When is the Contractor Your Friend?

“Finding a contractor” is generally believed key to successful real estate investing. And once that contractor is found, whether through a friend of a friend or in the parking lot at  the local home center, the first test seems to be: is he a Nice Guy? Willing to “help you out”?

The problem arises when the nice guys invariably prove to be merely fair weather friends. They’ll be your friend the day you bring ‘em on the job, just to look it over. They’re certainly your friend when you accept their proposal. And the test of your friendship comes the day you agree to increase the contract price “because of all the changes...”

So what’s ‘wrong with this picture’? First we need to know if this tradesman is in fact a contractor at all. We accept he’s been rehabbing for some time, maybe years. But is he properly licensed, carrying the insurance that will protect us the property owner, and is he substantial enough for his “guarantee” to mean anything? These are the tests of a true contractor, “general” or otherwise.

“I didn’t know...” is not a defense in Court

The answers to these questions can be the difference between success and failure. To say truthfully “I didn’t know...” is not a defense in Court when confronted with a Stop Work Order and the potential of substantial fines. Nor will your friend the contractor be held responsible (if he’s to be found at all). Responsibility rests with the property owner. It’s what we call “doing our Due Diligence”.

New found contractor-friend or not, in the end it’s all about Control. Your control of the job and those who work on it. The right licensing and insurance is a matter of knowing and insisting on the correct documentation; that’s due diligence. That’s also just half the challenge.

Guarantee is on us...

We understand the contractor’s guarantee is only as good as his ability to honor it. Unfortunately, that guarantee is generally on us. And our ability to cover the inevitable mishaps is dependent on our ability to control the project costs.

Experienced investors achieve this control by understanding project pricing, defining the Scope of Work, and by using ‘industry standard’ payment protocols. Those who understand and use these critical skills and tools succeed. Those who neglect these skills and tools risk failure and financial loss. #