Best Way To Hire And Pay Contractors?
I've just bought a couple of houses that need more rehab than I can do myself. A couple friends who are not licensed contractors yet are good and are willing to work for cash under the table (I'll be working alongside them). Convenient and familiar as it is, is it worth the risk? I'm not a big fan of paperwork, but recognize that there is liability, and for tax/profit reasons, I should document my expenses. Would I be better off hiring them as indep. contractors at least? I cringe at going whole hog and setting up FICA, workers comp, etc., but is it time for that? There will be more jobs. Thanks for insights from your experience.
Hiring them as independent contractors would work best. The IRS has guidelines on how they decide if the contractor is independent or an employee. Do a web search and you should turn up this criteria. If they are independent contractors and you pay them more than $600 in a year, you are suppose to issue a 1099 to them.
IMHO, its not worth the risk to have unlicensed people come onto my INVESTMENT property and take a chance of something going wrong.....without having any recourse.
Also, friends are friends.........but business is business......seldom do the two work out.
If you want to act as your own contractor and you have the management skill and good contacts to carry on such a task, then use licensed & insured independant subcontractors.
Less paper work involved. Make sure they give you a copy of their workers comp and general liability insurance policy (check that they have sufficient coverage) as well as filling out a W-9 for your records BEFORE paying them.
NC_Yank
I have to agree with NC_Yank on this one. Hire licesned & insured subs as it's not worth the future liability just to save a few bucks now. Not to mention, at least in my area, if these are not your personal residence (assuming they are investments) then it would be illegal to perform the work with unlicensed workers, not to mention you wouldn't be able to pull the proper permits. In today's society you need to always be thinking of liability.....
What about using your friends for some of the more simple and limited risk activities like interior painting, landscaping, etc, and using licensed contractors for the bigger and riskier jobs like electrical, structural, etc.
As I have not done a lot of major rehab, I am putting this forth not as a suggestion, but as an an idea on which I would enjoy feedback.
Has anyone used Handymen for minor rehabs? Do they carry a liscence and their own insurance?
In Connecticut, a handyman needs a professional license called a "Home Improvement Contractor License". I'm assuming other states have similar requirements.
Mark
There are lots of things that need to be done on a rehab house that don't require licensed workers or permits. Those are great places to start with your friends and see how things work out.
Just a few - carpeting, painting, molding, replacing interior doors, replacing any items in the kitchen as long as you aren't moving plumbing is fine (cabinets, counters, sinks, faucets) the list goes on and on...
Hey,
Do not hire friends.
Do not rent to friends.
Do no sell to friends..
No matter how easy a job is, you are looking at liability if it goes wrong.
For example: You hire two friends. One is going to clean the gutters and the other is going to cut the grass. The guy on the ladder falls off and hits the guy with the lawnmower, who runs over the first guys's hand.
if you can't think of anything that could go wrong, e-mail me and I will come up with something.
You have insurance on the rehab house and liability insurance right? You have an umbrella insurance property on your personal property? You have ownership of this home through a proper business entity like an s-corp right?
If all of the above is true, let them shoot each other with nail guns all day long.
Using your friends to help out is no more of a financial risk then your renters suing you for something later, or the paperboy falling on ice in your drive way at your home.
Thanks for the input. I'm pretty small, buying properties in my LLC's name, no umbrella policies or S corps yet. I tend to believe using friends (really, just one in particular who's not yet a contractor) is OK, and I trust them as much as possible. Nobody thinks of me as rich--and I'm not--just because got good terms on a couple of houses that need some work. I'm planning to pay by the hour but hiring them as indep. contractors, issue 1099s, etc., though I hear that if they work for hourly pay they're not technically indep. contractors, which is a detail I'll have to sort out.
Call me naive, but I plan to use knowledgable friends for the 'heavy lifting;' the more skilled work. I will be the assistant, for now at least. Then I can learn from them and also keep an eye on things, at least for my first few rehabs. I know there are risks. But lawyers and doctors will tell you about all the dangers out there because all they usually see are problems. It's pretty uncommon for someone to come to them and say, "Hi, just wanted to drop by to let you know that everything's going great today and I don't need your help with anything, no problems at all" Wish me luck.