulations!

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If you want to learn more about building and maintaining good relationships with local reputable contractors, don't miss my live event! The next one is February 26-28, 2020 in Beaufort, NC. You can head on over to www.jayconner.com/linkedin right now to grab two free tickets (one for yourself and one for a friend/co-worker/colleague/business partner/etc.)! Space is limited so register now!