Drafting Your Contractor Team

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Drafting Your Contractor Team

Once rehabbers or developers line up a project, the next step is to draft their contractor team. This team will see the project through to completion, addressing each issue with ease and professionalism, resulting in a smooth process for all.

Here are some helpful tips to ensure that developers line up the right contractor team to efficiently turn the project within a reasonable time.

Plan Ahead

Developers need to plan when purchasing an investment property. Once the property closes, an immediate start date is essential for a quick turnaround and prevents developers from having significant carry costs.

Some integral steps  for developers to plan include:

  • Interview and vet contractors early – before the project closes.
  • Obtain bids from qualified contractors and do any required due diligence ahead of time to help maximize the amount of work accomplished within the required time period.
  • The goal should be for developers to find between two to three contractors that they can use for other projects, which makes it easy to select from a qualified pool of applicants. Developers should start interviewing potential contractors early and have this qualified pool before contracting to purchase a property.
  • The best contractors are busy and booked up months in advance. Booking early is crucial for ensuring a quality contractor.

Due Diligence

It’s important that developers do due diligence when selecting contractors. Here are some ways developers can execute this:

  • Reference Check – Established, reputable contractors will have references that developers can check. Developers should ask these references about the contractor’s work ethic, accountability, performance, quality of work and get an idea of their overall satisfaction. Since job pricing and work crews change over time, it is best to speak to references that are recent, preferably within the last six months to one year. A great question to ask references is if there were any roadblocks or obstacles the contractor encountered while completing their projects. If so, how did the contractor handle these issues? Did it cause any delays in the work? Did the contractor go the extra mile to make sure the project was completed on time?
  • Contractor Specialties – If a property requires specialized construction or services, developers need to interview candidates that meet these criteria. For example, a contractor that specializes in building single-family homes is likely not a good fit for a large-scale commercial property project or even an single family rehab. Additionally, while some contractors may specialize in high-end finishes that are ideal for owner-occupied houses, they can run developers over budget on projects that need average-grade work, such as those for rentals.
  • Licensing – The State of Texas does not require that General Contractors be licensed. However, some specialties do require licensing, such as any repairs to mechanical, structural, electrical or plumbing systems. The items above may also require permits, which will necessitate planning and coordination. Things such as updated finishes, flooring and paint do not need permits in Texas. General Contractors should make you aware of all permitting requirements before starting a project.

Legality Check

If developers require specialty contractors that need state licensing, it is imperative  to check with local or state government offices to verify that all contractor credentials are in place and active.

A direct lender will require the borrower to obtain property insurance, so they will need to hire an insurance agency that is ready to bind coverage upon closing. He or she will also want the GC to  provide a Certificate of Insurance for their work before commencing.

Additionally, it is important to regularly inspect the contractor’s work, especially at the time of all requests for payment. While there is no required number of check ins, a developer should monitor  their project as often as possible. After all, if a project runs late, it is coming out of the developer’s pocket, not the contractor’s.

Selecting the Best Contractor

When a rehabber or developer evaluates contractor bids, there are several things to consider.  First, what was the quality of the bids? Did all of them have bids from any sub-contractors specific to the job.  If not, the quality of those bids might not be very good and can cause problems (i.e., price increases) later on. For this reason, the low bid is not always the best bid.  Second, contractor bids are not always apples and apples – make sure the bid you take encompass your entire scope of work with allowances for any items that are not yet specified.  Finally, is the contractor and any applicable subs ready to commence on your start date? Contractors often often over-commit since they assume some will not happen, so it is important to understand their workload.

Developers should require that contractors have the capacity, necessary workforce and skills to complete the project on time and budget.

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About Bay Mountain Capital:

Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans over that time period. We specialize in financing all types of residential and commercial property investments throughout Texas. Using a common sense and value added approach, we strive to incorporate these principles into our underwriting and closing processes.

As a direct lender, Bay Mountain Capital can close a loan within one day after receiving clear title and a complete file. The process generally takes from two to three weeks, but can be accelerated where circumstances require it.

We are an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.