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The best advice to anyone managing a rehab is 'be there'. That is, be on site and manage the rehab. Keep an eye on the work being done, and ensure everyone is on task, on time, and on budget. Unfortunately for many of us, that's not possible due to the distance between our homes and our investments.

After being burned by a couple of contractors who started off great, then became total nightmares, I've developed a system which is now working really well. The main problem seems to stem from contractors wanting cash up front for work they haven't done yet. If you aren't going to be onsite watching over them, this is a bad idea. It's probably a bad idea even if you're onsite! The system I now operate under is work is invoiced on a weekly basis by the sub-trades, then vetted by the contractor for accuracy. The invoices and photos of the completed work are emailed to me the following week, and I approve them for payment. I have set up a separate bank account for my contractor that has $100 in it, and he has signing authority. As I approve invoices for payment, I transfer the appropriate amount into the contractor account at my bank, and I print the checks to a pdf file, and email it to the contractor. The contractor prints the pdf onto a blank check, signs it, and gives it to the sub-trade for payment. If you use a program like Quickbooks Pro, you can print your checks on a laser printer. The nice feature is that the checks don't have to be in your laser printer; they can be in your contractor's printer. By printing to a pdf file, the contractor simple puts the blank check in his printer, and prints the pdf file, and signs it and he's done.

There are some great advantages to this scenario, and few negatives. My sub-trades always get paid, and on a weekly basis, so they are happy and want to work on my jobs. Most other sites they have to wait for the contractor to get paid, then get around to paying them. That's usually 3 or 4 weeks if they're lucky. I know my sub-trades are getting paid because the checks are being made out to them, and I see a scanned copy of the check online after they cash it, so I know they got the money, and the contractor didn't pocket it. The contractors are happy because it minimizes their paperwork and they don't have to manage any money except their own. I also like it because I pay exactly what the sub-trades charge, without contractor markup.

The only place this doesn't work is with the larger jobs that need to be done, like roofing, new windows, or paving. However, for these types of jobs I know well in advance the work is being done, and those jobs usually require 25% to 33% down, with installments paid as the work is completed. This is easy to manage with a mailed or couriered checks if you don't want your contractor to handle that much money, or you can use the same process as with the sub-trades. As with the sub-trades. installments and final payments are not made without photos of the completed work, and sign-off from my contractor. I also try and make sure I have the chance to inspect the work personally on the larger jobs.

As an owner, you really must make the time to inspect your properties on a regular basis. This is even more important when you have major rehab work under way. I make a point of checking my properties on a monthly basis when work is being done, and every 4 to 6 months if it's operating normally. I know of investors who haven't been to their properties in quite some time and they wonder why things aren't running as smoothly as they expect. Property managers and contractors don't have the same attention to detail that you would with your own property. It just makes good business sense!

 


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