Renovations Part 2: Hiring a Contractor
Now that you know your budget and your scope of work, it’s time to sign up a contractor to get the work done. Does your scope warrant a full on general contractor or could a handy man or a couple of trades easily take care of the work?
Scopes for a Handyman/Hire Direct or a General Contractor
If your scope is largely cosmetic and only requires a few days of work, you may be better suited to hire the individual contractors or a handyman, rather than pay a general contractor. A handyman may be able to patch and paint a few rooms while also fixing a runny toilet. If you need to just replace some light fixtures that will take a day or two or having just one shower tiled all fit under the handyman or hiring a contractor direct.
A general contractor best serves you when you require permits, have multiple trades and the sequence of work matters. For example, if you want to gut your property, upgrade the electrical and need to replace the plumbing in all the bathrooms, you want to hire someone who can oversee the work to make sure it’s installed properly, gets the required inspections and that anything that needs to go in the wall (wiring, piping etc) is taken care of before the drywaller puts the walls up.
Establishing your Scopes
The best way to get what you want done is to be as clear as possible so everyone has the same expectations of what work needs to be completed. Jay Scott wrote The Book on Estimating Rehab Costs which also provides tips on writing scopes. Here’s some examples of how to communicate with your contractor:
- Generalize – “upgrade electrical service for a fully functional and code-compliant system”
- Quantify – “tile two showers and replace three toilets with new”
- Specify – “New quartz countertops for the kitchen” or “Replace ALL outlet covers and switch plates”
If your contractor is writing up the scope to include in the contract, it is your right to ask as many questions as you need to be satisfied that all items are covered. If you don’t see something, ask that it be included or get an email that confirms that ALL bedroom light fixtures will be replaced with fans or that the kitchen cabinets are included in the paint package.
A great resource for understanding scope and what might be needed is a book by Carson Dunlop called Inspecting A House.
Choosing a contractor
Knowing what you need done during a renovation is only half of the equation. Finding the right team for the job is the other. Leaning on your network or tapping a community like BiggerPockets is your best bet to finding someone that at least won’t totally screw you. Recommendations allow you to at least know the contractor or handyman isn’t going to run off with your money and actually has the skills to do the work. You can start with asking your real estate agent and property manager. You’ll also want to tap any local investor groups to see if people are willing up to share their contacts.
You’ll want to solicit at least three bids on your proposed work whether it’s for a general contractor or a handyman. This allows you to see if your scope is clear and if the pricing you get makes sense. While it would be nice if construction costs were fixed and there was a price list somewhere for your specific city, it is just not realistic. Economic forces play heavily on what you’ll pay based on supply, demand and cost of materials. However, if you have three wildly different costs for the work you are requesting, it can mean a few things:
- A bidder’s scope is a) is missing scope (low bid) or b) has additional scope (high bidder) that may or may not be needed
- Contractor Availability & Demand: The high bidder is really busy so that person will only take it on if it’s really profitable; or, conversely, the low bidder is just trying to get any work because that person either doesn’t have a lot going on or isn’t getting work because he is terrible at his job
- Desirability of the work: if your project is in a bad area, pricing may be higher than expected due to the cost a contractor or handyman will need to just come out there
- Fit for the work: The other piece is that if you try to hire a contractor that usually does 5,000-square-foot homes and your project is for a 1,500-square-foot property, it’s likely the bid is higher because he can’t get the economies of scale to do your job, or he’s only willing to do it if he can make good money on it.
You’ll also want to ask how the contractor or handyman charges for a fee. Is it a flat rate or a percentage.This helps you understand how he or she comes up with a price.
Before you even get the bids, you should find out what is required of contractors or handyman in the city or town you are investing in. Denver, for example, requires that a general contractor be licensed in the City of Denver, as well as certain trades like electrical and mechanical. Some cities only allow certain contractors to operate within the city limits so a visit to the municipal building department web site or making a phone call can clarify this information for you pretty quickly. This will save you headaches later if inspections are needed. The building inspector will want to know who did the work and if the contractor is not approved, neither will your project until you have properly credentialed trades performing your work.
Once you select qualified businesses to do your work, ask for insurance. This is another way to know if the contractor or handyman is legitimate. If they don’t have it, you shouldn’t hire them for the job.
Next week, Part 3 will dive into contracting since this post was a little longer than expected.
GET CONTRACTOR SMART
- The Book on Estimating Rehab Costs by Jay Scott
- Inspecting a House by Carson Dunlop & Associates
- Episode 399: Solving the Investor/Contractor Relationship, BiggerPockets Real Estate Podcast
- Real Life Job Walks – Network and ask fellow investors if you can visit their projects!