ForeclosuresME - ForeclosuresMass Monthly - Success Strategies - Five Tips for Building Successful Contractor Relationships (June 2007)

If you're thinking of buying distressed properties with the intention of rehabbing and flipping them, but you're not a do-it-yourselfer, you'll probably be hiring a contractor to help you.

Now I know we've all heard horror stories about general contractors that didn't finish the job as promised. For the most part, contractors want to see a successfully completed rehab or renovation as much as you do. Our business depends on your good referrals!

However, renovations and rehabs can be difficult for everyone involved. Because they lack experience, real estate investors new to rehabbing don't yet know how to find the right contractor or how to keep costs in check.

And let's face it, mistakes happen, especially if an agreement isn't in writing or the existing agreement isn't modified when the scope of the project changes. Often it's these types of "communication" issues that lead to problems between clients and contractors.

* Next 37 17 investors only!

So how do you find the great contractors - without losing your shirt first? Here are my five "in the trenches" tips for building successful relationships with contractors.

If you're really serious about rehabbing properties, establish a relationship with a general contractor before you get into the market. Tell potential contractors you're interested in rehabbing properties and ask if they're interested in partnering with you.

It also pays to think outside the box when researching potential contractors. In addition to asking for references within your network, also call your local building inspector and lumberyard (a real lumberyard, not a big box retailer).

Tell the building inspector, "I'm rehabbing a property and need a really good construction company. Can you recommend one?" Ask the lumberyard owner or manager for recommendations and then follow up with, "Is this company current on its account? Do they pay their bills on time? Do you know of any problems relating to this company?"

You can also call the Better Business Bureau, but the drawback with this organization is that they'll only tell you if a company has any complaints against it. The Bureau can't tell you if the company is any good - or if it's a disaster waiting to happen.

Finally, ask the contractor for three to six current references - preferably for jobs in progress or those recently completed. Don't make the mistake of calling only one or two references. Call all of them!

What you're looking for are contractors that complete their projects and handle problems professionally and appropriately.

Before you purchase a property, determine that you can make a profit on it. Nothing sours a contractor - client relationship faster than a job that comes in over budget due to poor planning.

In addition to the purchase price of the property, you'll need to include renovation costs, insurance, taxes, closing costs, advertising, and realtor fees, to name a few.

Talk to any contractor and he or she will tell you the one thing they hate is having real estate agents or investors call them with, "Hey, I'm looking at a property and need a quote for a new kitchen and bath." Why? Because these types of people are usually looking for the highest bid for insurance or bank purposes - which can waste a busy contractor's time.

Set up a good working relationship at the outset by giving your contractor an incentive to do an estimate for you - either pay for the estimate itself or offer a small kickback once the property sells.

Alternatively, offer your contractor a percentage of the sale price if he or she can finance the renovation for three months. Successful contractors have deep pockets and are used to working with large sums of money; they can make more money by financing your renovation than if they put their money in the bank. (If you go this route, be sure you have an agreement in writing that's been blessed by a real estate attorney!)

Where people get into trouble is when they ask for estimates "on the fly." You're looking at a property and it needs a new kitchen. You get a couple of "ballpark" quotes and go ahead with the purchase. The problem with ballpark estimates is that the contractor has no idea what you had in mind for renovations - quick and dirty or high-end deluxe - which can lead to serious cost overruns and mismatched expectations.

Instead, ask your contractor for a "detailed estimate." What this means is that instead of getting a rough ballpark you'll get an estimate that lays out all the details end-to-end, including all material and labor costs. It may cost you to get a detailed estimate, but you'll save money in the long run.

You buy a gorgeous property in a wonderful neighborhood - and all it needs is a new kitchen. You rip out the kitchen and discover . . . structural deterioration, or mold due to water, or insects. Now the house has to be jacked up and the kitchen renovation is delayed while the contractor fixes the problem.

When running your numbers, be sure to include 10 - 20% more than you think you'll need for renovations in order to cover these types of conditions. You'll also want to ensure you have a good range on your comps and that you haven't cut things too close.

Building a solid relationship with a contractor takes due diligence and common sense. Do your homework, get everything in writing, and don't cut corners when running your numbers. You'll make yourself and your contractor happy.

Michael Burgess is the President of MDB Construction, a full-service residential construction firm located in Gloucester, MA. He can be reached by phone at 978-526-8560 or via the company's website at www.mdb-construction.com.

Did you like this article? You May Also Like:

	Feature Article: Five Strategies for Successfully Negotiating Short Sales Elizabeth Weintraub As any seasoned investor can attest, dealing with banks on short sales requires a large bottle of aspirin and the wisdom of Solomon. Real estate broker-associate Elizabeth Weintraub gives you the low-down on how to successfully deal with banks - everything from dealing with confrontational bank agents and writing contracts to proving to the bank why you're the best buyer.
	Tax Strategy: Defer Your Taxes via Like-Kind Exchanges - Combine with gain tax exemption on home sales! Andrew Goloboy, CPA I would like to take this opportunity to describe a very important tax planning arrangement approved by the IRS for property owners. You may have heard it called a tax-deferred Section 1031 "like-kind exchange" or "tax-free exchange"...
	Feature Article: Will I Own the Property If I'm the Successful Highest Bidder? Gregory F. Arcaro If you're thinking about bidding at a foreclosure auction in Connecticut, be forewarned that in this state, simply being the highest bidder does not necessarily mean that you own the property. Read on as local attorney Greg Arcaro explains what can go wrong... and how to fix it...
	Nothing Succeeds Like Success: Joe Roche Gets to the Next Level via Coaching Joseph A. Roche Like many successful entrepreneurs, real estate investor Joe Roche had a thriving business. However, he was too maxed-out to take it to the next level. So, he hired a coach. In this candid interview, Joe explains how coaching has helped him expand his business, eliminate low-value tasks, and triple his income potential!
	Interview with the Expert: Eileen Schwartz Plays Real Estate Matchmaker Eileen Schwartz, Real Estate Investor Buying and selling properties takes real acumen, and veteran real estate investor Eileen Schwartz has plenty of that - having learned real estate at her mother's knee. Yet according to Eileen, it's building a network that's been the key to success. Read about Eileen's new program for investing locally and in Miami - and learn her tips for building a rock solid network that will deliver the deals you won't find on your own.
	Interview with the Expert: Know How to Use Your Contingencies David Camiel, Attorney If you think you can use an escape clause to get out of a real estate contract, think again. Because the courts look unfavorably at escape clauses, contingencies are a better way to protect your interests - as either the buyer or the seller. Veteran real estate lawyer David Camiel explains the legal ins and outs of real estate contingencies and how they can work to your advantage.
	Interview with the Expert: Incorporate Real Estate Into Your Financial Plan Judy Carryl-Young, Ameriprise Financial Services, Inc. Financial planners often see clients who want to put everything they own into real estate . . . sometimes with disastrous results. In this interview, licensed financial planner Judy Carryl-Young explains why single asset allocation may not be the best choice for you and how you can maintain your financial security by keeping a diversified portfolio.
	Legal Spotlight: Beware of Legal Landmines When Purchasing a Pre-Foreclosure Property David Camiel, Attorney A wise investor will go to great lengths to determine the viability of a particular pre-foreclosure transaction. A title search by itself however, may not tell the entire story... when you buy a pre-foreclosure property outright, you are taking the property "subject to" several factors. David Camiel explains what these are and why they matter.
	Success Strategies: Six Tips for Buying Properties at Traditional Auctions Kevin Norton Traditional auctions aren't for the faint of heart; purchasing properties as-is at auctions can be risky - unless you know what you're doing. A 13-year veteran at the auction game, Kevin Norton gives you his top six strategies for buying properties at auctions - including how to determine value without using an appraiser, how to place a winning bid, and what to do if you get cold feet after the fact. (Sign your name the right way and you can offload that property to another investor. Really.)
	Legal Spotlight: Don't Try This At Home - Leave Mold To the Pros! Brian McDonough If you or a home inspector find mold in your home, don’t panic – and more important, don’t try to treat the problem yourself. Certified mold inspector Brian McDonough explains why dealing with mold should be left to the pros (you could very easily contaminate yourself and your family) and the number one mold strategy most people don’t think about: preventing mold from happening in the first place.