What to look for when hiring a contractor for real estate rehabs

Always get recommendations and reference with contractors you hire. You don't have to get references from another real estate investor; there are tons of places you can go to find out who the best contractors are. Sometimes the best place to go is your current contractor. They know the other people out there. They might have worked with them before and noticed who was doing well and who was a nightmare.

Remember that you're never stuck with anyone; you may want to juggle a few general contractors until you find the one who you're comfortable with. I don't recommend using the Yellow Pages. Those companies have to pay big bucks for those ads and that means you have to pay them big bucks.

After years in the business, I have dependable, affordable, stable and ready and waiting workers. I use the same ones over and over; we go from house to house.

Sometimes we have to get backups, so I’ll have to get two plumbers or two electricians if they can’t keep up. So we have backup positions. You’ll find your rehab decisions on investment properties are motivated by four things: modernization, replacement/ repair, safety and aesthetics. Make sure you have contractors who can do a good job with those four things. A good contractor is a valuable thing to have. They are also in demand. So you have to make sure that you are getting them before anyone else does.

They call Lowes and Sherwin-Williams to make sure that they have the materials they need at the location where they need them. They have to make sure their other contractors are going to be at the location at the right time. This requires a lot of communication between all sides.

On top of that, things can change quickly. If the contractors mix signals, it can throw the project for a loop. Just imagine one contractor showing up to do drywall then an electrician showing up to do wiring and having to take down the drywall.

They need to make sure they stay on target even as the day becomes hectic, as it sometimes does. On any given day, a contractor might have a staff of fifteen people working. If they have a few houses, they need subcontractors to duplicate themselves. They have to have a contingency plan in case it rains. They might have to move inside.

Another factor they have to worry about is the local laws. You have to have permits to do a number of these duties. You may need an electrical permit to do the electrical work. Then the city will inspect the work afterwards. If you are not in compliance with them, you could be in trouble. The city won't let you do anything until you pass inspection, you can't even call for electric service. So these contractors have to be on top of their game.
A contractor like my guy Larry travels around to a number of locations every day. He has to make sure that everybody who is working on the house is doing what they're supposed to do. If they lose their direction, it can turn into chaos. Remember, chaos is the one thing that we are trying to avoid.

We test contractors out. Of course they are going to say that they can do anything. But we have to be sure that they can back up their talk. If they are unable to perform, try again with another one. When contractors make a quote to a client, they have to take into consideration the price of labor and of materials. Often they charge a markup for the materials purchased. They have to know the right place to go for their materials. It has to be the right price and quality material. They have gone through years of trial and error to figure out what products work best and what products do not, as well as what is priced best. They have a checklist too. They have to have a system. If they did not, their often complicated projects can go haywire.

I have had Larry, my contractor; speak in my boot camps and people love him. Larry is a very giving person, that’s what I want on my staff. That is one of the things that attracted me to him early on. He is helpful, open and honest. What I saw in him was somebody who could help me grow my business and somebody who I could work well with. I just had that feeling and I was right. Sometimes, you make personnel moves based on gut feelings. The decision to bring him on has obviously helped him too. It was just a few years back that Larry was a frustrated restaurant manager, working second shift. That’s right and that meant working until two in the morning in the hectic environment of a restaurant.


Now he’s on stage teaching with me. He owns around 15 properties. When I met him, he owned no property. He was a renter. Needless to say, his life is better. I didn’t train him. My job is pointing. I say, “Drywall.” They do the work on the drywall. I point and say, “Tear cabinet out” or “Put in back yard.” They get the work done. I tell him my needs and he takes care of it. When I met Larry, I knew he wasn't an electrician and I knew he wasn't a plumber. I wasn't trying to get him in to do electrician work or plumbing. He wasn't doing the drywall. He wasn't taking the cabinets out. His job was to paint the cabinets. He was holding the paintbrush and he was carrying the buckets of paint. He did it right and efficiently. As time went on, he evolved to a place where he's pointing and managing his crew. He had around 15 folks and he was managing them with his system.

It has been a big evolution for Larry and it's really done him well. He's done well. I am proud to say the he now has a viable business in the community. Larry is a successful businessman in his own right. Larry has made some good connections for his business. He has been able to work out a deal with Lowe’s, the giant hardware store. They give him a discounted rate on carpet or vinyl.

I don’t hire Larry for everything, I have other companies. But I do use him a lot. We have him brace up floors. Sometimes I own houses twice. I buy them, fix them up and sell them. Years later, the thing comes back on the market and I buy it again. Of course, it has to be a good buy.

I always remember that Larry has limitations. When it comes to electrical work, I want a licensed electrician. When it comes to plumbing work, I want a licensed plumber. Larry is not licensed in either. We use him for what he can do. He does a good job playing his role.

There are a number of construction companies out there that have made a lot of money doing new homes and commercial properties. They have the nice Yellow Pages ads and the nice trucks.

The only problem here is that, while they make three times as much as a rehabber, they have three times the risk. So when the market for their services tank, they might have a tough time paying the bills for that Yellow Pages ad or the nice trucks.

With rehabs, you might not make as much, but you have a safer ride. The risk is high with commercial and residential construction. Our contractors have to look at a lot of issues when doing rehab work. Let’s say can’t get any heat upstairs. Sometimes it’s too difficult to get duct run upstairs. We handle this situation by using electric baseboard heaters. We install them so we can get some heat into the upstairs. So the rooms have some adequate heat. Sometimes a house has one of those old radiators or an old furnace. The workers will have to find a way to make them work or replace them.

There’s a lot of work with a rehab. But it’s steady business.