The foreclosure cleaning industry is still a relatively new business sector that has come alive within the last three years. Cleaning foreclosures, or REO trashout, involves the tidying up, clearing out and maintenance of homes that have been foreclosed upon. Duties involve everything from removing debris from properties, to minor repairs, inspections, securing of homes by boarding windows and doors and changing locks, to initial and ongoing lawn maintenance, roof repair, and more.
Property Preservation Companies vs. Foreclosure Clean-up Companies
Though larger property preservation companies, who often work directly with the United States Department of Housing and Urban Development (HUD), have been around for years, many of the smaller, less formal foreclosure trash out businesses are still in their infancy.
These larger property preservation companies get the majority of their work from HUD, via the organization’s Management and Marketing Contractors (“M&M Contractors”), who maintain and sell HUD-owned homes.
Property preservation companies seek out foreclosure clean up companies to assist them with clearing out, securing and maintaining these HUD homes throughout the nation. The number of homes that trickle down from HUD are in the thousands, especially in the turbulent, foreclosure-ridden real estate market today.
Hurdle for Smaller Foreclosure Trashout Businesses
One major hurdle a smaller foreclosure clean-up company may have to overcome, if they are not prepared, is unpaid invoices from contractors who owe them for work performed. Here’s the gist of how a smaller company can become victim to unpaid invoices:
A larger company will contact a smaller company and ask them to service a number of homes. The smaller company will perform the cleaning foreclosures jobs under terms that may state they will get paid within, generally 30, 60, 90, or even 120 days. In many scenarios, the larger company outsourcing the work to the smaller company will be waiting to get paid from a larger organization, bank, or other financial institution.
In a scenario gone bad, the smaller company will not get paid timely for the jobs completed under the work order request(s). And that smaller, often new business, will have expended time, energy and monies to complete the foreclosure cleaning work. They will have expended energy, time and money on supplies and labor. The work will be complete, but the small business will not have been paid.
More than one job on the books like this can cripple a smaller company’s cash flow and force them to close their doors before they are even solidly open.
Ways to Protect Your Foreclosure Trashout Business
But there are ways foreclosure trash out businesses can protect themselves. If you are a smaller company, here are some tips to keep your small business afloat as you vie for subcontracting opportunities with larger companies:
1. Negotiate, negotiate, negotiate. Payment terms are not set in stone. If a company’s policy on getting paid does not work for your business, don’t agree to it. Simple. You may lose that client, but you can’t work for free or wait forever to get paid. A few clients like this and you’ll be out of business before you know it.
2. Get everything in writing. If you have a “verbal” agreement with a company, you are taking a big risk in working for free. Document your terms in writing. This documentation can be via a formal contract or via a handwritten agreement that you prepare onsite. If a company asks you to sign their agreement, don’t be afraid to scribble in terms that suit you and scratch out and initial terms that don’t. Sure, you can sign their agreement all day long, but read every word and don’t be shy about adding and subtracting items so you are not taken advantage of.
Though most real estate professionals are just that, professionals, you have some piranhas out there lurking about, waiting to take advantage of unsuspecting new business owners.
3. Implement a late fee. If you agree to a company’s terms as it relates to how long you’ll wait to get paid (30, 60, 90 plus days), implement a hefty late fee and stick to it if the client is even one day late. Remember, you are growing a business that you want to be around for long time. So take a strong stance when it comes to getting your money.
How you begin is directly related to how companies will treat you when it comes to paying invoices. So be clear, firm, and if a company doesn’t pay you timely, be LOUD (translation: keep calling until you’re paid). Squeaky wheel gets the oil. Remember, get the late fee in writing at the beginning — don’t try to implement one after the fact — and stick to it. Don’t be wishy-washy on your company policy when it comes to your money.
NOTE: And there’s no rule stating you have to wait to get paid. Your terms can be the following: Payment Due Upon Job Completion.
4. Check the references of the company seeking to hire you. Yes; that’s right. You check the larger company’s references. Ask them for the contact information of no less than three subcontractors with whom they’ve worked within the last six months. You call these subs yourself to see if they were paid timely by this company you’re considering working with. If the larger company questions you about this, let them know it’s your “company policy” to check references of new clients.
5. Factor your invoices. Factoring is simply the selling of your company’s invoices for a percentage of the total due you so you don’t have to wait to get paid. If a larger contractor owes you $6,200, when you factor, you will sell that $6,200 invoice to a finance company (factor) for a certain percentage of the amount due you. The factor will pay you the $6,200 within a matter of days, minus their fee (a percentage of the invoice).
When you sign on with a factor, the credit of the larger contractors with whom you’re considering doing business will be checked; not your business’ credit. This is yet another reason you want to be sure you’re working with financially solid primary contractors. If you can’t factor invoices due you because of a larger company’s credit, your business will be greatly disadvantaged when it comes to cash flow.
For More Information
The above are some simple tips and steps to take to ensure you don’t get burned on invoices when you start your business. Find more information on factoring in How to Start a Foreclosure Cleanup Business (Stone Cottage Books). Much success to you with your foreclosure cleanup business.