Rehabbing Houses Part 2 of 5 – What is a Good Contractor?

One of the most common questions I get asked concerning rehabbing houses is “How do I find a good rehab contractor?” But in order to answer that question, we first have to determine…

What is a Good Contractor?

First we need to establish what a “Good Rehab Contractor” is. What do they look like, act like, do business like? What do they bring to the table that another contractor doesn’t? What qualities are we looking for

We are looking for someone who can get our job done on time and on budget, with minimal involvement and hassle on our part.

In my mind, I am looking for a licensed general contractor, who is ready, willing, and able to work on my project at a price that allows us both to win.

All Licenses are Not Created Equal

Having said that, experience has taught me that even the term “licensed” has to be clarified. In our large metropolitan area we have the main city, Columbus, Ohio, that is surrounded and interspersed with suburbs and small “neighborhood-like” cities. For ease of discussion, we’ll call all of these small municipalities “suburbs”.

In order to get a license from the “City of Columbus”, a contractor has to invest a reasonable amount of money in licensing fees and do some testing to make sure they have a general knowledge of the local building codes, and procedures for pulling permits.

However in the suburbs, that may or may not be the case. They may be able to walk into the appropriate government office for that suburb, pay the very small fee, avoid any testing (or take a less rigorous test), and come out with a “license”. Then they can go around the entire metropolitan area and advertise themselves as a “licensed” contractor.

So before you accept someone as being a “licensed” contractor, find out specifically where they got their license, what requirements they had to meet, and get their license number. You may find that their license number is bogus altogether.

Licensed vs. Unlicensed Contractors

I am looking for someone who will be professional, be able to get materials without me having to pay for them up front, will carry insurance and bonding, and is capable of managing all subs on the job.

This licensed general contractor will be my only source of contact and the only decision maker on the project, besides me, that I will have to deal with. In other words, they will be accountable and responsible for the entire job. This person, like me, is a “business” person. They may or may not actually be physically working on the job site.

A licensed general contractor will usually have higher prices, but they will actually save you money, and make you money in the long run. Let’s not fool ourselves… most of these guys will be too high priced for you to do business with.

This is because they would rather target John and Mary Homeowner, and bid each job at $20,000 no matter how little work is involved. Their mode of operation is to bid on 10 of these jobs, expecting to get one, rather than do 4 jobs at $5,000 each.

Therefore when dealing with licensed generals, you need to establish up front that you are a business person, and that you need them to come in at an affordable level so that you can give them… ahhh, here’s the magic word… repeat business.

If you are an experienced investor, rehabber, landlord, or house flipper, you probably already have a track record of rehabbing houses, that you can talk about to convince them you are for real and can keep them busy.

If you are just starting out, then tell them you are associated with a group of investors (i.e. your local investment club, or your “online” investment club 🙂 that buys a lot of houses. You can tell them that if you ever run out of work for them, you would be glad to refer them to one of your colleagues, which is the truth.

Most investors are used to using unlicensed contractors and/or handymen to save a few bucks. This may actually be feasible on maintenance and small repair projects that only take a few hours, and don’t have high material costs. But on rehab jobs, the lower priced guys will usually actually cost you more in the long run.

By the time you add in all the up front advances, material draws, labor draws, Friday allowances for cigarettes, beer, and/or “controlled substances”, you’re actually losing money. Not to mention all the time you spend going back and forth on material runs and… God forbid… transporting them around!

Also there is the insurance issue. It is much more likely that your licensed contractor is carrying liability insurance and bonding, in the event that they do damage either to themselves or your property.

However, if your unlicensed (or uninsured) contractor gets hurt on your project, you may be looking at a totally unexpected lawsuit… that could have actually been caused by their negligence or incompetence. This is just something to think about the next time you want to “save a few bucks” on your next rehab project.

Conclusion

Please don’t get me wrong. I’m not saying that all unlicensed contractors have “bad habits” and that all licensed contractors don’t. I definitely don’t want to say anything negative about all the great, reliable, upstanding, drug-and-alcohol-free, unlicensed contractors out there. Nor do I want to give the impression that all licensed contractors are squeaky clean and can do no wrong.

I’m just saying that “as a group”, that the licensed contractor has (in large cities) usually made more of a financial, educational, and conscious commitment to be a “business person”. This usually includes a higher degree of professionalism, financial responsibility (i.e. they are not calling you as if its an emergency every time they need a $25 part).