Hundreds of future and current real estate investors call our office each month to discuss a potential opportunity to work together. While it’s true that every deal is different – there are some components of a fix and flip that never change.
After originating over 800 loans in the last 5 years, one constant we’ve found is this: selecting a contractor is one of the riskiest decisions a flipper will make during the course of a deal. But fear not! Proper due diligence can help mitigate this risk. Here are some tips for choosing the perfect GC for your next flip.
Leverage Your Network
If you’re an experienced real estate investor or just starting out, chances are you’ve at least checked out one of your local real estate investor associations (or REIAs). If you haven’t, you should.
These networking groups and meetups are an excellent place to meet with like-minded investors, as well as the supporting companies you may need throughout your deals. Who better to give a referral for a fix and flip general contractor than someone who has just completed a fix and flip with said general contractor?
But don’t just check references. Really check references. Ask the contractor you’re interviewing for 3 local samples of his work, and then go visit them. Take a look first hand at the projects they’ve told you are some of their best work. Walk the property, speak with the owner, and do your best to get a feel for the quality of their work and what it’s like to work with them.
Interview Multiple Candidates
There is no rush to select a contractor. Treat hiring your GC like every business treats hiring a new employee. Don’t just hire the first person you meet. Instead, conduct professional interviews with several candidates to find the one that is best suited to your unique needs.
Just as you’re treating the selection process like a professional interview, expect your candidates to do the same. Their professionalism during the hiring process should provide some insight into what you can expect from their professionalism and reliability throughout the renovation.
One of the most effective ways to compare contractors is to ask each for a detailed scope of work describing the work involved, cost, and time required. This will not only help you, as the project manager, get an idea for what the professionals think needs to be done but will also help you compare contractors on an even playing field. Without a detailed scope of work, it would be impossible to know if the multiple bids you’re receiving are actually comparing the same tasks.
Get Comfortable With Draws
When it comes to money management during a fix and flip, most hard money lenders operate using the concept of draws. Draws done in arrears essentially means that the lender does not front the cost of renovations or construction, but rather reimburses the investor for the cost of work as it is completed.
While this process is common in the real estate investing industry, it’s important to make sure the contractor understands and agrees to this arrangement. The draw process not only helps keep you as an investor on time and within budget, but also helps reduce the risk of fraud or theft by a contractor.
Choosing a general contractor is just one of the many important decisions you’ll make throughout the course of a real estate investment. As a trusted source of local knowledge and expertise, we’re here to help guide you through the process. If you have a potential deal to discuss with a local loan officer, give us a call or pre-qualify online.