Nobody wants to lose money. The reality is: if you haven’t lost money on a real estate deal yet, then you haven’t done enough deals. I don’t say this to discourage you, but to help you learn and grow.
As we grow, we are learning from the mistakes we’ve made (and hopefully not making them again!). My biggest loss to date involves a contractor who lied and stole from us… then disappeared. I learned a lot from that experience and hopefully you can learn from my mistakes before making your own!
Thinking back to the day we met him, he seemed a little good to be true. He was saying all the right things and agreed to a timeline that exceeded what we were even asking for.
At first we didn’t give him any money upfront. He did the work and we paid him as jobs were completed. He was making progress and even though he was a little behind his schedule, we thought he was doing okay. One day, our HVAC contractor (at the time) bailed on one of our jobs. This contractor jumped in and told us he had a great HVAC guy who we could use through him. When we gave him the money for the HVAC, that was the last we saw of him. We did hear from him, however. He claimed he was robbed, he said his girlfriend stole from him - anything he could come up with.
This experience was a painful one and just writing this article brings up some negative emotions for me, but all in all we are a better company for having gone through this. I wanted to break down the main points where we screwed up and hopefully you can avoid a similar situation.
1. Check References - This seems like a no brainer, but when you are in a hurry to get a job done you may pass on this step… DON’T! If they don’t have references, it means they haven’t been doing business long or none of their previous customers were satisfied with their work.
Even better is if they have a profile on AngiesList.com or Google Places. If they have good, recent reviews on these sites then they probably have a pretty good reputation and it means they are actively working. The other side is that they are more likely to get bad reviews if they do a bad job, so if all they have are good reviews, chances are they’re doing things right.
2. Start small and grow - Start by giving your new contractors smaller jobs, and work up from there. Even the most trustworthy contractor can turn out to be a scam artist once they have access to enough assets.
Another mistake we made in this situation: We had a contractor bail on a project during this same time period and ended up giving this thief a second property to work on. Of course for him it was just another opportunity to steal from us.
3. Don’t pay them upfront for materials - We now give our trusted contractors a small limit on our Lowes Credit Account for materials, but when we are using someone new we watch this account very closely. We don’t want them to buy tools for themselves or unneeded materials that they could return for cash or credit at a later date.
If they are buying something larger from a specialty store like HVAC Equipment or renting large tools, have the supplier call you for your credit card number when the contractor pick up the goods rather than paying the contractor up front.
4. Check their work like a hawk at the beginning - In our situation, we should have seen that the quality of work was very poor, but we had so many projects going it was not a priority. We could have avoided putting our trust in this contractor but we were moving too fast and not paying attention to the work he was doing. When we would go through the house and point things out he would make excuses or say they weren’t done with that part. In the end, we pretty much paid for everything twice because the initial work was not done correctly.
5. Don’t let a contractor take a cut from another specialist - I wouldn’t have really thought about this until it happened to us, but all of our good contractors willingly give other specialists contact info for free. They want good people working on their jobs with them. We should have known when this contractor didn’t want to give us the HVAC contractors info that he was trying to take a cut in the middle.
Other red flags that we should have noticed when we started working with him:
- He drove a small hatchback - Now I’m not saying that every contractor drives a van or a pickup truck… but it sure seems like the good ones do. How are you going to get tools and materials to and from job sites with a hatchback?
- Overpromising - At one point I remember him talking about timeline and my partner and I KNEW for a fact that he couldn’t hit it. Turns out, the contractor had no intention of hitting it anyway. If someone over-promises, and you know they can’t accomplish what they are agreeing to, they are either dumb, or lying, and neither of these traits make a good contractor.
I think ultimately all of these things could have been avoided had we done our true due diligence and screen our contractors. At the time we were more concerned with growing our company and doing as many deals as we could. We were moving at 100 MPH and didn’t want to spend the time or money finding a good contractor so we just hired the first one we found.
We knew what we should have been doing and simply didn’t do it. Make sure that you protect yourself, your company and your assets by taking the time to hire the right people for your jobs.
If you follow these few tips you have a head start on finding a quality contractor!
I would love to hear about your experiences with contractors in the comments below!