When Allowing Others to Work on Their Rental Property

Every landlord needs a good contractor.  No if’s, and’s, or butts about it.  Unless YOU are the contractor, ensure that your team includes someone you can call for any task, from replacing a garbage disposal to building new stairs.  More importantly, landlords need to use independent contractor agreements when allowing others to work on their property.

The General Contractor

Let’s start with defining a contractor.  We are referring to general contractors or “GCs” for our purpose.  Typically, you find GCs run and manage a construction project.  They are licensed, insured, and bonded (more about this below) and may or may not be the person doing the physical labor.

Often, our GCs will do most of the work and then oversee the subcontractors they hire to do other tasks they are not licensed or experienced in.  For instance, most of the time, our GCs will hire their go-to plumbing or electrical contractor to run water or electrical wiring for the project.  Similarly, even though no license is typically required, they will also sub out tile work, countertops, and flooring installation.

License, Bonding, and Insurance

We suggest only using licensed, bonded, and insured contractors when allowing them to work on your rental property.  A contractor who takes the time to pass the general contractor test puts up the money for a surety bond, holds proper liability and workers compensation insurance is one who likely wants to do right by their business and your project.

General Contractors License

In a perfect situation, a contractor would have worked for another GC to learn the basics, then study codes and practices, take and pass the General Contractor Test for the state they wish to work.  But unfortunately, getting licensed is not cheap.  It can cost hundreds to apply to test and thousands if they take courses in advance to learn material not taught on the job.

Surety Bonds

Many states require a licensed contractor put up money for a surety bond.  This bond is what you can go after should the deal go south.  The bonding company will cover your lost expense and go after the GC to get the money back.  It removes the task of you having to go through a lengthy legal process to get your lost funds returned.

Insurance Policies

A reliable GC will be adequately insured.  If you know us, proper insurance is a big deal.  We’ve written several blogs about insurance for rental properties alone.  Contractors should carry liability insurance if they perform a task that causes damages.  For instance, they are working upstairs and bust a water pipe that floods the unit below.  Yes, you have insurance, but why should your rates go up from filing a claim when the contractor has proper insurance to cover the issue?

If a GC has employees, they must have worker’s compensation insurance to cover them in case of an injury on your project.  Accidents happen A LOT so make sure the contractor you choose carries this insurance.  Be mindful of a contractor that picks up a couple of day workers at the big box store to work on your project.  Who do you think they are going after to receive compensation if they get injured?  The property owner for sure.

Why are these items essential?  Because if a person is willing to go through the trouble and expense to do things the correct way, they likely will have this same drive and responsibility to do right by the jobs they are hired for.

Screen Your Contractor

Now, let’s be real.  Many states do not require a general contractor actually to test on building codes and tasks.  Much like getting ordained to marry others, in some states, anyone can go online, apply, pay the fee, and boom!  You’re a licensed contractor.  This is why it is of utmost importance to screen a contractor like you screen your tenants.

Make sure they are licensed.  Simply go to your computer and search “(Your state) contractors license search,” and the link to verify if they are licensed should pop up.

Verify their bond and insurance are current by asking to see a copy of it.  The expiration date will be noted so you can see if it has lapsed or not.

Interview them

Ask:

• How long have you been in this line of work?
• Do you have a specialty in the field?
• How many employees work in your business?
• Do you pull permits, or do I?
• When would you be able to start working? What’s your timeline?

Check out their social media and google them:

Many contractors will start social media accounts to show images of the jobs they’ve performed.  Check the comments below to see if anyone has good or bad things to say about their quality of work.

Check the Better Business Bureau

This will show you if any complaints have been filed against them.  Yelp even has a section for contractor ratings.

A good GC will have references ready to go.  Often, their last client will allow a potential client to come to their home to see the work performed and talk to the homeowner about their experience.

If you’ve found someone reliable, hire them to do a small task first.  This job will give you a good sense of the contractor’s time management, skill, and temperament before getting into a large project.   We did this.  Our painter (friend) had recommended a general contractor who had worked on his mom’s house.  We hired this GC to do some dry rot repair on the back of our 6-plex to gauge his experience, workflow, and ability to be mindful of expense without cutting corners.   Although he was slow, he was meticulous.  All corners were tight, there were no large gaps to fill, and he was not wasteful of materials.    The cost he charged was much less than we had paid before; however, his performance was slower, and the cost per hour ended up being around the same when the project was all said and done.

We fell into our GC by referral.  Ask other rental property owners in your area who they use.  Ask your realtor if they know of someone reliable who has done work for them or a client.  Then, if all else fails, head to the big box stores at 6 am and hang out around the contractor desk.

Use an Independent Contractors Agreement (Contract)

Ok, here’s why landlords need to use independent contractor agreements.  When you finally find that perfect GC, make sure you both sign a contract that states explicitly at a minimum:

• The scope of work to be performed
• The timeframe in which the job is to be completed
• Who is responsible for what tasks? Owner or GC to pull permits, select materials, etc.?
• Compensation schedule (deposit plus following payments to be paid at which points during the project)
• Which subcontractors will be working on the project, and when will they be working?
• Dumpsters needed and placement of those during the project
• Will they use your toilet, or do you want them to order a portable one?
• Cleanliness expected: clean the site every day, or not?

Keep in mind that these agreements protect both you and the general contractor.  Often, a GC will have its own legal contract to use, which states the limitations and responsibilities of both the contractor and property owner.

The contract should also include a copy of their valid bond and liability insurance (with your property noted as additionally insured).

This contract is much like a lease.  It will keep everyone honest and protect you if the project goes awry.  In addition, it gives you the legal right to sue the contractor if work is not performed according to the agreement.  Lastly, it will provide the GC with the right to place a lien on your property if you don’t pay.

Hiring A Handyman

Hiring a handyperson to do tasks around your rental property can be tempting.  However, be mindful that if that handyperson is not licensed.  For example, let’s say they install an appliance for you.  Should the installation be completed incorrectly, the warranty on the appliance may not be covered.  Often you can find a handyman who is an older contractor, a licensed general contractor who still is young enough to work, just not on large projects or ones that require a lot of lifting or strength.  Not to say they are not strong enough, but smart enough to know their limitations and prefer a project that takes a couple of days or weeks, not several months.  Again, this handyman should be licensed, insured, and bonded.

Something Else to Consider

Where this blog focuses primarily on persons who physically work on your rental property, the fact that landlords should use independent contractor agreements applies when hiring an independent contractor to work in your business as well.  For instance, if you hire someone to do your bookkeeping or cold calls for wholesaling, it is essential to have an agreement that states specifically what the tasks are, their compensation for such tasks, and anything else that is pertinent to the position.

The last word of advice is, NEVER prepay for work performed.  Feel free to give a deposit in the event materials are needed and give small amounts as the project progresses but beware of anyone needing full payment in advance.

Check out our other blogs to guide you on your self-management journey as a landlord:

How To Improve Tenant Relations

How The California Deck and Balcony Law Affects Your Property

10 Tips for DIY Landlords

Security Deposits: 5 Tips Landlords Should Know

Cash Reserves for Rental Properties, How Much is Enough?

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