Welcome to “Tarl's Weekly Insights," my take on real estate today.
Hey there,
Welcome to Tarl’s Weekly Insights, my take on real estate today.
In these newsletters, we'll dive deep into the real estate world, share valuable investment strategies, and explore the craziness that life has thrown my way. Whether it's my struggle and journey of overcoming flipping, deciphering the insanity of the market, successful strategies being used in REI, or just me making fun of social media real estate investors.
I can't wait to share it all with you...
How do you onboard a contractor into your business?
When I was newer in this business, I thought all I needed to do was find a contractor, get them to bid the project, then give them a deposit, and sit back and wait until the house/project was fixed up...list it...and count my money after it sells! So easy! Right!?
No one ever told me that I should make sure these contractors were licensed, had workers comp (or signed a waiver), get lien waivers from them, W9's, file 1099's on them, make sure they have insurance and a bond...and make sure all their stuff is up to date and actually theirs...wtf...
If you are in the business for the long haul, or have done a lot of projects like myself, there is going to come a time when you are going to want to create a simple and duplicatable process for 'onboarding' a contractor into your business (or you will wish you had a process after its too late).
Sure, it can seem like a pain when time is money and you want to get a new project up and running as fast as possible. However, most contractors are used to being asked for proof that they legally can do the work for you, and most (not all), expect you to want to have them provide some documents.
In fact, the more my company has held a professional standard when onboarding a contractor, the more professional the contractors have treated us. Additionally, one benefit that we didn't expect, our process helps us weed out the bad apples before they ever become a problem.
So what do I require from all my contractors before they ever start a job on one of my projects? It's simple, here is the list:
License - whether it's their GC license, specialty trade license (electrical/plumbing/mech, etc), or business license. We require it. All it takes is one time to get burned by an unlicensed contractor (whether by the contractor, or the state regulators that catch you), for you to use only licensed contractors.
Workers Comp OR a signed workers comp waiver - most states require contractors to carry workers comp when they have workers. Some do not require it if they are a solo person business. Either way, I get their proof, and/or I make them sign a workers comp waiver stating that my business owes them nothing if they get hurt. Make sure this is legal in your state.
W-9 - need this so that we can accurately file a 1099 for the IRS on anyone we paid more than $600 to. I remember one year when a contractor asked me where his 1099 was for the year...and I was like "Why do I need to get you that?" and that's when I learned that my business should be filing 1099s on all the contractors as paid...
Proof of Liability Insurance AND making us an additional insured - this one took me a bit to realize that I should be requiring this on all contractors. Would suck to have a contractor destroy your place and then find out later that they don't have insurance.
Proof of Bond - most states mandate that contractors have this, and to keep it up to date. One way I know a contractor is going under, is that they don't pay their bond. Another way, they weren't able to renew...or they changed their business name/entity because they blew up their other bond (crafty). The bond is pretty much your first line of financial compensation if the contractor messes up your project. We also confirm with the state that all their stuff is up to date.
That's it! Seems like a lot, but we only have to gather these things one time. Believe it or not, most contractors are ready to provide this stuff to you pretty simply. The only other thing we do that is next level, is we confirm their status with the state every few months, and we make it a reminder. There has been more than one time an awesome GC of ours forgot to renew their insurance, not because they meant to, but because they forgot.
Of course, before we ever pay a contractor, we also require a bid, a contract (if bigger job), and an invoice. Throw in a lien waiver for good luck, and your bases are covered for most things.
Get in the habit of this today, and your future self will thank you WHEN you either get in trouble with a contractor and/or a state-regulating body...I've had both, and proper documentation has saved us headaches more than once.
Join me in Austin Texas March 8th and 9th for our first in-person workshop and meetup! You can find out more details here.
This is a Flippers Anonymous member event, so be sure to join our community today and come see us in person this March!
Let's stay connected! Find me on social media at @tarlyarber and stay updated with additional videos and content.
That's it for this edition of Tarl's Weekly Insights! Stay tuned for more each week!
Talk Soon,
Tarl Yarber
