Do you use people that live in the area of your rentals for work and pay them in cash?
No, that’s too risky for me. The problem is that when the person gets mad at you, they will turn you in for failing to withhold taxes from their check; failing to pay worker’s comp; etc and YOU will be in a lot of trouble. The other big risk is injury on the job. If they get hurt, YOU will be sued.
Mike
Yep. As long as they work as independent contractors you will be fine. All tradesmen are pretty much that way, per tax law, so they should be that way by default. I’ve got a guy who does simple stuff for me - like say install a garbage disposal - for $20 to 40 cash. Considering I earn far more per hour with my business than I pay that repair guy, it’s almost pointless for me to sit under a sink for 30 minutes messing with a garbage disposal – it makes more sense to pay him to quickly install it. Note I still do some things on my own, when I have time.
Just get a receipt (get a receipt book yourself if you have to) and have him sign it, put all the details on there, along with his name/address/phone # on there for your tax records - that way you can write it off legally. Also if you pay him more than $600 cash (I am pretty certain on this, though tax law does always change) in one year, you must file a 1099 with the IRS. But if he has his own corporation, even if it’s just one man, you can skip that — but most trademen are just sole proprietors…especially the ones that just happen to live on the street where you purchase a lot of property. But again you have nothing to worry about if you pay him less than $600 per year.
I’ve gotten to know a lot of local “in the area” contractors through word of mouth. To sum it up - I know 3 very well.
One is a “wannabe contractor” who can’t install plumbing under a sink — I will never use his services again. He was quickly fired after two of his jobs had to be fixed by me. That’s just part of the learning experience.
The 2nd guy is more talented, as he can install toilets, sinks, tubs, basically anything non-A/C related without it leaking, catching fire or having problems; that is the guy I am referring to above.
The 3rd guy, slightly more expensive than the one I mentioned above but still vastly cheaper than any regular contractor, is an apartment complex maintenance man. He is a master with electrical, A/C, plumbing systems - you name it. He is certified & experienced, but works cheap. I’ve had him install a couple A/C systems for me and they have worked flawlessly. This guy is more than likely going to be my GC, or more than likely an employee or assistant to me directly, on large flipping projects that I’ll start in a couple years.
All the subcontractor talk sounds good until one of them gets hurt on your property if they do not carry their own insurance and meet several other requirments you will lose. There is no way around using professional workers. Eventually you will lose. If you need day labor call a Labor Ready or other employment agency that will cover the taxes and workmans comp. I pay $12 to the agency and it handles everything taxes work comp all the mess.
I can not warn you strongly enough that some dirt bag will try to get over on you eventually and it will cost you more in headaches than it is worth.
There’s actually a legal test to determine whether someone is an illegal employee or an independent contractor. It’s about 20 items long, but key tests are whether the worker has his own tools; sets his own hours; is not directly supervised by the “employer”; etc. The bottom line is that if you’re controlling the worker, he’s an illegal employee.
Mike