One of the things you’re going to learn is always make sure you are behind the contractor in the amount of work. Let’s say the contractor does a $1,000 repair. What I suggest is that you only give that contract $200 or $300 to start.
Make sure he goes out and buys the supplies and all that stuff. He starts the work and gets about 50% done, so then in theory he’s done about $500 worth of work but you’ve only paid him $200-300. That’s fine. If he wants to wander off and go do something else and not show up on time you can get out of that and you haven’t lost any money.
At that point you maybe give him another $300. Now you’re into him for $600. He finishes the job. He did $1,000 of value and you’ve paid him $600. At that point you would inspect the job, make sure it’s done properly, and maybe have your tenant test it. If it’s a toilet or something like that, make sure it works and everything looks like it’s okay. Then you would pay him the final payment.
What I am saying is always, always make sure that you are paying them behind the amount of work they’ve done. I guarantee it will make your life so much easier.
Now if that guy wants to start playing games and show up late or go wander off to do another job for a week and leave you hanging, you know what? You can get somebody else to come in and finish the job. It’s not the end of the world. It’s certainly not what you want, but at least you’re not going to lose money.
Don’t violate this thing. Don’t let the guy talk you into paying you $1,000 up front and then do only $300 worth of work and you can’t get him on the phone. That’s when you really get upset. That’s when you guys are exposed. I’m trying to save you from some of those things. Make sure that you are behind the contractors in terms of payment.
Let’s say you can’t get there to test it. The contractor’s finished and he’s really bugging you to get paid. What I would suggest is you hold back 10%. In the example we did, you would hold back $100 until you can get out to test and see what’s happened and if the work is done right.
Make sure, particularly in a cleaning or something like that, they clean up properly and stuff like that. If you had to hold back 10%, you at least try to compensate yourself for having to maybe clean up after your own contractors.
Make sure that any time a contractor is going to do work – let’s say over $200 or $300, anything significant – that you have it in writing. Have what’s going to be done, when it’s going to be done, what materials should not be used and things like that. It’s very clear and concise.
It’s remarkable how often contractors and you a week or two or three later and your recollection of what was to be done changed quite a bit. His recollection will shrink quite a bit and yours will expand. What will happen is you will get into a lot of discrepancies and arguments.
Try to get it in writing particularly if it’s significant dollars. If it’s over $500 there’s no question that it should be in writing. Smaller jobs you may be able to get by without it. Make sure it’s writing so it’s very clear as to what’s going to be done, when it’s going to be done and things like that.
I invite you to learn more about Property Management and get a free 60 minute audio titled “Learn the 10 Success Secrets of Property Management Every Real Estate Investor Must Know to Maximum Profit and Avoiding Tenant Headaches” by going to http://www.realestatewealthtoday.com/PMS.html.
Mike Lautensack is the owner of Del Val Property Management LLC, a FULL service residential property management company located in Philadelphia, PA.
