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How To Choose The Best General Contractor? | Real Estate Skills

One of the best moves you can make as a real estate professional is hiring an experienced general contractor to manage and complete a renovation!

In this guide, we’re going to cover how to find, qualify, & hire the best general contractor for your real estate projects.

Let’s dive in! Use this menu to jump to your section of choice:

1. What Is A General Contractor?
2. What Does A General Contractor Do?
3. How To Find The Best General Contractors?
4. How To Qualify & Choose The Best General Contractor?
5. How To Hire A General Contractor?
6. 3 Main Goals Of The Best General Contractors
7. Alternatives To Hiring A General Contractor
8. The Bottom Line

What Is A General Contractor?

A general contractor is an expert at increasing the value of houses and can handle all of the challenging aspects associated with a renovation project. Such as, managing the ordering of materials, sub-contractors, people, dealing with inspectors, and solving issues promptly as they arise.

General contractors are familiar with the renovation and construction process. They can assess the project, diagnose various issues, come up with solutions, and have the right crews on hand to get the job done. 

Especially when you are first starting a real estate business, a general contractor can help you determine if a project is feasible before you decide to move forward on an investment deal. 

Think of the general contractor as the conductor of the orchestra.

The orchestra contains all of the sub-contractors who specialize in each piece of the home renovation, and the general contractor leads everyone to a successful symphony.

By hiring a top-notch general contractor, you will be able to focus on growing your real estate business opposed to having to work in a house you’re flipping.

 

What Does A General Contractor Do?

The best general contractors will take your vision for the house and work with whoever necessary to get the job completed on time and on budget.

 

Here’s A List Of The TOP 10 Things That The Best General Contractors Do:

    1. Manage the entire renovation project
    2. Consult with you on the selection of your renovation improvements
    3. Collaborate with the necessary third-parties, such as architects or designers
    4. Create, Edit, or Confirm the comprehensive scope of work and materials needed for the project
    5. Building project budgets and timelines
    6. Pull the required permits, schedule and attend inspections
    7. Schedule, order, and make payments on-time for all materials
    8. Hire, schedule, and make payments to all sub-contractors
    9. Stick to the budget and schedule with the utmost quality
    10. Mitigate risk and solve any issues that come up day to day

Watch this short clip from Matt Plaskof, general contractor and CEO of One Week Bath, further describing the responsibilities of a general contractor:

 

 

How To Find The Best General Contractors?

Finding the best contractors is something you will always be doing as a real estate professional. This task never stops.

As your real estate investing business grows, so will the need to hire and retain quality general contractors. 

Whether you're fixing and flipping, managing rental property, or wholesaling real estate, having a network a top notch general contractors will put you ahead of the competition. 

Finding general contractors isn’t challenging, but finding the best general contractors requires a little extra elbow grease.

Here Are Multiple Ways To Find The Best General Contractors:

  1. Find a home that's being renovated in your area and ask the workers who the general contractor is
  2. Ask other Real Estate Investors
  3. Attend REIAs
  4. Ask other Construction Professionals
  5. Search online
  6. Ask friends, relatives, neighbors, & coworkers
  7. Meet them at your local Home Depot
  8. Look on HomeAdvisorThumbtack, or Porch

Watch this video for more Great Tips On How To Find the Best General Contractors from Brandon Turner at BiggerPockets:

 

 

How To Qualify & Choose The Best General Contractor?

Now that you’ve found an ample amount of general contractors, it’s now time to qualify them!

Contractors can make or break your real estate investment project. So, make sure you properly vet the contractor who's going to make substantial improvements to your property. 

This is how you’ll weed out the tire kickers and only work with the best.

general contractors

Here Are 6 Different Criteria We Like To Use When Qualifying General Contractors:

  1. Longevity
  2. Licensed & Bonded
  3. Insurance
  4. References (Both from Businesses & Customers)
  5. Real Estate Investment Experience
  6. Competitively Priced

Let's elaborate on each one!

 

1. Longevity

How long has the general contractor been in business?

The national average of small businesses that go out of business every year is one out of every twelve. Only about 50% of small businesses survive after 5 years according to the U.S. Small Business Administration's Frequently Asked Questions publication. 

When you find a general contractor that has been in business for 3, 5, 10+ years you’ll most likely be dealing with a successful businessperson who has done whatever takes to keep their business running. This is no easy task and is a good a sign that you’re dealing with a professional.

Longevity in this business communicates business savvy, ability to manage cash flows, and most importantly, maintaining a solid reputation. 

 

2. Licensed & Bonded

Does the general contractor have the correct license, registration, and bond?

A general contractor must have the necessary license and/or registration to operate in their respective state. For example, general contractors in California must be licensed with the Contractors State License Board.

In a few states, such as Texas, general contractors are not required to hold a license at the state level to take on home remodeling and construction projects. However, sub-contractors will still need licensure for specialty trades such as electrical and roofing work. 

In addition to being licensed, make sure your general contractor or their company is bonded. Getting bonded means that the contractor has purchased a surety bond which protects you, the customer, in case they don't fulfill their duties. 

For instance, your contractor could run into cash flow issues and file for bankruptcy in the middle of your project. If the construction is halfway complete, but you've already paid in full, you could be out financially. If the GC is bonded, you could file a claim against their bond and recover your losses. 

When hiring a general contractor ask for copies of their license, registration, and bond. Check to make sure they are updated, and keep them on file. 

 

3. Insurance

Is the contractor properly insured to protect you?

If you or your company is the owner of a property, then you can be held liable for anything that happens on the premises.

A general contractor should be insurance with a policy that protects you and them to the best of their ability. Be sure to obtain proof of the insurance policy to make sure it is current and in good standing.

Once the general contractor is hired, you can ask to have the contractor list you as an additional insured on his/her policy.

 

4. References

Does the contractor have credible business and customer references? 

Get as many current business references as possible, while being respectful. Business references can be from material suppliers and sub-contractors that they do business with on a regular basis.

Make sure that all of the business references are recent (within the last 3-6 months).

Get as many customer references as possible from the potential general contractors you may hire. Are these customers satisfied, or do they have complaints? Was the project completed on budget, or were there multiple change orders?

Follow up with these references and speak with them over the phone to see if the general contract was professional, responsive, completed their work on time, and organized.

If possible, see if there are any recently completed or current projects that have been worked on by the general contractor. This will allow you to see their latest work and see how they work in real-time.

Visit an active project of your potential general contractor to observe the quality of their work, cleanliness of job site, and the demeanor of their workers. 

 

5. Real Estate Investment Experience 

Does the general contractor work on projects for real estate investors?

You want a general contractor who has experience working on rehab projects for fix & flip companies. The best general contractors’ are well-versed in completely renovating homes. 

There are many general contractors who are great at remodeling bathrooms and kitchens, but we need general contractors who are also phenomenal at renovating the rest of the house. Such as, living rooms, bedrooms, landscaping, roofing, siding, electric, and more.

When your general contractor can assess the project from a real estate investor's perspective, you'll ultimately achieve a different result. 

General contractors who serve primarily traditional homeowners run a different business than general contractors with investor clients. You see, homeowners typically buy and sell one house every seven years. Investors buy multiple homes to renovate every year, and sometimes multiple homes per month!

The general contractors that work primarily with fix and flip companies know they'll make their profits in volume, so they're able to work on lower margins per project.

This ultimately results in more competitive pricing.  

 

6. Competitively Priced

Did the contractor provide a comprehensive and competitively priced bid for the project?

Set the expectation that you will be getting multiple bids for each general contractor you’re hiring.

Be sure to not just go for the lowest bid! I recommend getting at least three competitive bids so that you can cross-analyze and choose the best general contractor that fits all of the criteria.

Ask for a line item budget so that you can review the full breakdown of each bid. Understand the cost drivers and see what areas they are more competitively priced versus others. 

Over time as you compare bids, you'll have a better sense of local market rates for each component of your renovation.  Such as understanding price per square foot of flooring, counters, painting, demolition, etc.

By leveraging multiple bids, you'll be able to negotiate and work out a better deal with your general contractor from a position of knowledge and experience. 

 

general contractor

 

How To Hire A General Contractor?

Like the overwhelming majority of business transactions in real estate, you’ll want to use a contract agreement with the general contractor you hire.

Here Are 15 Key Items You Want Covered In The Contract When Hiring A General Contractor: 

  1. Basic Information:
    1. Contract date, start date, and estimated completion date
    2. Your name / company name, address, email address, and phone numbers
    3. General Contractor’s name / business name, address, email, and phone numbers
    4. Address of the home renovation project
    5. General Contractor’s license number and/or registration number
    6. Contractor’s tax ID or Social Security number
  2. Scope of Work - This describes the project in as much detail as possible
  3. Specifications of Materials - Details a complete list of materials that will be used
  4. Total Cost - The total amount due, including materials, labor, and management costs.
  5. Proof of Insurance - Shows the general contractor has the appropriate insurance and contains the policy number(s).
  6. Not to Surpass - States that the contractor is not to exceed the cost for any of the tasks listed. When the general contractor, goes over the amount, they must pay for it out of their own pocket.
  7. Payment Schedule - Lists the total number of repair draws and dollar amounts of each that will paid to the contractor during the project. These payments to the general contractor are made when specific milestones are completed.
  8. Any Drawings or Plans - Any architectural drawings or plans needed for the construction project.
  9. Change Orders - This will state that you or the general contractor has the right to make changes to the contract through a separate change order by both parties.
  10. Compliance - States that the contractor is responsible for pulling permits and completing with state and local laws and codes. This includes complying with the zoning, required permits, and inspections.
  11. Cleanup - States that the general contractor will keep the job site clean and orderly each day.
  12. Mechanic's Lien Waivers - This requires a contractor to provide you with the documentation that subcontractors have been paid for the work completed. Otherwise, the subcontractor is entitled to file a mechanic's lien.
  13. Warranties - States any warranties, what is covered, and the length of the warranty(s)
  14. Resolution of Disputes - States how disputes will be resolved.
  15. Termination of Contract - Covers the grounds for termination of the agreement for break of contract.

Unfortunately, there are plenty of predatory contractors out there who will say all the right things on the front end just to get the job. If they fail to deliver on their promises, you'll want to make sure you have a tight contract in place to protect yourself and ensure your project doesn't get compromised. 

 

3 Main Goals Of The Best General Contractors:

The 3 Main Goals Of The Best General Contractors Are To:

  1. Stay on schedule
  2. Stay on budget
  3. Ensure quality work
1. Stay On Schedule

The best contractors will stay on schedule to get the project completed on time. The goal is to get the project completed as soon as possible.

When fixing and flipping a house, every day is costing you money. You're paying for holding costs, such as insurance, taxes, utilities, and capital costs. Time wasted is money wasted. 

A lot of the times unforeseen repairs or change orders can come up, which is why it's important to state how these scenarios will be covered in the contract agreement.

A great general contractor will be familiar with how to handle these unforeseen circumstances and will not let it deter them from staying on schedule.

If your general contractor gets the job completed before the estimated due date, then you know you have a great contractor you’re working with.

2. Stay On Budget

It was Peter Drucker who said, "If you can’t measure it, you can’t improve it."

What Drucker is saying is that you can’t know whether you’re successful or not if you don’t have a benchmark set in place to track your goals.

The best general contractors will carefully monitor the budget to ensure that the budget does not increase.

Controlling costs requires their attention and management. The best contractors know this and will execute to come in right on or under budget. 

3. Ensure Quality Work

The best general contractors will ensure quality work.

You and your general contractor can both use the Pygmalion effect to help aid in getting the highest quality of work possible.

The Pygmalion effect is the phenomenon whereby others' expectations of a target person affect the target person's performance.

Basically, when a leader or manager expects high-quality work (and voices that) high-quality work is usually performed. It is a form of self-fulfilling prophecy.

It starts with you (the customer) voicing your high expectations to the general contractor about the quality of work before the project even begins.

The best general contractors’ will also embody this and voice this to their sub-contractors.

With all of this said, you can help the project to stay on schedule, on budget, and be of high-quality by keeping a watchful eye over the general contractor throughout this process.

Our goal is to hire the best general contractors’ so that we don’t have to monitor this, but your watchful eye will never hurt the success of the project.

Ultimately, you'll need to approve of the general contractors work to ensure it's up to your company's standards. 

 

Alternatives To Hiring A General Contractor:

Here are two alternatives to hiring a general contractor for your home remodel project:

  1. Manage The Work Yourself Through Sub-Contractors
  2. Do The Work Yourself

hiring a general contractor

 
Alternative #1: Manage The Work Yourself Through Sub-Contractors

Sub-contractors handle specific aspects of home renovations. For example, you may have a sub-contractor that handles the kitchen, another for the roof, another for plumbing, another for the paint, another for bathrooms, and so on.

When you hire sub-contractors you will be the one having to manage the renovation project.

The Pro to this are that you are typically getting the best specialized work for each section of the house since the sub-contractor you’re hiring is the expert in that area. This option is also less expensive than hiring a general contractor (GC). By playing the role of GC instead of hiring one, you can expect to save anywhere from 10-30% of the total rehab cost. 

The Con is that you will not have an expert general contractor managing the project. You will need to be involved in the day to day construction process. This means taking more time for quality assurance, coordinating sub contractors, and pulling permits. 

 

Alternative #2: Do The Work Yourself

A lot of beginner house flippers like to take this DIY (“Do-It-Yourself”) approach when renovating homes. 

This requires you to have the know-how of fixing everything up in a house. Most people do not have this knowledge and end up spending a ton of time and money trying to figure it out on their own.

Although popular house flipping shows often make doing the work yourself look fun and easy, it's much more complicated than it seems. 

If you enjoy this type of work and do not have a business or other tasks to handle, then this may be a great alternative for you.

However, most investors that I work with have businesses to run. By doing the actual work of fixing up a house yourself, you are not focusing on the tasks that will help scale & grow your business.

By hiring quality general contractors, it allows you to focus on the most important things you should be doing as the leader of your company.

 

The Bottom Line On Working With General Contractors

The bottom line of working with general contractors is that you get predictability.

A general contractor is an experienced tradesman who takes responsibility for the entire project. This allows you to spend your time on growing your business on tasks such as finding new investment deals, raising capital for your business, and making key hires.

Yes, hiring a general contractor may be a more expensive than doing the actual work yourself.

However, know that finding, qualifying, and hiring the best general contractors, you can rest assured that you’re working smarter, and not harder, on your real estate business.

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