Dealing with Contractors
In this case study we used a third party contractor who was not in our control. These are our lessons learned and helpful tips when it comes to dealing with contractors.
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My wife and I have just begun our journey into the realm of the short term rental space. But, in the short time we have begun we’ve learned a ton. We want to share to help others to not make the same mistakes, use our successes as a stepping stone for greater success or for you to just feel comfortable to jump in and get your feet wet for the first time like we did.
Lets dive into this one- Rehabbing obstacle #1.
This is not by any means the first obstacle in our way or even yours, it’s just the first one we’re writing about. “Rehabbing” I think for many this is a show stopper. Or, at least a point of nervousness for most others. It can be a very daunting task. We will dive deeper in our upcoming E-book but lets talk about what happened at our first property.
Myself- my main 9-5 is construction. This doesn’t mean I know how to build houses. I say this so you know that for 20 years i’ve worked in the construction industry. Commercial Electrical to be exact, as a state certified electrician. I say this so you know that when I say I get frustrated with a contractor or sub-contractor about how something has turned out or that “this is the way it should have been done” this comes from my experiences. Im my 20 some years in the business going from being an apprentice to running multi million dollar projects ive watched other trades do some of the very best work I’ve ever seen to asking questions of another trade about why something is done the way it was to coordinating projects on the largest scale you can imagine. Im not going to lie, this has helped me tremendously to take on these small residential projects with confidence. But for many years while first investing I didn’t have anyone to help me through some of the basic things i’m going to try and share with you. Most people will either try to make it more complicated than it is, or, not give you the whole concept from start to finish.
Here is the 30,000 foot view of how the first one went. We bought a house from a trusted provider. It was bought originally by us to be a long term rental. We changed our plan of use halfway through the rehab. Took possession, furnished it, and, it has been a wild success. The issue with the rehab was the quality of the install and the types of things they had done for us and or not done.
We now have three Short-term properties and do things very differently. Though I’m sure we will continue to adjust as we go. When prepping a property for this type of market, its done very differently from a long term rental. Your competition is growing tougher every day. Just take a look at their photos. The ones that blow you away are the ones you need to compete with if you want the highest and best return. If you want better than average return, it wont be terribly difficult.
Your rental needs to be somewhere between hotel design and quality to industrial grade strong if you want a worry free eye catching place. When working with your contractor be sure you are familiar with your new property. Make lists of things you want, ask lots of questions and fully understand each line item. Solid and beautiful is what you want to strive for. Your place needs to have hotel appeal, clean up like a hospital and hold up like a prison. Lol. I say that jokingly but it’s kind of true. I know youve stayed at a hotel before. Think of the abuse that place takes on a daily basis. Your home will need to endure that and maybe more. Your flooring and finishes should be durable, affordable and nice.
FLOORS– We had original oak hardwood floors which were in decent shape but should have been refinished. Again, originally a long term rehab style. But it also had laminate floors in another part of the house. This had to be the very first type of laminate ever made. They should have been replaced as they were in the final throws of their life. Alas, we did not and regret this. Replace these with either a waterproof laminate, vinyl laminate flooring, hardwood or other. I will always discourage carpet when possible.
PAINT- Believe it or not this makes a big difference. The choice of color you make will be one of the first things your guests will see when they get there as pictures can be deceiving. Or it simply may not get booked because the pictures don’t show it well. Make color a carefull choice. Lighter and brighter is usually better but it depends on your design. Once you have a color picked, buy a good quality paint for durability. And, always always keep your color codes and have extra paint on hand. Paint your trim according to the design style. The paint that was chosen for us was much darker than I would have wanted and it sort of worked but this will be redone at some point. Save money by doing the right things first.
DEVICES- Make sure your electrical devices are the same color and style. Be sure they dont get painted and that they are scum free. Guests will find it gross to see other peoples grim on things they touch. This is a low cost item that will pay for itself down the road. Incidentally, ours we non of the above but i personally changed all of them when i got there.
LIGHT FIXTURES- These are not hard choices and your local big box stores will most likely fill your needs. However a trip to a lighting store will help open your eyes to wonderful world of fixture choices and higher quality. Stop in and look around to get an idea of what high end looks like and go from there. People love ceiling fans. Although they aren’t always the best looking for style they serve a function and should be considered, especially in warmer climates like Florida
PLUMBING FIXTURES- This area area of the rehab can be widely cost effective or prohibitive. I reccomend using name brand products such as Kohler, American Standard etc. Try not to use cheap off brands or box store brands. They tend to fail and when it comes to leaks theres not much more damaging to your house than water except maybe fire and storms. So.. plan to find nice looking fixtures that fit in with your design without breaking the bank. You dont have to spend a lot to be spot on. In our case, the new kitchen faucet failed at the solder joint inside the kitchen faucet which is unrepairable. Had we not seen it during our post launch visit we could have had a lot of damage. In one of our rentals this year that we just sold, we had a ruptured pipe from a freeze and thaw when a tenant vacated the property, which tallied up to $10k in damages to repair. Not cool.
If you see something that seems off to you, it probably is. When working with contractors always use the 5 whys. It tends to vet out the problem by calling attention to their faults. For instance, cabinets.
CABINETS-I can tell you from installing many myself that they are both difficult and easy at the same time. The basic principal is that they need to be square and plumb, somewhat perfectly aligned to perfectly aligned and ready to take a countertop. Drawers and doors are easy to align if you have a good solid and true cabinet layout. No mater how uneven your floors are, if you’re not going ot fix them or make them perfect before cabinets go in and plan on shimming to fit everything else later like floors and trim then you make sure the cabinets are shimmed to be plumb and square. Your counter topes will reflect this when they are set and its too late to fix anything at that point beyond a tear out and redo. The cabinets in both the kitchen and bath in our unit were out of plumb and square and it visually showed. Make sure these look good or have them re-done. Be sure to chose your cabinets to be durable, good looking and affordable. Home Depot has a line that is rehab grade that is mostly plywood that is truly a great bang for the buck. You dont need solid wood but, steer clear of pressboard/mdf. Also stay clear of off the shelf products that use a poly shrink film for color and coating. These fail the fastest. The white ones at Home Depot and Lowes are terrible. Avoid at all cost.
Make sure your place is neat and orderly so it can be clutter free. Your cleaner will have a much easier time completing their job if their task is easier. Your guests are going to critique this. Some families prefer no shoes in the house. If their white socks or bare feet get dirty, they will leave a bad review claiming dirty conditions. Curb this by having quality floors that are easy to clean and quality surfaces that are also easily cleaned. They want a home but at the same time they want a fantasy. They want to spend a few moments in time pretending they live in your home. Make it amazing and clean but keep your profits in mind at all times. You’ll quickly find the balance. If you end up with a sub-par rehab or something that maybe your budget has been maxed out on for this part of the project, don’t worry. You can overcome this with a high quality furniture design and go back to some of these items when you start to profit and pay back your investment. This has worked quite well for us but is no means a substitute for quality bones. Don’t forget to be flexible and creative to solve problems. Being a good problem solver will be a skill you will get very familiar with. Try to stop every once in a while to place yourself in the shoes of your guests. This will go a long way in helping you make decisions.
When working with contractors try to give them as little monies up front as you can. Always try to negotiate total price and deposit as well. Most contractors are just throwing out numbers anyway to see if they stick. I just negotiated a $2700 invoice down to $1500. It can be done. Also, never ever give more than 50% of the total contract value. In most cases try never to do this unless you know and trust said contractor. Even then you’re at risk. This means they would have completed half of the contract before they’ve even started which is never the case. Most professional contractors that have an established well managed business will only require 5-10% deposit to secure your spot and to cover mobilization costs. If they ask you for money upfront to pay for materials they basically want you to provide the credit or buying power that they lack. They should have either plenty of capital or credit to do this. If they don’t and insist and you still want to proceed then suggest you buy the material personally so you own said materials. Otherwise if they ghost you there is still a way for you to get your money back. It should work like this…Deposit of total amount and a payment schedule based on percent complete. Usually 25,75,90 and a 10% hold back for final completion and punch list. This can be adjusted but is very common for these types of projects. You will always want to have a schedule of values based on this so you know what you’re paying for and at what point in the schedule you are approving. Always get a schedule. You can hold them to this as they can hold you to a similar payment plan. The ultimate goal is for them to finish on time and you to pay on time. I will caution you to do otherwise and the reason is this…
Contractors can lien your property if you don’t pay which means their contract is secure. You cannot lien them. You can only file a lawsuit and this will cost you time and money to recover. All they have to do is file a legitimate lien and when you sell they automatically get paid. Always review your contract line by line, strike what you don’t like and keep amending until you’re on the same page and have a final contract. Don’t be in a rush. Get your contract fully sorted before starting. It will protect you. If they get angry or pushy this is a red flag.. Find someone else.. you hold the money and the power.
Hope this helps