Real estate projects usually cost thousands, if not millions, of dollars. As you may already know, working with contractors can be a headache, as construction work involves many variables like deadlines, installments, and complex paperwork. All of these factors can be worrisome to investors who just want the work to be done as fast as possible. This begs the question: How can you ensure that your contractor does not simply walk off before finalizing the project at hand?
Just read on to know how you can protect your investment.
Hire Reputable Contractors
This tip is a no brainer, but you’d be surprised how many investors disregard the importance of background checks. When hiring a contractor, you need to check their credentials and referrals before you even interview them. Most investors do not care about contacting their contractor’s past clients. However, this is a fatal mistake; unless you make sure that your contractor’s referrals are indeed valid, you cannot rush into hiring them.
Also, do not be shy to ask if you can see evidence of their previous work to make sure that the contractor’s work quality is up to your standards. If you have had a positive experience with a contractor in a previous project, it is better to stick with them than risk hiring someone who you have not personally worked with before.
Get the Necessary Paperwork
Yes, dealing with paperwork is tiresome, yet it is indubitably a big part of any construction project. Not only is disregarding paperwork illegal, but it can also prevent you from protecting your rights and cause many financial problems down the line. To make sure that you have all the necessary paperwork, consult your lawyer for more guidance. Generally, you need a construction contract agreement, which functions as the main document signed by both the contractor and the property owner. The agreement should also include blueprints of the project and an estimation of the project’s cost.
Ask for a Performance Bond
Speaking of paperwork, performance bonds are usually a staple in most construction projects. A performance bond is a surety bond for contractors; it ensures that the contractor finishes the project as per the agreed-upon terms. Performance bonds involve three main parties: the obligee, the principal, and the surety.
The obligee, or the property owner, is the party whose rights are protected by the bond while the principal, or the contractor, is required to buy the bond to guarantee the obligee’s rights. Finally, the surety is the insurance company that sells the bond. In case the contractor stops showing up for work before the project is finalized, the insurance company reimburses the obligee. Asking your contractor to buy a surety bond is a foolproof way of making sure that your real estate project will be done on time.
Set a Schedule
Because you will be investing a lot of money in your project, you need to have a way of following up on its progress. Without a clear schedule, you will be blind to how well the project is going. Before your contractor starts working on the project, make sure to come up with a feasible work schedule. Nonetheless, keep your expectations realistic, meaning that you cannot expect your contractor to finish a project that should take months in just a few weeks. To guarantee that the schedule is reasonable, discuss it with the contractor beforehand.
Do not Pay Everything at Once
Another fatal mistake property owners make when dealing with contractors is covering the whole cost of the project before the work starts. Indeed, you need to pay your contractor some of the cost upfront, but paying more than 50% before the contractor actually starts getting to work is unwise. Ideally, you should not pay anything until at least 10% of the work is done; however, your contractor may oppose this idea. To get around this dilemma, you can pay many small installments throughout the duration of the project to both keep your contractor appeased and protect your rights.
Real estate projects are lucrative, but they require careful planning and supervision to make sure they go well. When dealing with a contractor, you may be understandably worried about the possibility of them leaving without finishing the project. Nevertheless, you can protect your rights by asking for referrals, compiling the necessary documents, paying small, frequent installments, and asking the contractor to buy a performance bond. Also, do not forget to check the contractor’s progress once or twice a day, as being onsite can help you ensure that they are following the agreed-upon schedule.