Maximize Your Flip: How To Choose The Right General Contractor And Increase Profits
There are numerous ways to invest in real estate through your self-directed IRA. Two of the most popular choices are flipping and cash-flowing properties.
Whether you’re in the business of flipping properties or not, you know your profits depend on how quickly you can transform a property from an outdated and run-down building to a quality, contemporary gem.
Flipping properties takes knowledgeable financial and construction teams to be successful. Picking a general contractor (GC) who has expertise in flipping properties can make a huge difference in the profits and success of your flip.
A lot goes into the selection of a GC for your property, let’s break down the most important parts of your decision to ensure you don’t end up in a messy situation.
What Is a General Contractor?
General contractors are individuals or companies that manage the various aspects of construction so you only have a single point of contact for your project. For example, once you hire a GC, they are the ones who secure building permits, handle the required inspections, and coordinate the timeline of construction.
Managing the timeline of construction is one of the biggest tasks a GC will do for you. GCs coordinate a network of subcontractors (individuals who specialize in an area of construction such as plumbing, carpentry, painting, etc.) so that the work is completed in a timely fashion.
Keeping tabs on the schedule ensures there are no costly mix-ups such as hanging drywall before the plumbing and electrical are completed.
How Do You Choose a Good General Contractor?
Finding a good GC for flipping properties can be the choice that makes or breaks your project. Choosing the right person up front can help avoid costly mistakes.
Here are 5 of the most important things you should consider when making your selection:
A good reputation: Ask your friends, family, neighbors, and professionals you trust to see if they have any GC recommendations. Firsthand experience is an excellent window into how a GC operates and if they deliver reliable, quality work.
Construction experience: There’s no substitute for prior experience when it comes to flipping properties. When selecting a GC, ask to see some of the projects they’ve completed so you can get a feel for their style. There may be some details you can’t tell from a picture (like the overall quality and how long the project took) but a GC with a large portfolio of prior work is more likely to have a decent track record than one who can’t show you any work they’ve completed.
Proper licenses: This one is obvious enough that it sometimes gets overlooked. Ask to verify a GC's license early on in your interview. All GCs should be licensed where they work and you can cross-reference that information with the state where they hold their credentials.
Locality: If you’re flipping properties in an area where you’re not already well-established, you may want to consider using a local contractor. Assuming everything else checks out, the networks and connections a local GC brings to the table are going to be quite useful for completing your property flip. Local GCs are also more likely to be familiar with specific building codes, required permits, and the inspection process which can save you both time and money.
Insurance: All GCs should carry their own insurance. Don’t hire one who isn’t willing (or is unable) to provide you with information on the insurance policies they carry. At a minimum, this should include general liability insurance and worker’s compensation.
How Does the Payment For These Projects Work?
Another crucial component to selecting a good GC for your property flip is to evaluate their payment policy.
It’s customary for GCs to require some form of down payment on a project to help offset the initial cost of materials and permits. After that, payments to the GC are often made at regular intervals. There is typically one final payment made once the work is done and everything is considered a finished product, including the inspections.
The amount of money a contractor requires upfront can vary but anything around 25-30% is reasonable. Different GCs will have different policies but a major red flag is any GC who requires full payment upfront. Not only does this indicate that they may not be financially stable, but it also leaves you vulnerable to fraud if the GC takes the money and doesn’t complete the work.
Finally, ask your contractor what methods of payment they accept. In some instances, contractors who adamantly prefer cash payments are less reliable than others who accept a variety of payment methods.
Cash payments can be harder to trace, but if you do decide to go this route, protect yourself by ensuring you get dated, signed receipts for all services rendered.
Putting It All Together
Once you’ve done your research into local GCs and chosen a few to meet with, it’s time to make a selection.
Typically, this looks a lot like any other job interview. Having a simplified list prepared can make the selection process easier.
Some examples of questions to ask might include:
How long have you been in business?
How often do you work on projects like this one?
Does your team work for you or are they subcontractors?
How many days per week does your crew work?
What is your expected payment schedule?
Do you have a contract that you draft for these projects?
If you feel comfortable with their answers and your conversation, you can move on to the next step, which is having them provide you with a bid.
Getting A Bid
After you choose a GC who meets all of your qualifications and you feel good about hiring them, it’s time to get a bid.
You and the GC will go to the future job site, discuss the scope of the work, and then they will provide you with a bid.
You may want to obtain multiple bids from different GCs so you can compare the overall costs. Pay close attention to ensure various bids contain the same items so that it’s comparable and you understand why one contractor is quoting differently than another.
The lowest bids are not always the ones you should go with first. Trust your intuition in this step and pick a GC that makes you feel the most confident overall. By this point in the process, if you still have any major concerns about your choice, take a step back and address them, or as inconvenient as it may be, start over from the beginning.
Choose the Right GC For Your SD-IRA Property Flip With Chicago Trust Administration Services
At Chicago Trust Administration Services, we have an extensive background in the management and administration of self-directed IRAs. We specialize in helping our clients capitalize on the benefits of an SD-IRA by helping you make investments while ensuring those transactions remain compliant with the IRS tax code.
Whether you choose to flip properties within your SD-IRA or other creative investment opportunities, we’re here to guide you through the process.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.