Ask anyone who has some experience in real estate development, and they will likely tell you that their project succeeded or failed largely due to the strength of their contractor. Like it or not, the general contractor, or GC, can make it or break it when it comes to having a successful project.
Once a general contractor has completed a good amount of work on a given project, it would be very tough go from “uncle Billy”, to “uncle Sam”-half way through. The new guy can blame a myriad of things, including his own mistakes on the short-comings of the previous contractor, so strive to find a GC who will take ownership of the project “soup to nuts”, or beginning to the very end. For that reason, you should pay extra attention from the get-go when selecting your GC.
Finding a capable and reasonably-priced GC, who is available, can be tough. The truth is that great contractors are often treated as best-kept secrets, as no one wants to lose a fantastic GC to another developer once they find them. What this means is that you should cast your net wide when looking for a GC, including attending local REIA events, read-up posts of online real estate groups, and ask for referrals from existing investors. It is very common that a good general contractor is in high demand, so be ready to spend some time to find a GC with whom you are ready to entrust with your project.
Tip: Find a property online that was recently renovated and sold, and where the finishes look particularly good. Go online and figure out who pulled the permits for that property and reach out to that general contractor.
Interview multiple candidates
GCs, just like with any trade, come in all levels of competency, experience, and responsiveness. You would be doing yourself a disservice if you do not interview at least three to four candidates before picking one who you want to hire. Knowledge of the local permitting process, experience with a particular type of project (gut renovation vs. ground-up, etc.), and a number of projects that a GC is currently working all are all relevant considerations. Compare your candidates’ qualifications side by side, consider their existing work-load, and have a face-to-face meeting to get a sense of comfort with any given candidate.
Tip: Ask to meet the GC on site of his current job to get a feel for how neat or disorderly the job site looks, whether people on site look professional or are a mess. You can expect your job site to look very similar should you take on a given GC for your project.
Do your diligence
Is your contractor fully licensed and insured? If you are taking on a bigger project, is your GC bonded? The bond provides a certain amount of liability protection, and if the contractor fails to complete the job as contracted, the bond can provide compensation to the property owner. Has your contractor been subject to a stop-work order? Are they knowledgeable and wiling to explain local building codes? Are they adamant about a compliance with these codes or local regulations? Steer clear of a contractor who tries to work around the law – you should get that sense after thorough diligence.
Tip: Once you select a GC, make sure to add yourself as additional insured to their insurance. It doesn’t cost them anything extra, but you will get notified in case their insurance coverage expires.
Nothing speaks better about a GC’s competence than his previous clients giving rave reviews! Make sure to call all of the references provided, and ask regarding what went wrong. Some contractors drag things out, which is often a result of them being spread too thin. Taking on 3 to 4 projects at a time leaves limited time to pay ample attention to any given project. GCs sometimes submit excessive number of change-orders, which are increases to the budget due to a change in the scope of work. While change orders can be undoubtedly warranted, make sure to understand how well a GC stuck to his originally proposed budget, as major deviations can be fatal to profitability of your project.
Tip: Having a clear system in place, such as all change orders above an X dollar amount must be documented and signed by both parties, this will save you lots of dollars on your project.
Ask for a detailed scope of work and compare bids
Once you have narrowed down your choices to a few contractors, you should request them to put together a detailed scope of work. At this stage, it is important to examine the level of detail in their work, as some budgets will be more detailed and all-encompassing than others. Also, note how long GCs take in getting back to you. A thoughtful GC is likely to get bids from his subs to get you a real number that he should be able to stick to. This might take a few weeks (depending on the scope of your project) but is a necessary step to getting to a real budget.
Finally, make sure to have a clear understanding regarding a payment plan. For example, the flooring needs to be completed 100% (and not 90%!) before you release your draw for the flooring. Having this transparency regarding your expectations upfront will save you headaches down the road.
Tip: Have a finishes list. You want to know upfront what to expect in terms of the quality of finishes, as those tend to range quite a bit. Have your prospective GC show you a detailed finishes list before you hire them.
As a final note, make sure to stay involved! Just because you have found a GC who appears to be a good fit, doesn’t mean you should expect to be a passive investor. Expect to check-in a few times a week on the progress of the job. Inquire regarding the status of permitting, inspections, and various big-ticket orders for the job. The more engaged and active you are, the more likely you are to have a more engaged and responsive general contractor!