ForeclosuresMass - 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:

	Interview With The Expert: Trish Signet Trish Signet, Loan Officer, Summit Mortgage 100% financing: The purchase of a property with no money down. Sounds too good to be true? Not necessarily. We sat down with lending expert Trish Signet for her insights on how it works, where the risks are, and what to consider before jumping into this creative financing approach...
	Interview with the Expert: Strategies for Building Your Real Estate Network Cathy Toomey, Broker / Owner, Stone Ridge Properties Real estate agents are often the first people homeowners call before their home goes into foreclosure. In this interview, Cathy Toomey, a real estate broker, tells you how to build a solid network of real estate professionals - and how to use this network to find homeowners "motivated to sell."
	Feature Article: Septic Systems - The Good, The Bad and The Smelly David Presby, CEO of Presby Environmental, Inc. Title V, the Massachusetts law that stipulates a septic system must pass inspection before the close of sale on a property, is punching big holes in homeowners’ pocketbooks. Septic system expert David Presby explains why Title V is important for the environment and how to troubleshoot your septic system in order to keep it running trouble-free for years.
	Feature Article: How Web 2.0 is Changing the Face of Real Estate Joel Burslem An expert on Web 2.0 and the real estate industry, Joel Burslem closely follows how real estate companies across the U.S. are incorporating emerging Web 2.0 technologies into their marketing mix. In this informative interview, Joel discusses how the state of these technologies, including YouTube, Facebook, and blogs, are changing the face of real estate - and whether or not they're living up to their potential.
	Success Strategies: Buy It if It's a Steal Lisa A. Maini There's plenty of real estate out there and no shortage of people offering advice on how to find it, buy it and sell it. Marketing expert Lisa Maini gathered together an all-star cast of real estate experts, picked their brains, and distilled what she learned into this one, meaty article...
	Success Story: How a Father and Son Team Meet their Goals Adam Scarcella In the beginning... Adam Scarcella, software engineer by day, real estate investor by night, stumbled across ForeclosuresMass 14 months ago. After reading, Are You Dumb Enough To Be Rich?, Adam decided that pre-foreclosures were the best way to break into the real estate business...
	Feature Article: Three Steps to Rebuilding Your Credit After Foreclosure Stephen R. Elias, Attorney Gone are the days when rebuilding one's credit history after going through bankruptcy or foreclosure was straightforward. With the crash of the sub-prime lending market, consumers are under intense scrutiny when applying for mortgages and credit cards, which means rebuilding credit can now take three to five years - or longer!. In his article, bankruptcy attorney and author Stephen R. Elias provides three key steps that you can pass on to your clients who need advice on how to recover from foreclosure.
	Legal Corner: Do your Homework before Investing Suzanne Brunelle, Portnoy and Greene, PC So, you heard you could make a financial killing or find your dream home buying property at foreclosure? That may be possible, but first you need to beware the pitfalls of the novice and, as my father always said, "Do your homework"...
	Legal Corner: Banks are willing to work with investors to find equitable solution Bob Tenney, Cunningham Machanic Bob Tenney, attorney at Cunningham Machanic in Natick, is on the frontline of the foreclosure process. Tenney and his firm review claims by lenders to review properties for foreclosure. If proper conditions are not met...
	Feature Article: Getting Clear For a Great Next Year Sharon Teitelbaum, MA, PCC Lots of people set goals, but as experienced career coach Sharon Teitelbaum explains, that alone is not enough. Read on as Sharon offers five specific recommendations - recommendations which go beyond simply setting goals - to help you start or grow your real estate investment business in the coming year.