Mistake number 2: $10K Oversight

Renovation Proposal

Hey all,

This will be the second post in a series describing real estate investing mistakes I’ve made. Just a quick note that I’m no lawyer, accountant, mortgage broker, and what I’m sharing is my personal experiences and how I see and understand things.

If you don’t have time to read this whole post, I’ll give you the takeaway from it so you can go about your day, and it is a simple one:

PAY ATTENTION TO DETAILS!

OK, let me give you a tiny bit of background about me. Before committing to be a full time investor, I spent many years in the supply chain management/ procurement world. Without getting too much into it, to be successful in this field, you need to have a deep understanding, and be able to quickly analyze large amounts of documentation from contracts, proposals and quotes, to legal documents, shipping papers and many many others. So a renovation quote for a house from your favorite GC (general contractor) is usually a walk in the park. Well, not in this next story…

I just completed the purchase of a distressed multi family house. The GC had provided me with a quote for the whole thing: roof, windows, floors, carpet, kitchens, paint etc. After a little bit of back and forth, we agreed on a price. Because we bought the house with a conventional mortgage, we were still working on funding the renovation, with only part of the money. I asked the GC to break down the quote into two - one just for the roof, and one for the rest. Winter was fast approaching and the old roof was in terrible shape so I wanted to do it first. The guy did what I asked, and the work started. We received the funding for the rest of the reno a couple of days later and everything was going smoothly. The GC would complete a phase, and I would pay him for the completion and for materials for the next phase.

It was only a couple of months later, when the work was pretty much done, and I finished paying, that I was going over the numbers again and noticed that something was wrong. It just didn’t add up. I paid an extra $10K! Took me a while to actually find the error. When I asked for separate quotes, the GC created a new quote for the roof, but forgot to take it out of the original quote. Now before you frown and say that he was trying to rip me off, I want to say that I don’t think that that’s the case. It was, in my opinion an honest mistake. The worst part of it is that I, who handled tens of millions of dollars of international business deals and transactions didn’t catch this super basic error!

The GC offered to “make it right” if needed and give me money back. Naturally, he was not very excited about it. I asked him to let me think about it for a couple of days. On one hand, this is a lot of money that I needed for other things so a refund would be good. But on the other hand, this is a really good and quick contractor that might not be so happy to work with me in the future after paying me back. In the end, after thinking about it for a long time, I decided to sort of split the difference with him. There was a little bit more work that I was putting away for the following year that I asked him to do right then. That would have cost me just over $5K. So this leaves us with about $5k that I overpaid. This is money that I probably lost. Maybe I’ll negotiate some of it into a future contract and maybe I won’t, but at least I was able to retrieve some of the funds.

What I learned from this experience is that obviously, you need to pay attention to the details of your agreements, better if you can get another set of eyes on it. Doesn’t have to be a lawyer, could be a spouse or a friend that might catch what you miss. But I also learned that even if you made a costly mistake, there still might be a way to reduce the pain a bit, like what I did with the extra work for the GC. It may not be ideal, but it’s better than nada.

Stay safe!