There comes a point in the homeownership process where the services of a contractor will be required. The problem that most rental home owners face is not knowing how to select the best person for the job. Learning how to choose a contractor is a skill that will be rewarding throughout the term of running an investment property business in the U.S.
General Construction Contractor Defined
A contractor, sometimes referred to as general laborer, is a person who is state licensed to perform upgrades or repairs to a home. These workers do not specialize in any particular area of construction although are qualified to perform work legally. Every state has laws that pertain to licensing and contracts when it comes to working with a general contractor.
Common Types of Contract Workers
1. National General Contractor
Someone who represents a national company and performs work for homeowners is known as a national general contractor. Most rental home owners who are introduced to these professionals should understand that the person who negotiates the work is not necessarily the person who will complete the job. These companies outsource work to local contractors at a reduced rate and usually have higher prices that are passed to property owners.
2. Handyman or Two-Man Crew
Not all handymen are licensed to perform construction work although some people seek licensing. Some individual workers perform either interior or exterior work although not both types. A general contractor can sometimes work in pairs of two in order to get work completed on time. Many two-man crew members are skilled in different types of construction and know how to obtain permits for each job.
3. Mid-Level Contractor
Some smaller companies that specialize in flooring, HVAC, roofing and general construction are known as mid-level contractors. These companies typically work with one or two clients at a time in order to finish the job on schedule. These professionals often outsource work to electricians or plumbers due to licensing issues at the state level. The average mid-level company has teams of four to eight workers on each job.
Average Contractor Fee Percentages
When negotiating directly with any type of contractor, a percentage of the job bid will go towards profit. This is known as the contractor fee percentage. While this rate varies nationally, some rates are as low as 25% while others can be as high as 150%. Fees are always negotiable and a good rule of thumb is to check first with property management companies about rates. A management company can sometimes provide referrals to excellent workers.
License Research and Payments
Before hiring any worker to complete repairs on an investment property, it is best to research the license of all people who will be on the job site in the state in which work is performed. Not every worker is a licensed contractor and some who are might not be insured. Knowing in advance who is licensed and insured can help in the decision making process. Payments to a contractor, when not setup through a property management company, should always be in fractions of the total bill.
It is common to provide 25% upfront for labor or material costs to start the job. A sliding scale percentage can be setup until the work is completed and all parties are happy. This prevents contractor fraud during the repairs time table.