When investing in real estate, a common topic that is brought up is contractors. Who are the good ones and the bad ones? It’s hard to know your way around contractors if you are just starting to build your network and team you can rely on. It’s important to know what to watch out for, what makes a good contractor, and how they fit your needs.
Getting The Right Insurance
A. Workman’s Compensation Insurance: If you are doing a lot of rehabs, it is a good idea to have workman’s compensation insurance as a bare minimum. If your contractor has workman’s compensation insurance, you will want a copy of the insurance with you shown as an additional named insured so that you have proof of coverage.
Even if all you have is the minimum policy covering you, you will still need the proof of coverage for your insurance carrier or you will be charged for their cost on your own policy. If you hire a contractor working alone, they can choose to exempt themselves from worker’s compensation, but they need to sign a form that you get from your insurance company.
B. Liability Insurance: Make sure again that you’re named as an additional insured on your contractor’s policy or have your own policy. This is one of the most important things when it comes to insurance and contractors. You should talk to insurance experts to determine the amount of coverage you need just to be safe.
C. Builder’s Risk Insurance: You may want to check on getting builders risk insurance for other coverage on your equipment, tools, and etc. This will also depend on what the project is that you want your contractors to take on.
All About Contractor Pay
If you are working with new contractors that you don’t have a track record on, it is recommended that you buy a small number of materials and see that they get the materials to the job. Only pay for the work that gets done. The question you need to ask yourself is if the contractor walks from the job is there enough money to hire someone to finish the job. Even experienced investors, as well as new investors, make the mistake of paying out too much on the job all the time.
It is a must to hold back enough dollars to hire someone to finish the job. Make sure that you inspect the job before paying, no matter how long you have worked with a particular contractor. Consider placing a provision in your contract that final payment is contingent on passing a city certification inspection.
Contracts For Contractors
It’s best to have a contract written for your contractors, see your attorney for what you need in your contract before you start bringing on new contractors.
Pulling permits is a must! If you don’t and try to bypass the system, it could end with the city inspectors getting into trouble and doubling their cost. The short cut to getting the job done is to pay for the permits required.
Above all, make sure that you know who you’re getting into business with, what their track record is, and what you should legally have in order before the job begins. Do your research and don’t attempt to “shortcut” your way around. Contractors are a useful contribution to the overall progression of a real estate project if done correctly.