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Property Management Blog

Licensed Bonded and Insured?

Mendell Gosnell - Wednesday, June 17, 2020
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Why to Use a Licensed Contractor on Your Rental Property


A rental property is an important part of your financial portfolio, and obviously, maintenance costs will affect your return on investment. Therefore, property owners often wonder, “Why use licensed contractors when you could use non-licensed parties at a lower cost?”


Let’s think of this problem in medical terms. You may be able to solve small issues by consulting a pharmacist or a nurse practitioner, but for more significant issues, you want the advice and expertise of a licensed and experienced physician. Likewise, some problems can be easily taken care of by a handyman, but sometimes you need the expertise of a licensed contractor.


Just as you should seek more than one opinion for a major medical problem, a common-sense approach to property maintenance is to obtain more than one bid for extensive work. It is normal to want to pay the lowest price possible. However, it is important to compare qualifications, particularly if one bid is much lower than the others.


Non-licensed laborers or companies can generally offer much lower prices because they are not bonded or insured or paying into a contractor’s recovery or worker’s compensation fund. Many do not meet state and federal requirements when it comes to their workers and/or employees. They often do not have the capital and experience for the job. Since they do not have a solid financial background, they do not have the resources to pay for damage or additional costs if the job goes awry.


Licensed contractors and/or companies know that it is important to have the proper licensing, insurance, and expertise, and they take responsibility when using other laborers. They understand that underbidding the work can lead to financial disaster and continuing problems. Does a non-qualified party still seem like a good idea?


Another consideration for hiring a licensed contractor is the state or federal government requirements. Most states require licensed contractors for the majority of property repairs. Often state and federal legislation mandate the use of specialized contractors, for example, to work on lead-based paint. It is crucial to your investment to follow state and federal laws and regulations. There have been many penalties issued to property owners for non-compliance.


The bottom line answer to the question on why you should use a licensed contractor is to avoid liability. Investors have incurred great financial losses by not using a licensed contractor. There have been many lawsuits against property owners because of improper workmanship. This is also why there is increased state and federal legislation concerning contractors. It is important that the individuals and/or companies working on your property have the qualifications and insurance and meet the state’s requirements for any work performed on your property.


As your management company, we cannot contract for work with a non-licensed party if a state or federal agency dictates that a licensed contractor is required or the company is not “accountable.” In short, we would not be performing our best management for you and your investment. If you have questions on this important subject, let us know and we will be happy to discuss them with you.


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