Questions to Ask a New Contractor

Mike: Welcome back to the FlipNerd.com 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.

Tom: Hello, my name is Tom Olson and I’m the host of today’s REI classroom. I’m going to talk to you today about what process or what kind of questions I go through when I’m vetting a new contractor.

Mike: This show was sponsored by PassiveRental.com.

Tom: I’ve got 30 projects going on right now. So as you can imagine, I don’t just have one contractor doing all those. I think right now, we’re up to about 20 contractors that we use for whole, entire projects. We probably have 100 different contractors that we use for, say, plumbing, or electrical, or HVAC, or something like that.

But I do use general contractors for a lot of my projects. And these are the upfront questions I ask. I think I actually learned this from some other people and I’d like to pass it along to you today. So, obviously, the first thing you want to get is their name. And then, when you’re asking these questions, there are many different reasons why you’re asking these questions. I’m going to try to hit some of those reasons why as we go.

So when you ask them their name, you just want to sit back and let them just talk. Let’s just see, number one, is this guy going to be a talker? Is this guy going to tell you his whole life story right off the bat without even asking the question? Or is this guy going to be low key? It helps you get to know the person a little bit there. And I think that’s true with any relationship with your contractor. You know it’s going to be a key relationship. You want to make sure that you can trust this guy. So that’s the first question, obviously, “What’s your name?”

“What’s the name of your company?” That tells a lot about a person by what they chose for their name. The next question, obviously, first really the first real question is, “Are you licensed?” I know a lot of rehabbers that do a lot of work without pulling permits or without having license contractors. But there are many cities where you can get in big trouble for that or really delay projects, and really end up costing you a lot more money in the end.

And what I’ve learned is that if you just do it right the first time, you’re not going to have to worry about things down the road. And it’s always cheaper to try to just set it up right the first time. So obviously, that’s a key question. You should know that. And to me, again, like I said, it’s not necessarily a deal-killer, because there are definitely some areas where you can do a lot of project without having a licensed contractor. But it’s definitely something you want to know up front.

What is a deal-killer for me is the next question. “Are you insured?” So you want to make sure that people are fully insured doing work on your . . . and to me, that that should just go without saying. You don’t want to be on the hook for somebody getting hurt on your projects. You want to make sure that the general contractor has a general contracting license. And you also make sure that they prove that to you up front before I have them do any contracting before.

Right in their first contracting agreement with me, I have them give me their insurance. I also get a W9, I9. All those legal forms, you have to get up front. Trust me because you won’t find them later on, especially if something goes wrong with the project.

The next question I have is, “How long you have been running rehab crews?” I mean, we’re talking about doing rehabs here. It’s not a new construction, typically, when we’re talking about investors. Some guys I know are doing new construction now. But typically, it’s rehabs and you want to understand if this guy has been running crews or if he’s just done some roof work. Or if this guy just is a painter or what he is. So, “How long have you been running crews?” That’s a really key question there.

Some guys will say, “Well, I’ve been building houses for 30 years. I know how to do this.” But they’ve really never ever done rehab. I actually just did an interview with a guy. He said that he and his dad built houses for 30 years, but he had only done one rehab, and I’m like, “Okay. This guy might work. He might know he’s doing.” But at least it helps me know up front what this guy’s experience is. In my opinion, rehabbing is a whole lot more complicated than new construction.

“How many guys do you have on your crew?” So all these questions have many different meanings behind them and lots of different reasons why you want to ask this question. But if the guy has one or two guys in his crew, well, you may not be able to give him that $80,000 project that you need done in six weeks. So again, these questions of many meanings and many different answers can make you think. And you should be thinking all through this questionnaire with him.

“Do you have a list of references?” I think this is very key. I love to use people that are referred to me so I may not . . . I always ask the question, but I may not call all the references if it was a referral for me from a very happy customer. But it’s always good to ask and I do highly recommend that you do call the references and just kind of ask some of the questions that you think you’d ask for a reference.

“Will you be using subcontractors on this project possibly?” So that’s another good thing. I mean, you want to know how well connected this guy is. If it’s just his own crew and even if he has 10, 12 guys, he might be able to get a job done, but it’s possible he may not have guys on his crew that have to do certain repairs that need to be done down the road.

And again, when I’m vetting a contractor, I’m not getting a contractor to do one job for me. I’m thinking, “Okay. This contractor is going to be doing several projects for me down the road.” I’m going to do over 200 rehabs this year. So in my mind, I’m thinking, “Can this guy handle one at a time, can he handle two at a time, five at a time?” I do a couple contractors that are handling six, seven at a time. And they’re really good because they’ve got several different crews. And they use subcontractors, and they’re very efficient at what they do.

The next one would be, “Do you have people in place to do every type of project?” I kind of just talked about that with the last question. But yeah, that’s something you want to know. Does this guy have a foundation expert that he can call or anything really? I mean, we want to make sure that he commits to that up front.

The next one, “Do you have any written warranties?” Typically, for my rental program, I always guarantee the work that we did at least a year. I mean, almost for anything. You want somebody that’s willing to at least guarantee their labor on that work. If somebody puts a roof in for you and the shingles start flying off three or four months later, you want to make sure that they’re willing to stand by their work and that they’re good people and they’re willing to put that on paper. But again, if they don’t have them, maybe it’s something that you can help them with. I’m not saying everybody has to be a perfect contractor to hire them, but you need to know upfront. It’s all about upfront expectations here.

The next question is, “Where is your office?” Now, a lot of my contractors work out of their home, but it’s something that’s still a question I want to ask. I want them to tell me, “Right now I’m working out of my home.” But if they have an office, something I highly recommend is that you just stop by their office at some point and just see what it looks like. Just understand the type of people that he hires and it’s really good to know.

“Have you ever had any legal action filed against you?” Again, this is more about the upfront thing. And if they have, it’s good for them to tell you because, again, we’re talking about up front, being honest. And honestly, what’s most important about your contractor is that he’s honest. So to me, it’s not a deal-killer if he has had legal action filed against him, but if I find out that he lied to me up front, then it’s a big issue.

“Have you ever declared bankruptcy?” That’s another good question to ask. You want to make sure that this guy pays bills.

“What is the most complicated job you’ve done?” Now, I’m looking here for the guys that are going to talk big about how awesome they are. And to me, that’s a huge red flag to me. I don’t like the guys that are talking so big that they can . . . but what I like about it is if they do talk big, it helps me reel them in a little bit. And if they say, “I did this $100,000 rehab. And it was this. It was awesome,” and they start pulling up pictures off their phone, then I can say things like, “Well, I guess then you won’t have any problem with my $20,000 rehab that I need done in three weeks then.” So it lets you get to know them a little bit, but then it helps, again, setting the tone.

So the next thing I ask, and this is something that’s very key for me, “What systems do you have in place to communicate with your customers?” Now, me, I’m doing 30 rehabs right now currently. And I have in those 30 rehabs, I probably have 22 different customers. And I have to have systems in place to communicate every week on how the project’s going, sending pictures to them. So most contractors don’t have systems to communicate. But it’s, again, this is something else that you can add value to your contractor, and you can help them get help them get them to the next level.

We use Google Docs, we share files that way and many other things. We have a system where we take pictures of every single job, every single week and send them to our investors.

And then, last couple of questions here, “What systems do you have to keep your job site clean?” And it’s not necessarily like I want to hear the guy say, “I clean up every day.” But if he says it, then I want to be able to hold him to it.

And then, with that question, I ask him, “Well, are you doing any projects right now?” And then this is something else just like the office. I want to just want to pop in unexpected and just see how does this guy keep his job. Is it nice and tidy, is it neat? Again, it’s not a deal-killer, but it’s something that you can help your contractor with because a clean site will go a lot better and there’ll be a lot better finished project at the end.

So those are the questions that I ask up front. And then, whatever program I’m using, whether it’s a fix and flip program, it’s a rental program, I have an active turnkey program, I have a turnkey program, I have a rent to own program so these are all require different types of rehab that I’m looking for different types of contractors to do different types of rehabs that we do.

But I set upfront expectations with them on my program at that point at the end. And then, you just have to . . . some of this is gut feeling to be able to vet the contractor. But I think if you ask these questions upfront, you’ll get a good understanding of what the contractor can do and what he cannot do. And I think it will help you along the way. I hope this helps you today. Thank you so much for joining us today in today’s REI classroom. I’ll see you next time.

Mike: PassiveRental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash flowing, professionally manage rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting PassiveRental.com

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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

Are you a member yet of FlipNerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds and get access to hundreds of off-market deals, vendors in your market to help you in your business, and you can start networking with thousands of other investors just like you. Get your free account now at FlipNerd.com.

Please check out the FlipNerd family of real estate investing shows, where you can access hundreds of expert interviews, quick tips, and lessons from leaders across the real estate investing industry. They’re available at FlipNerd.com/shows or simply search for FlipNerd in the iTunes store.