Your Guide to Hiring a Contractor for Your New Construction Project

Hiring the wrong contractor may be one of the most common and costly mistakes real estate investors make—according to a JW Surety Bonds survey, more than 1 in 4 people who hired contractors reported serious problems, with 31% saying their contractor's most frequent red flag was poor communication and 24% citing unexpected costs. The contractor vetting process for investment properties differs meaningfully from a standard homeowner hire: timeline adherence, material spec accountability, and lien risk could all carry real financial consequences. A structured approach to finding, qualifying, and contracting with the right general contractor (GC) could be the difference between a profitable exit and a stalled project.

Key Takeaways

• More than 1 in 4 people who hired contractors reported serious problems—with poor communication (31%) and unexpected costs (24%) topping the list of contractor issues, according to a JW Surety Bonds survey.
• Referrals remain the top sourcing method—Block Renovation's 2025 report found 52% of homeowners located their contractors through personal referrals, compared to just 19% via Google search.
• Lowest-bid contractors may use change orders to exceed a properly bid competitor's price; cross-referencing bids against tools like Homewyse could help investors benchmark fair market rates.
• A detailed scope of work (SOW) specifying material brands, model numbers, and finish levels may prevent costly substitutions and provide legal recourse if a contractor cuts corners.
• The FTC warns consumers against large upfront payments; tying the payment schedule to completed milestones could reduce the risk of a contractor misappropriating funds.

Start with Qualifications, Not Quotes

Comparing bids is a standard first step when hiring a contractor, but it may often become a justification for selecting the cheapest option rather than the most qualified one. For real estate investors, that distinction could matter significantly.

One of the best questions to ask first is whether a contractor is actually qualified to run your project—not how much they'll charge. Price helps you understand what a contractor estimates a job will cost. Qualifications give you insights into whether they can complete it on schedule, within budget, and without putting your reputation or returns at risk.

Many skilled general contractors actively avoid REI rehab work because they have steady, higher-margin residential contracts. Even if you secure a quote from them, they may not understand your timeline constraints, your need for budget adherence, or your focus on value-add improvements over aesthetics.

Before discussing price, consider using this pre-qualification checklist:

• License verification: Confirm active licensure in your state using NASCLA's Consumer Public Safety Resources, which links directly to each state's licensing agency. If your state doesn't require licensing, weight other criteria more heavily. If your state doesn't require licensing, consider weighing other criteria more heavily.
• REI track record: Have they worked with real estate investors on full gut rehabs, or are they primarily handling smaller homeowner jobs?
• Insurance and bonding: Confirm active general liability insurance, workers' compensation, and a surety bond on larger projects.
• Current workload: Ask about active project commitments and realistic availability for your timeline.

Kiavi Tip: For investors managing multiple fix-and-flip projects simultaneously, Kiavi's bridge loan financing for investors includes draw schedules tied to project milestones—which aligns with the same milestone-based payment approach recommended when contracting GCs.

Where to Find Quality Contractors

Finding a reliable contractor often starts with the right sourcing channels. The most common approach—Google search—is also among the least reliable.

According to Block Renovation's 2025 report, 52% of homeowners found their contractors through referrals, compared to just 19% via Google search. For REIs, referrals from others in your investment network could carry even more weight because those references understand your specific requirements.

Referral Networks and Supply Houses

Consider starting with the people closest to your deals: your real estate agent, property manager, and fellow investors who have completed similar projects. They may know firsthand who shows up on time, who communicates well, and who disappears mid-project.

An underused sourcing strategy is the local supply house. Walk in, describe your project type, and ask counter staff for contractor recommendations from their regular customers. Supply house staff often have a candid read on who runs a professional operation, pays their bills on time, and orders quality materials. That intelligence rarely shows up in online reviews.

Professional Directories

Two directories that may be worth bookmarking:

• NAHB's "Professionals with Home Building Credentials"; for certified general contractors with verified credentials
• NAHB's "Professional Remodeler" directory; for certified remodeling contractors with ground-up and heavy rehab experience

Both directories are maintained by the National Association of Home Builders (NAHB) and help provide a baseline credential filter before you begin outreach.

Red Flags vs. Green Flags: What to Watch For

Experienced real estate investors and general contractors often identify the same warning signs consistently. Knowing them before the vetting process begins could help save significant time and money.

Red Flags to Watch For

The FTC specifically warns against contractors who pressure for immediate decisions, ask for full payment upfront, or suggest skipping permits to save time.

Green Flags That Could Signal Quality

A contractor worth hiring typically demonstrates the following:

• Shows up on time for the initial walkthrough with the right tools
• Responds to your inquiry promptly and professionally
• Provides a written, line-item quote specifying material types, specifications, and labor costs
• Proactively raises potential issues before starting—not after
• Can reference recent REI projects similar to yours

One example worth noting: a contractor who walks through a property and identifies a structural concern before submitting a bid—even though raising it means a higher quote—is demonstrating the kind of proactive professionalism that could hold throughout a project.

The Vetting Process

Smart REIs often use a multi-step vetting process that goes beyond checking online reviews.

Step 1: References and site visits. Consider requesting references from 3-5 recent clients, ideally other real estate investors. Then ask to visit one active job site. For larger ground-up builds, this may offer a direct window into their new construction project management capabilities—how they organize materials, manage subcontractors, and maintain site conditions. If possible, visit one or two completed projects from prior years to evaluate how the work has held up.

Step 2: The material specification conversation. Ask the contractor to walk you through their material selections for your specific project—preferred brands, grades, and why they source them where they do. A contractor with real experience in your project type should have opinions and be able to back them up. One who hasn't done this work at this level may generalize or defer. This is a natural part of any serious bid conversation, and the specificity of their answers tells you more than a resume does.

Step 3: The interview. Pay close attention to how contractors respond to your questions. Do they dismiss concerns or provide clear, transparent explanations? Do they push back on your budget without offering alternative solutions? Their communication style in the interview tends to mirror how they'll handle the project.

Kiavi Tip: Investors working on new construction projects may benefit from reviewing Kiavi's ground-up construction financing options, which include draw schedules structured around verified project milestones—a format that maps well to the milestone-based payment schedules recommended when contracting GCs.

The Documents and Details That Could Protect You

A clear scope of work may do more to protect your returns than squeezing out another 2% from the bid.

The Scope of Work

Every line item in the SOW should specify what's being done, where, with what materials (including brand, model number, color, and finish level where applicable), and at what cost. Without this specificity, you're potentially exposed to substitutions.

A common scenario: a real estate investor accepts "countertop installation: $5,000" in a SOW, and receives a laminate product when they expected stone. Without the material specification in writing, there's typically no recourse.

Your minimum documentation checklist for any new contractor:

1. Active contractor license, verified through your state board via the NASCLA Consumer Information page
2. General liability insurance certificate
3. Proof of workers' compensation coverage (if they employ workers or subs)
4. Payment or performance bond on larger ground-up or heavy renovation projects
5. Detailed, room-by-room scope of work specifying material brands, models, colors, sizes, and finish levels
   
   

The Contract

A well-drafted contract may often include:

• Full scope of work as an attachment or exhibit
• Payment schedule tied to defined project milestones
• Project timeline with start date and estimated completion
• A defined process for handling and documenting change orders in writing

The FTC advises against large upfront payments and recommends tying payments to actual project milestones. A contractor who demands 30% of total contract value upfront to complete a simple demo could be a warning sign—that payment structure is typical of undercapitalized operators or those who may use new project funds to cover obligations on other jobs.

Pricing Strategy: Why the Cheapest Bid Often Costs More

Comparing three or more bids is standard practice. But accepting the lowest bid without scrutiny could cost more than the difference in bid price.

Some contractors submit intentionally low bids with the expectation of making up the margin through change orders once construction begins. The cumulative cost of those change orders often far exceeds what a fully scoped bid would have included from the start.

Before finalizing a bid selection, cross-reference estimates against market data using tools like Homewyse, which helps to provide zip-code-specific cost estimates for a wide range of construction and renovation tasks. HomeAdvisor's True Cost Guide helps to offer similar benchmarking.

A few pricing patterns to know:

When one bid is on the high end and another is markedly low, the middle bid is often the soundest choice—even if it means accepting a slightly lower margin on a flip or BRRRR strategy for growth. Finishing on time with quality work typically outperforms chasing the cheapest price and absorbing delays, lien claims, or rework costs.

Building the Relationship: Communication and Expectations

Once you've found a contractor who delivers, the goal is to develop them into a reliable long-term partner. Experienced investors often describe their best GCs as construction partners rather than vendors—people who understand your investment criteria and apply that knowledge without being directed on every decision.

Consider setting a communication rhythm from day one:

• Weekly check-ins tied to the project schedule
• Photo documentation at each completed milestone before the next draw is released
• A written change order process so scope changes are captured and priced in real time, not discovered at final billing

Structure payments to reflect actual completions, not arbitrary percentages or calendar intervals. Contractors who know payments follow verified milestones tend to stay on schedule.

Treat your best contractors well. Fair pricing, consistent project flow, and prompt payment encourage them to prioritize your deals when their schedule fills. In active markets where quality GC capacity is constrained, that relationship may be worth more than any individual negotiated discount.

Final Thoughts

Hiring a contractor for a fix-and-flip or new construction project may be less about finding the cheapest option and more about identifying a qualified partner who could execute your deal on time, within budget, and without creating legal or financial exposure. That means starting with qualifications over quotes, running a disciplined vetting process, putting the right paperwork in place, and building relationships with contractors who consistently deliver.

The real estate investors who scale successfully tend to have repeatable systems for contractor vetting—and repeatable relationships with GCs who know their standards. If you're preparing for your next acquisition or ground-up build and want to understand your financing options, take a few minutes to price out a loan with Kiavi to see what your numbers could look like.

Frequently Asked Questions (FAQs) About Hiring a Contractor for Real Estate Projects

Is it cheaper to hire a handyman or a contractor?

For small, non-permitted tasks—minor cosmetic repairs, appliance fixes, or light demo—a handyman typically costs less. However, most states legally require licensed contractors for electrical, plumbing, structural work, and any renovation that requires a permit or exceeds a defined dollar threshold. Using an unlicensed individual for permitted work could expose you to fines, failed inspections, and liability.

What documents should I ask for when hiring a contractor?

Before signing anything, request an active contractor license (verifiable through your state board), a general liability insurance certificate, proof of workers' compensation coverage, a payment or performance bond for larger projects, and a detailed written contract with a full scope of work specifying material brands, models, and costs.

How do I protect myself against contractor substitutions?

Specify every material by brand, model, color, and finish level in the scope of work. If it's not in writing, a contractor could substitute a cheaper alternative without breach. A signed, itemized SOW could be your primary legal protection against this.

What's a reasonable upfront payment to a contractor?

The FTC recommends avoiding large upfront payments. A reasonable advance—typically tied to material procurement or site mobilization—often ranges from 10-15% of the contract value. Payments above one-third of total costs before substantive work is complete may be a warning sign.

How do I handle contractor change orders?

Consider requiring all change orders to be submitted in writing, with a description of the scope change and the revised cost, before any additional work begins. Verbal approvals may create ambiguity and potential disputes at final billing. A written change order process, established in the original contract, could be the cleanest way to manage this.

What is a mechanics lien, and how does it affect me as an investor?

A mechanics lien is a legal claim a contractor, subcontractor, or supplier may file against a property if they're not paid for their work or materials. As the property owner, you could be liable for a subcontractor's unpaid bill even if you paid the GC in full. Requiring a payment or performance bond on larger projects and collecting lien waivers from subs at each draw milestone may reduce this risk.

Additional Resources

• Bridge Loans for Fix-and-Flip Investors: Kiavi's bridge loan product page with current program details for rehab and acquisition financing
• Your Guide to Hard Money and How It Works: Kiavi's overview of hard money lending, loan types, and how private real estate financing compares to conventional options
• New Construction Loan Options: Kiavi's ground-up construction financing, including draw structures and program details for builders and developers
• FTC Guide: How to Avoid a Home Improvement Scam: The Federal Trade Commission's consumer guidance on contractor vetting, contracts, and payment protections