So you want to hire someone to help you repair or rehab one of your investment properties… only sometimes a general contractor is just a bit too much. Sometimes it just makes sense to hire directly the subcontractors for the job. But how do you do that and make sure communication is clear and in no uncertain terms, the job gets done? How do you keep yourself from wasting a ton of money over he said, she said or golly even the IRS, considering this person an employee? Let's talk about that.

Hey, what's up, guys? It's JP, and I am here to share with you a pretty simple little independent contractor agreement that I've had on tap for many years now. I don't even know originally how long ago it was. I probably got it in 2003 or something like that. It's evolved a little bit over the years, but this is what I would consider to be a very simple, straightforward kind of plain vanilla, but gets the job done agreement to use for subcontractors.

Now, what do I mean? What's a subcontractor, in case you don't know? Well, a general contractor is somebody you hire for a rehab project, and they hire their own subcontractors. So it'd be like one guy or girl who you pay, and they then would hire a plumber and they would hire an electrician and they would hire somebody to do the woodwork and they would hire brickmason. They would manage those people, or maybe they would have their own employees, but they are the general. And usually you're going to pay maybe 25% more for your project.

I'm not really going to get into the pros and cons of whether you should or shouldn't have a general. There's whole schools of thought, and I know very successful investors who would never do rehabs without a general. And I know very successful investors who would never, ever pay for a general contractor. They'd much rather be the general themselves, so to speak. So I don't know which camp you're in or if you even know what camp you're in.

But there's going to be times when you will hire someone at the subcontractor level, right? You're going to hire a plumber, you're going to hire somebody to build a frame in a room or something like that. When you do, it's important to have something in writing.

Now, I can't emphasize this enough, because for many years in my career, I struggled to put something in writing with these subcontractors because it just felt weird. It just felt like kind of, I don't know, rude or something to ask them to put their signature on a document that says, here's what they agreed to do.

Unfortunately, in not doing that, things get fuzzy. You talk about what you agreed to at the beginning, but memories are imperfect, or even what people understand from the same conversation can actually vary once you get away from that conversation and then you get to the end of it and you remember it one way and he or she remembers it another way. And as he said, she said and you don't have it in writing, so who knows?

So the approach I recommend that you take when you're talking with a subcontractor, you say, hey, look, let's just put this in writing is not to imply that you don't trust them, but just to make sure that we all remember what we've talked about because everybody can forget stuff sometimes.

So to make sure that we remember at the end of the job what we talked about and just that we have it clear, have it straight and there's no misunderstandings. Let's get it down in writing. That's the approach I recommend you take.

Why does this matter? Number one, you want to lay out the terms of the work. Clearly, I just said that. But number two, you also want to establish and document that this person is not an employee of yours. Because if this person is deemed to be an employee, then they have certain rights. You owe them things for taxation purposes. It can be precarious.

So what you really want to do here is not only clarify the terms of the work that's going to be done, but you also want to make sure that you document that this person is not an employee. They are an independent contractor. You're not supposed to be paying them withholding FICA and payroll taxes and things and including them in a monthly payroll or weekly payroll and that kind of thing. Hopefully that makes sense. So without further ado, let's just jump in.

I'm going to quickly walk through this agreement again. This is a plain vanilla agreement. This is a template that you should use as a starting point. It's not meant to be like the be all, end all agreement for independent contractors. I should give the disclaimer.

I highly recommend, always recommend that you run this by an attorney that you trust who can just maybe customize it, spruce it. There might be certain things that need to be a part of a contract like this that are specific to your area, your county or your state or something like that. And I'm not giving you a separate agreement for all 50 States. So please pay $250 one-time to run this by your attorney and see if he has anything to add to it. Okay?

All right. So this agreement is made and entered into as of this date. Buying between you, owner and whoever is the contractor recitals. I don't know what a recital is, but I guess it's all the things we're about to go through here.

The owner desires to contract with a contractor for the performance of services outlined in paragraph one below. Upon real properties owned or being rehabilitated by owner. Contractor is qualified to perform such services as owner desires to be performed. Further, contractor is able to perform such services in a timely manner as further identified in paragraph one. We'll get to paragraph one here in just a moment.

Now, therefore, in consideration of the mutual promises and undertakings set forth here and below, got to love legalities. The parties do hereby contract and agree with each other as follows.

Now, I want you to notice that the embedded into the footer of every page is a place for both you and the contractor to initial. It's always a good idea in contracts to include that when you're dealing with multiple pages so that you can never claim that, hey, this isn't the same page three that I saw when I signed this contract. Oh, yes, it is, because there's your initials at the bottom.

Moving on. Number one, engagement of services owner hereby contracts with contractor to provide the following services. Now, you could literally just write in and fill in the blanks. Or you can type this. We're giving it to you in Word Doc format. So if you have Microsoft Word or something compatible, you can open it up and just type in the work.

I recommend that you only be as specific as you need to be when you're putting in the work. You don't have to get so analytent to put in the exact measurements of everything that they're supposed to do and every jot and tittle. The main thing is you just need to be as clear as you feel like you really are going to need to be at the end of this whole thing to make sure that you are on the same page.

All right, so let's move on. Compensation owner hereby agrees to compensate the contractor in the following manner. Now, what I've got here is, as negotiated per job or evidenced by a written estimate signed by both parties to this agreement. And this is something you can change. You can put in exact compensation terms right here in the contract, but this is handy because a lot of subcontractors will write up an estimate or write up a bid on their own form. And so you can simply just attach it to this agreement and reference it the way I have here as compensation. So this just simplifies it basically. But you can handle it however you want. You can actually detail it in here if you want to.

Termination of the agreement. Owner may terminate this agreement anytime upon the contractor's failure to adequately and timely perform the services so contracted for. This gives you the trump card, right? So if they're not doing a good job, you can fire them.

No authority to buy. The contractor shall have no authority to enter into any contracts binding upon the owner or to create any obligations on the part of the owner except where duly authorized evidence in writing signed by both parties to this Agreement.

So this basically says that the contractor is not going to enter into an agreement with another subcontractor or something that binds you without clinging you in and you approving and being a part of that process. So when might this come into effect? Well, let's say they go and in order to get the job done, they need to rent a sander from the local sander rental place, Home Depot or whatever. So they go and they rent a sander.

Well, they're going to have to rent that sander under their name and be bound by the terms of that rental agreement with Home Depot. They're not binding you and or your property to that agreement.

Or let's say maybe they're a plumber and they need to hire a specialist to create a piece. I don't know anything about plumbing, but let's just say they have to hire a specialist or something. Well, they're going to enter into that agreement on their own, and they're the only ones bound by that agreement, not you, unless you agree to enter into that agreement and be bound by it.

So that's just what that protects you against. And for an inconsideration of owner's undertakings under this agreement, contractor agrees to indemnify owner and hold owner harmless for any and all damages caused by the actions of the contractor.

Basically, if they do something that screws somebody or destroys somebody else's property, they're responsible, not you. Now, will that hold up in court? I don't know. Probably not.

If this you have a contractor or subcontractor, for example, working for you, they bring in some large piece of equipment into your project, and they end up like driving on and messing up the neighbor's lawn. Chances are you're still going to be responsible for that and really probably should be anyway, in my opinion. But this is good to have.

It's kind of like in my lease agreements, I'll have things that may not be something that I could enforce in court, but I'll get the tenant to agree to it anyway because it's reasonable, in my opinion, for them to agree to it, and it kind of puts the fear of God in them. So this is kind of an example of that.

Contractor status. Contractor acknowledges that all services to be performed under this agreement are to be performed for the benefit and solely for the owner. Contractor acknowledges they are not an employee of the owner as defined under the IRS code. Contractor further acknowledges that the only party in which they are privy of contract, is owner, and the contractor is in no fashion contracting with the individual shareholders of owner. Contractor warrants and represents to owner that they are in the ordinary course of conducting business for the purpose of contracting for the performance of such service for which is the subject of this Agreement.

It's kind of a complicated way to basically say that they are a contractor, not an employee. And all this other stuff is just mumbo jumbo to support that.

Waiver. This one must be important. It's bold and underlined. Contractor has been informed and acknowledges being so informed that services performed pursuant to this agreement shall be performed at the risk of the contractor. The contractor assumes all responsibility for any injury which occurs in the performance of such services for owner or on the premises of or any real property owned or being rehabilitated by the owner. And there's even a special initial spot.

Basically, this is them saying, I'm responsible for my own safety and this is in place to try and protect you from them holding you responsible if they climb up on that ladder to paint the ease of the house, and then they had 14 too many beers at lunch and they fall over and break their wrist, and now they're going to be responsible, not you.

I've never been to court for those types of things. So how those things actually shake out? I'm not a legal expert. I couldn't tell. You need to consult an attorney. But this is what this is designed to communicate to them is that this happens at their own risk. And we even make sure and tell them, you get it right, you get hurt, it's on you unless I come over here and personally injure you.

All right, next up, governing law. Insert your state here. In fact, I'm going to take Tennessee out and just put a blank for you. We'll save a version of this that has a blank. Obviously, I'm in Tennessee, so that's why it says that.

Okay. Headings really the rest of this stuff, it's just contract mumbo jumbo 9, 10, and 11. Don't worry about it.

Basically, put your address here and put the contractors mailing address. Snail mail address here. Okay. This is saying any notices regarding this agreement will be in writing and they have to be either at this address for you or this address for the contractor.

So your name here for that not my old company name. Oaks Management, which doesn't exist anymore. So that's pretty much it. Let me just predict this up just a little bit more kind of in real time. That's it.

Now, a couple more pro tips I want to give you before we head out of here. Never pay for materials or anything upfront when you're dealing with a contractor. If they try to say, hey, I need $540 so I can go by the materials for this job, I just can't tell you how many times I've heard of investors being burned and that contractor takes their cash and walks away and they never hear from them again.

Simply explain, hey, that's not my company policy. I need you to pay for the materials up front, and we'll pay you on a draw. We'll reimburse you for that. If that's problematic, then you go buy the materials. They can go to Home Depot or wherever, and they can gather all the materials, and then you can come show up with your credit card and buy it.

Or you can give your credit card to the front desk and say, hey, John Smith contractor is coming by. He's going to buy these materials so he'll be coming by before noon on Thursday. Here's my credit card. I'm authorizing you to charge it to my credit card the front desk at Home Depot or Lowe's they'll do those kinds of things for investors. You just have to ask and talk to one of the people in charge.

Maybe you have a Home Depot account set up that you can just have them charge it to but do not give them your cash upfront. Just don't do it. Speaking of which, you need to think in draws. I mentioned that a second ago once you've personally approved the work in like maybe a first 2nd 3rd draw if it's a big project or just wait till the end of the project if it's not and never pay the final draw until you've personally verified all the work was done to spec. Okay, personally verified.

I know you may feel like you just want to trust people but personally verify the work was done to spec you need that leverage and that motivation. And also make sure they've signed a contractor's lien waiver before you give them that final check as well. We've actually given one of those wave before I'll include a link to it here somewhere in case you don't have that and you can read up about how and why that's so important. Okay, so that's it. Thanks.

Enjoy this form. There's a download link somewhere on the page here. Enjoy. Leave a comment tell me what you think and if there's a specific form that you would like us to give away or something. Anything could be a marketing piece. It could be a document. It could be. I don't know, it could be a checklist or something that you're like. Man, I wish I had this for my business and you'd like us to consider it, folks. Swipe and deploy chime in. Let us know below what it is and we'll see what we can do to work it in here in the near future. Okay.

Thanks. Jp out.