When working with contractors, Leo Clark talks about what you need to do to protect you, your company, and your money.
Leo goes over the forms and agreements that need to be set in place so that what is to be expected from both parties is laid out clearly.
Mike: Welcome back to the Flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take our business to the next level. And now, let’s meet today’s expert host.
Leo: Hey, everyone, Leo Clark here with Crest Investment Group. I am your host today for the REI Classroom and I’m going to be covering with you today contractors.
Mike: This show is sponsored by PassiveRental.com.
Leo: Everybody has to deal with contractors. It doesn’t matter if you’re rehabbing, building, even sometimes wholesaling. Contractors can make or break you. One of the things that I have done very well over the six and a half years I’ve been in real estate is connecting with the contractor. And what I’ve done from the very get-go is I approached it like a business. And the contractors I hire are licensed contractors. So the first thing is you should be looking for licensed contractors.
Once you’ve established a connection with the contractor, then there are several things you must put in place and have in place all the time to protect you, to protect your investor, protect the money, protect the project as well as protect you and your company. One of them is what’s called an independent contractor agreement. The independent contractor agreement describes everything regarding you and the contractor and the agreement the two of you have.
So that contractor agreement is very important because it spells out everything. Mine is about four pages long, and it spells out everything. I even have in there if they go beyond the due date and it’s a thousand dollars a day past the due date of when it’s supposed to be done.
The next piece that you want is to have what is called the indemnity insurance form. So this insurance basically, the indemnity side, protects you from anybody that they hire coming on the property. So they become fully responsible anybody they hire versus you becoming responsible for anybody that comes onto the property.
The next thing is the scope of work. So the scope of work details everything that you want done and it goes right down by room. So what’s going to happen in this room, this kitchen, this bathroom, this living room, outside, landscaping. So the scope of work details everything.
Then the payment schedule. So the payment schedule is kind of like the timeline. So this form basically shows the contractor when he’s going to get paid, at what benchmarks, and how that dollar amount is going. So if it’s a $30,000 rehab, it’s three weeks long, $10,000 a week, that means every Friday a $10,000 check should be cut, and at this Friday, all of this stuff should have been done.
Then the next thing is the lien waiver. The contractor has to get the lien waivers or somebody has to get the lien waivers signed by any subs that come on to say that they were paid and everything is 100% so that they cannot put any liens against the property. Sometimes they do, even though they signed the lien waiver and there are ways around that. But the lien waiver is a very important piece so that they know you know that all of the contractors, subcontractors have been paid.
So those five contracts are very important. I put them on every project. It is vital to my business. So, again, I hope this helps you. If you have any questions, send me a message and I can help you out which contracts need to go in place and where. Thanks. See you soon.
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