Using Construction Best Practices to Prevent Common Pitfalls
You've climbed the ladder of real estate investment and have leveled up your game to tackle new construction projects. But how can you ensure that your dreams to build don't become construction nightmares? The biggest fear for investors is whether their contractor will take the money and run.
Eric Escobar, renowned construction expert and Director of Ops at Esco Builders Inc., gives some advice. Construction lingo sounding a little unfamiliar?
Well, don't worry. This blog post will break it all down in simpler terms.
The Industry's Common Fear: Trust
Speaking from his rich experience, Eric notes,
"The biggest problem and fear for every investor is, 'Is my contractor going to screw me over?'"
To handle this fear, it's important to balance the money behind and work yet to be completed. For instance, when 50% of the project is finished, payments should only total 40%. This strategy reassures the customer and helps establish a trusting relationship.
Engaging Contractors: A Path Strewn with Pitfalls?
During a conversation with Eric, we got the opportunity to explore his journey into the world of real estate investment. The pandemic led him to a pivot from owning gyms to investing in real estate. Along with his father, Eric ventured into constructing Accessory Dwelling Units (ADUs) and later inspired others via social media to do the same. Building trust through delivering consistent and quality work is their motto.
As Eric points out, most contractors unfortunately don't deliver on their promises, which gives other contractors a bad rap and can send ripple effects into the marketplace.
Accessory Dwelling Units (ADUs): A Deep Dive
ADUs, often called granny flats or mother-in-law suites, are an excellent option for savvy investors in high-cost markets like California and Washington. These small units, ranging from 500-1000 sq ft, can be built cost-effectively.
ADUs beautifully offset mortgages or even create cash flow while still providing property appreciation. For instance, converting an existing detached garage to an ADU significantly reduces build costs compared to constructing a new unit. But it can still generate substantial rental income.
Per recent legislation, ADU owners in some states can now convert their units into condos and sell them separately from the main house. This opens up tremendous value-add opportunities for investors.
Evaluating a Contractor: Ingredients of Trust
With horror stories of contractors running away with hefty amounts circulating amongst investors, it's crucial to check your contractor's credentials and overall reputation, including checking for any existing cases against them.
Most importantly, Eric urged investors to trust their gut feeling when choosing a contractor.
Common Mistakes and Lessons Learned
Working with family or closely related individuals in the construction business can be an enriching experience. However, it's essential to handle the dynamics well.
Eric concludes that given everyone's limited time, having the opportunity to work and be productive while spending time with his family is a huge win-win.
Investing in real estate involves tackling complex challenges, not least of which is dealing with contractors. However, as Eric shows us so eloquently, the right strategies, practices, and attitudes can help ensure a smooth construction process and a more secure investment future.
About Benjy Nichols
Benjy has been a media specialist at DealMachine for the last 2.5 years. He produces, writes, shoots, and edits our media content for our member's DealMachine and Real Estate education.