Contracting Woes

[Connor Swalm]

Towards the end of last year I was finishing up my first flip. It was a great house for my first flip. Not too big, not too small, and I made just the right amount of mistakes to learn valuable lessons, but still turn a profit. As of now, all the contracting work has been completed and the house is listed, but let me explain the roller coaster of events that preceded the listing.

I had been using this contractor for about 4 months at the time and he was doing great work. He was extremely responsive, gave me a fair price, and worked with me on what I wanted completed. However, that did not last long. At the time, there was only one draw left and on the last 25% of flip (All major work was done, just needed to touch some things up and bring in an appliance or two) my contractor came to me and said he needed the last draw early. I (being extremely new to real-estate investing) decided to give him the draw. Needless to say, I will never make this mistake again. Ever.

It was like magic, the second my contractor had the money he disappeared. Literally just disappeared. It looked like a rapture occurred, I am not joking. He was working on putting up a railing going to the second floor before I paid him, but when I visited the house afterwards it was ripped out of the wall by its own weight because it was only screwed in on one end. He stopped returning my phone calls, stopped answering my emails and text messages, and to this day (a month later) I have not heard from him or seen him. I visited the house with an experienced investor friend of mine and looked at his work a little closer, and he pointed out work that was done poorly. Then, I gave him my scope of work and how much I paid my contractor. It should not surprise you that I paid $5,000 more than I should have for the contracting work. It was now apparent that the contractor just took advantage of me because I was new, and squeezed me for every last dollar I could give him.

The best part of the whole story is I logged onto Facebook one day and found my contractor. I scrolled down on his timeline to the date all of this occurred, and what do I see? Three days after he disappeared he "found" the money to buy a Harley Davidson, and a new tattoo gun kit. I do not know how much he paid for those, but I know exactly where he got the money..... me. 

I hope everyone, new and experienced, reads this story and takes away at least one thing. Always stick to your contract. It's not your job to solve your contractors debts, or give him extra money, or pay him for work that hasn't been done. Your contractor tells you how much he needs on his draws and you never deviate from the draw schedule. If an unexpected problem arises that was not in the scope of work, then add an addendum to the contract to address it. But never let your contractor convince you to give him money when the contract does not specify to do so. Keep your contractor honest to his work, people will take as much advantage of you as you let them.

Do not feel entirely bad for me, after all I learned an extremely important lesson (and on my first deal!). In the grand scheme of things, the money this contractor took from me is negligible, and the lesson I learned was very inexpensive for what it could have cost me. Also, the business partner / contractor I use today (who is very experienced) I would not have met if I kept my old contractor. Every mistake is an opportunity to learn: failure does not occur when you make mistakes, failure occurs when you refuse to learn from them.

[Daniel Wurl]

Lesson well learned. I suggest everyone not only read this post but also learn from it.

I am a real estate investor that also owns and operates a construction company so I am able to see both sides clearly. Firstly the cheapest contractor is not always the best deal for you. Point in case Connor had to spend additional money to complete the project. Next do not depend on handymen that live job to job because they will most likely have to use your deposit and draws to pay bills from previous jobs and to buy materials for another job making their cash flow so tight they will be begging for draws.

Look for contractors that are big enough that your money doesn't matter that much to them for cash flow. As an example I take a small down payment just to solidify the deal and I normally do not ask for anymore money until completion of the job. Not all contractors have the cash to do this but that's also why I am as busy as I am. 

Get as many references as you can and find out who you are dealing with. You get what you pay for and most of the horror stories about contractors come from people who did not do their homework. You spent your time and effort to find a deal and then you can get lazy because you think the hard part is done.

Thank you Connor for your post and I'm glad for you that you learned your lesson early.