As a real estate investor, you’ll want to have a licensed general contractor on your power team to help you through any new construction, demolition, renovation or rehab project. In this business, contractors tend to get a bad reputation. Mostly, they’re criticized for never showing up or never getting the job completed. What most people don’t understand is what it takes to be a general contractor and that becomes an issue when deciding who to use for your power team.
A general contractor takes responsibility and liability for anything that happens on the job. Generally, a GC will: pull permits to get your work completed; which is usually a requirement to renovate a property; must submit plans to the local building departments explaining how the property currently sits and what changes will be made; submit product approvals of what will be changed on the property; handles inspections; lines up subcontractors, who are also licensed and qualified to do the labor and installations on the property; manage the job, and much more. If you’re doing new construction, there is usually an architect and engineer involved, in which case the general contractor would also take part in facilitating and hiring. That is all just the basics of what a contractor does. Where the reputation usually goes sour is in delays and pricing.
A general contractor cannot control time frames on products. If they order the product on time and it has a 6-month lead time, that’s not the contractor’s fault. What you want is a contractor who communicates that to you to make sure you understand the time frame and any delays. Usually, a contractor wants payment in installments and that’s also what you want. If you have a contractor who is requesting ALL the money for the job up front, that’s a red flag. You shouldn’t make your final payment until the job is completed and the final inspection with the building department passes.
With each real estate project you do, you’ll want to get estimates from at least three contractors to bid on the work. If you are set on a general contractor, we recommend your contractor doing a 20% cost plus contract and they’ll get you three bids from subcontractors for each aspect of work. This will give you a good average of what the costs should be for that scope of work. You’ll know whether you’re getting a fair price. The lowest bid is not always the best bid, and your GC needs to have the knowledge to advise on what is a realistic price so that you don’t get taken advantage of. A bid too high—you’re getting scammed. A bid too low—generally means that subcontractor either doesn’t understand what it costs to complete that scope of work or is not qualified to do the work. Which sometimes results in having to pay more to fix mistakes and delays. You want them to also get the job done right the first time and a good general contractor will help make sure this happens.
Now, if you’re thinking about doing a project without a licensed general contractor, you can, but realize that you as the homeowner will now be responsible for all the things a contractor would’ve done for you including being responsible for all liability. If a subcontractor takes your money and doesn’t do the work, you’re responsible for pursuing legal action. If a subcontractor takes money from a GC that you gave your money to and doesn’t complete the work, the GC is responsible for pursuing legal action and getting everything done on your behalf.
Many people hire a contractor without knowing what a contractor does and then they get sticker shocked seeing them charge fees for their services. Do your best to do your research, find a solid contractor you gel with, and you’ll be on the right track for your real estate business.
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