Problems with Contractors

[Patrick Jackson]

I am currently researching the different issues that investors have with contractors so I can come up with a solution to help resolve the issues. Can you please take a second and just give me a line or two on issues you face when working with contractors?

[Stan Hill]

I read two of Than Merrill's books on real estate investing. Contract, contract, contract. Verify the contractor's insurance. Have a specific draw schedule that is based on specific tasks being completed. Make sure there is financial incentive for the contractor to complete the job and get the last draw. For example, if the last set of tasks is 20% of the job, make sure you are withholding a higher percentage for the final payment. Have specific performance expectations, with penalties for not reaching them. If a contractor squawks at your expectations, you're probably dealing with the wrong contractor. Make sure you have the contractor sign a release of all rights to any lien on the property once the job was finished. When I fired a contractor earlier this year, he wanted me to make the final check to someone else. i insisted on writing a check to him, with the memo stating it was for work on the specific address and that the work was paid for in full. That's short of a release of lien, but likely enough to keep him from putting a lien on our property that I suspect he was planning, given him wanting the final check written to someone else. Due diligence!

We have found this part of investing to be the most difficult. In our state, all it takes to be a general contractor is a small permit fee to the city in question. Buyer beware!

Look at Google and other reviews. If I had done so with a project last summer, I could have saved myself a lot of grief. I also think it's our duty as consumers to review people we do business with- whether the experience was good or bad. I posted a scathing and truthful Google review of a partner we did a JV with. Several months later, I looked at the review. Four people had found it helpful. I'd like to think that my speaking up saved four people a lot of grief.