Today’s REI Classroom Lesson

Pete Neubig discusses how to best deal with maintenance vendors so that there are clear expectations from the very beginning. Have a policy in place and make sure all vendors carry insurance.

REI Classroom Summary

When choosing a vendor, remember that the cheapest option is not always the best. It’s better to pay more up front for a high quality vendor so that it’s done right the first time.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Pete: Hi, my name is Pete Neubig, Cofounder of Empire Industries Property Management, located in Houston, Texas. And I’ll be the host of this REI classroom. Today’s topic is “The Best Way to Deal with Maintenance Vendors.”

Mike: This REI Classroom real estate lesson is sponsored by, FlipNerd’s private investor coaching program, and your blueprint to investing success.
Pete: As you will all know, being investors or property managers, we have to deal with vendors. And we all don’t know how to go do . . . changing out toilets, and fixing roofs so we have to deal with maintenance vendors. What I learned a long time ago is that cheaper isn’t always cheaper. Do not use the guy in a truck, or the guy standing in the corner of Home Depot because he’s going to be a lot cheaper than hiring somebody who actually has a true business.
Stop doing all this. It takes a lot more of your time, but at the end of the day, when they do something and they can’t fix it, or they fix it, but then it breaks and they had to go back. I mean, I had guys that I would do this with, and then they would have to go back two or three times to fix something. Ultimately, the tenant is so upset that either they leave or eventually have to get somebody else to actually fix the problem. Or, worse yet, they don’t come back. And they do the job, you pay them, and then you can’t find them. And they don’t come back to actually finish the job.
If you have somebody that you have to go to Home Depot and buy the supplies, think about this. They run their business so poorly that they can’t fund supplies and that you have to fund the supplies? Go with a more qualified, somebody who has insurance, somebody who has a license, if a license is required. Pay a little bit of extra money to get somebody who’s a little bit more professional.
The next thing is to create a vendor policy and procedures agreement. Have them sign the agreement, okay? Remember, a vendor has no idea how many properties you own or you manage. So even if you only own one, you can tell them that you own a bunch. You can tell them that you’re going to buy a whole bunch more, or you can tell them that you’re a good referral source, and you should try to get volume discounts from that vendor. And you should also have a policy and procedure, okay?
So some of the policies and procedures that we have with them is how does that vendor receive the work order? In our case, they have to receive it through email. What are the response time expectations? Are they going to respond within 24 hours? Four hours? Two Hours? What is the response time? Who schedules with the resident? Is it going to be the vendor? Is it going to be your team or yourself?
Before and after photos. Do you have to take a before photo and an after photo to prove that they were there? We have him do a before. We have him do one of the address of the home, and we have him do one of after. Just simple, it’s not to tell us exactly what they did, it’s just to make sure that they were there, that this is what it looked like before, and this is what it looked like after.
Communications with the tenant and between you and the vendor. So what can they say or not say in front of the tenant? You don’t want them coming into the house, and all of a sudden they’re trying to get more work, so to speak, and they’re pointing out 10 more things wrong with the house. And all of a sudden, now your resident’s calling you and wanting 10 more things done. Also, what are the communications? When you send them the work order, when they respond back to you, are they responding back to you saying, “I got it”? Or they responded back to you saying, “I’ve scheduled it” Or responded back to you saying that, “I’ve taken care of the problem”?
And then, how quickly are you going to pay them? At the end of the day, if you can pay your vendors weekly, every Friday, and you have a policy where any invoice that comes in before Wednesday at 5:00 gets paid that Friday, they’ll really like that. So how quickly you can pay them . . . The biggest challenge vendors have is that they’re on a net 30, or net 60, or net 90, or people don’t pay them at all.
Finally, interview your vendors like you would anyone else that’s coming to work for you. Have them give you referrals, get a copy of their insurance, get a copy of their license, if needed, and call these referrals. Talk to these folks, find out exactly what, you know, how they do business, okay? Also, do this before you need that vendor. So when your roof is leaking is the worst time to go find a roofer. Go find a roofer first. Get him to sign the policy, the procedures. Talk to him about all of the stuff that you’re going to do, and then when your roof has problems, you now have a roofer, okay?
And also, just pay your vendors once the job is done. Do not wait 30 days, even if it’s in your agreement. I highly recommend that the agreement is a net 30, but I would recommend that you pay him right away. Never pay your vendors upfront because you want them to do the job. Show them the photos. You don’t have to go to every job to make sure the work’s done. They have the photos there. They send you the invoice. Maybe you even call the tenant to make sure that the job was done. And then you go ahead and pay him that Friday.
And, hopefully, you like those tips and tricks. Again, my name is Pete Neubig, Cofounder, Empire Industries, located in Houston. If you’d like to email me, my email is [email protected], or you can give us a call at 888-866-6727. We’d love to hear from you if you have any properties in the Houston area. Thank you.
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