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Real Estate Investing: Hiring Contractors for Rental Property Renovations

[Music] today we’re going to be discussing four things to keep in mind when hiring a contractor first I’m going to warn you of a potentially massive headache you could very easily give yourself what hiring a contractor for the first time then if you stick around after the main lesson is over I’m going to briefly run you through my main criteria for picking a contractor how to pay for renovations and finally how to budget for renovations alright so I talked about one main point for hiring contractors I’ll tell you a secret but only if you promise not to tell anyone else okay cool because I just did this to myself and I know if I make a youtube video about it I will never forget it again so get this most banks don’t allow withdrawals of more than five thousand dollars now maybe that’s just my banks but I’m pretty sure this is common better yet if you’re a millennial like me you probably don’t maintain a traditional checkbook I used to have one but I think I tossed it or lost it because I’ve written fewer checks than years that I have been in an adult so on this Tuesday I was supposed to pay my contractor 50% upfront general contractors of all sizes usually want a substantial down payment for their work this way you are covering the cost of materials instead of them having to pay for it this also proves to them that you can actually afford to hire them what if God forbid Joseph the contractor and his new hire right out of high school Johnson Jones did twenty thousand dollars worth of work for you and then you were like well I’m kind of broke but uh thanks for renovating my kitchens and bathrooms cut off no smaller contractors definitely can’t afford that and even larger contractors would have their profit margins destroyed if they didn’t verify that you are a serious buyer this is the same reason that it’s common to put down earnest money or a down payment on a house funny thing though if you don’t have a checkbook you can’t read it ten thousand dollar check for your contractor this means you have to find a bank with a physical location that will cut you a cashier’s check or money order and let you pay for it in cash and in this case when I say cash I mean using a debit card I prefer using credit cards but for certain kinds of transactions credit just isn’t accepted and this is one of those things ups and the little Western Union in the grocery store will generally only issue money orders up to $500 or $1,000 each and you’re paying a bit less than a dollar for every single one of them so getting one cashier’s check from a bank with a physical location is easier and cheaper however beforehand you’re going to need to call your primary bank the one that gave you the debit card that you’re using to buy a cashier’s check and have them raise the limit to something above the cashier’s check your name because if you make the limit $10,000 and you need a $10,000 or cashier’s check it’s not gonna work because you’re then going to have to pay for the cashier’s check making your total more like 10,000 and $1 in my case IRAs my withdrawal limit of $15,000 and I only need 10 I also recommend you do this the day before but usually increasing your withdrawal limit will go into effect pretty much immediately don’t forget to move the funds into your debit card associated checking account about a week prior as well because while some transfers appear same-day you generally want to allot three to five business days for banks to exchange with each other when selecting a contractor it is most ideal of the contractor either the head of the contracting company or the handyman service you’re hiring invests in rental real estate or flips houses whichever of those two is more important is based on what you are doing with your own properties this means they’ll have a good concept of what works in the local market as well as what return on investment is alternatively contact property management companies to see who handles the touch up work for their rentals in my case I kind of lucked out and I found a guy who matches both of these criteria the most important thing when paying a contractor is not to pay in full until you have inspected the work you should be upfront with your contractor about this inspection and tell them to expect a touch up phase where you walk through the property and request touch-ups or limited reduce if they are told about this beforehand they won’t be bothered when you tell them that this stair rail is still too flimsy or their painter forgot to do the small laundry room in the corner for instance I my request not to pay the last third or 20% until I get to inspect the property and request touch-ups 10% is too low for me though most contractors will have already made money at this point so their incentive to follow through might not be there however if you have an established relationship using that same contractor or handyman several times you can probably afford to do less because the trust is already there also smaller contractors like an individual or maybe a team of a handful of guys might need that 90% complete payment instead of 75 or 80% a lot more than bigger companies so if you’re using a smaller contractor work with them a little bit as a general rule of thumb when renovating a rental property you don’t want the renovations to eat up more than half of your equity so if you are buying a house with good bones that in good condition would definitely sell for at least $300,000 and you were buying it for $200,000 you need to make sure that the renovations should not exceed at $50,000 the catch’s renovations are always going to cost more than what was expected so in this example you would want to make sure your renovations are planned for only $40,000 I like to use 20% as a rule of thumb for renovation costs I should always keep 20% more cash allotted for renovations that I’m actually expecting the renovations to cost this is the plan from you before you ask the contractors for their bits which might then run up to a more accurate price worst case scenario as long as you complete your due diligence is that it runs even further over and now your 260 thousand dollars into a $300,000 property which is still good please comment below what other topics you’d like to see covered in future videos I have my own ideas about what I would like to talk about I also actually use data analytics to help guide production as well however my core subscriber base is the most important factor for what I do next which means I care what you have to say thank you for your time have a great day

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