All Forum Posts by: Kumar Tummalapalli

In the interest of providing good information  and not wasting readers time , i didnt want to continue to retort as I made my points and we are just repeating our self . 

But again - Man , this is brutal , trying to scare off a newbie investor by showing articles from "contractor oriented websites" . what are those websites for ? whats the incentive ? That pretty much sums up , what an investor/homeowner should look for 

Lets not complicate , just take a simple scenario of painting , see how many ways you can get messed up . ofcourse I can share literally thousands of articles /news shows about contractor scams . I am sharing only one to drive my point.

https://www.angieslist.com/articles/how-some-inter...

And dont read the article , because that might be biased , read the comments .

Again I know the common response is - I am not like that , they are bad contractors . The aim of this discussion is not to prove something at an individual level . It is to say what a homeowner can expect when they try to hire a contractor.

Like any profession , not everyone is competent , not everyone is fair . But with contracting , the odds are really really stacked against you . I genuinely feel for  the good contractors as nobody can beat the stereotype but at the same time , it also provides them with a unique opportunity . Out of 6 contractors I reached out , only one responded with the information that I requested , asked valid qns and communicated professionally . So it was really easy for him to get my business - Just etiquette 101 and Business 101 . And by the way , I know the common retort , we dont have time . So to clarify the nice guy spent the least amount of time , but he listened to me , asked the right questions and showed true intent .

TL:DR , look out for people who ask 30k ish upfront . Look out for people who say - if I dont show up after taking 30k , go to court , but hey , I wont take that risk , I want my money upfront . Look out for people who say - listen , I am very busy , You have to wait 2 months for me , so accept all my terms . And mostly , even though there is some repetition and fluff in this post , just reread the whole post , two to three times and make note of the red flags .

You clearly mentioned that you will take the second 33% when you start , "when you start" means nothing has been done . Ok it seems you adjusted that to 33% . so glad to see that . 

Customer need not and will not - have to hand you 30k and "assume" and "pray" that you will show up . Yep If you show up , that great , but you know the chances of that happening . It seems like you need money to pay for the work/permits , which is not a good sign of a business. 

You are not willing to risk a customer not paying you - even though you have a clear recourse , but you are entirely ok with a customer taking all the risk of you not showing up ... Why ?  By the way your explanation of  "IT IS THEIR JOB" means nothing . you should back it up with some substantive argument. An investor can say "IT IS MY PROJECT" and "I AM THE ONE PAYING YOU" so you should carry the risk . You know this won't lead anywhere and in either scenarios , its called exploitation . I don't condone an investor exploiting a needy contractor and at the same time , I don't encourage contractors exploiting 70 yr old or some innocent  home owner who thinks he has to pay 66% before job starts .

Maryland laws seem to be much better , so that's definitely a relief , Just like how you don't want to depend on " government/laws" to recoup your money , the home owner also will not be thrilled to approach or use one of the so called stringent laws you mentioned . The first page in this website https://www.dllr.state.md.us/license/mhic/ talk about several contractors who are under scrutiny . As you see so many "broke" customers , do you think the government is going to send a cheque for 60k the next day . And as these are already broke , how can they survive this financial hardship

The core difference in our argument is that , I am proposing equal risk share , and opposing exploitation  of any party involved. But you seem to be convinced that "hey Investor , you give me work , you give me money and how dare you ask to share the risk , give me 30k and just hope everything works out , if not resort to laws , But hey that logic doesn't apply to me , I won't take any risk , I am running a business but why should I take any risk , why should I resort to laws - My business should have zero risk , your business should have all the risk "

I am sure the readers will understand the funny part . Ofcourse "vetting" the contractor , is what I am doing now and what the original OP s purpose of this post was. When I "vet" , I look for people asking 60k down payment . 

I think there may be more than one reason why contractor doesn't show up , looks like you only know one of them , What about - the contractor who's business model is to collect as many downpayments as possible and tell a story everyday for the next three months , what about the contractor who knocks on the door and says , let me fix your drive way , I am here for a job , take 10k , demo 2X2 area and then never show up , what about the contractor who says to a 70 yr old that the contract only is for buying the tile and laying it out , but the caulking and finishing will take additional 3k 

You are convinced of a lot of things about customers- they don't have money , they don't know how to vet , they don't know what to buy , they don't know anything abt construction .

Your description of investor pricing is not what I was referring to . They are completely unrelated. I don't pay net 90 , I pay for materials and any complete work . 

So you mean to say your fellow contractors , work for builders with no margin , for cheap and then also float the money for 90 days . Do you seriously think this is the case ?  I think you shouldn't presume that about your colleagues ,  there are certainly lot of contractors working for builders and doing great . But I would be interested to see if you have any data to support this statement . I get everything much cheaper in Amazon than any other store , ohh are they selling for cheap ?? then they must be losing money and when the next cheap thing comes - people will ditch it . I wonder why Jeff bezos is the richest man in the world.

And regarding waiting for contractors and you passing up , You can set whatever strategy you like for your business . I don't know how you came to the conclusion that price is the problem , Did we discuss on pricing ? or Did I say something to suggest that ? or perhaps another assumption? . Another point regarding the demand , I position myself such that I don't have to deal with any unreasonable demands or be desperate , so in this case , I don't NEED to rehab , you can pick the next guy , I can decide to not even rehab , and switch to Exit B . However this post is not about you and me , It is about an investor planning her vetting process . 

Even though we didn't discuss about pricing , Higher prices doesn't automatically mean good work . Ever heard of "Madoff"  .you just run in to more sophisticated crooks . Just because he collected millions and charged hefty fees , his investors did nt automatically get big fat checks

I came across and saw lot of hard working contractors , who are open minded , reasonable , big picture oriented , affordable and make lot of money . 

I strongly hope this post prepares homeowners/investors of what to expect when they go out to find a contractor . Ofcourse I wouldn't encourage any one to come to conclusion that every contractor will be the same .

Glad that you understood why the prices won't be same. You seem to have made up your mind that everyone will look down on contractors , I personally don't . Do you get the same vision or do you think most people will get that vision of "drunk ....and so on" when they think of their doctor / engineer / Agent ? NO . so there is definitely reason why tpeople feel that way

Also it looks like you take great care in vetting your customers who are "broke" . The property you are working on itself is the asset , which means they are not "broke" . That's why you have a concept called mechanics lien . On the contrary , a client won't know nothing about the contractor - in some states they have good laws , but in states like IL , you could walk out of jail and become a contractor the same day . you can clearly see why the risk is imbalanced. 

I have explained about investor pricing , some contractors agree because of some unique benefits , which I explained , I won't repeat  .

Talking about strategy is not speculation , If that's the case all the CEOs get paid for speculating . In every industry , the people who provide strategy and provide planning are the ones who are valued and paid the most . Anyway , the readers would have understood by now .

I am posting your words here "Deposits in Maryland 33% at contract signing , 33% when work starts ( that can be parerwork ) the final third can be in draws . 5 day right of recision , 10 day if the customer is over 70 , if I remember correctly ( they just changed it ) ."  

Now you say that you only get 33% upfront ... this is a good example of why no one should pay anything down to a contractor. 

Sharing risk :  You are not asked to share the risk of project , ha ha. Risk sharing for the rehab work that you are contracted to do  ,Specifically - in your example , for a 100k project , you want 60k right away . It could take you 3 months .so The entire risk is with the client , the client is paying for a product he doesn't have. ( the guy at best buy says , the laptop costs 2000 , give me 1500 , and come back three months later , I need this to pay my semiconductor guy , touch screen guy . you wouldn't be comfortable , right ? In this case this is multi million dollar company with tons of oversight , but you still are not comfortable paying for something you don't have in your possession )  I am sure you know what happens next . Contractor doesn't show up , or shows up one day in a week , misses time line , and hey by the way I already got 60K , let me repeat the same with another guy , now I have 120K , and  you haven't even done 10k worth of work , this is risk imbalance .

I am happy that you make lot of money in rental properties . That is good for the economy and for the industry .

I don't go by "general" equations - I develop detailed heuristics which serve as cognitive shortcuts to make better decisions. but I am glad that 1/3rd rule is helping you .

@Matthew paul 

"Investor prices" is a term used to mention , prices that an investor would pay , prices that some contractors who see the advantages of working with investors would agree to . Ever heard the term "economies of scale " 

Nothing costs the same for everybody and everytime - do you pay the same price for bread when you buy in walgreens vs when you buy in costco, that is called economies of scale . If I walk in and buy a piece of drywall as a retail buyer , it will obviously cost more than a prolific flipper who has a"managed pro" account and can send it to bid desk . If you are an established contractor - who pays on time , as a vendor I would be dying to provide you with credit , discounts , If you are always 90 day late , forget about discount , I wouldn't even extend credit to you .

So - summary is nothing costs the same . It depends on thousand different things . scale , type of payment , terms , availability , your business case , your credit worthiness , sellers need , buyers knowledge and viceversa buyers need , sellers knowledge .I can write a book on the price differences. 

I don't know , how you can conclude that "most contractors" run . even if we assume that's true , "most" people doing it won't justify anything . Most people are broke , Most people don't have successful businesses , most people don't exercise - I would rather substantiate with sound rationale why it might or might not be a sound business strategy for you .

I wouldnt comment much on your statement regarding contractors willingness to work with new investors , as you seem to have made pretty broad generalizations of investors not knowing anything and not knowing how to buy properties . I can provide my view based on the rationale you provide - For ex , would you be ok with me generalizing about ALL the contractors skills , based on my discussion with you in this thread .

Regarding talking before contract , either you did not understand , or you chose to ignore . I won't assume , as I don't know . I have given plenty of examples of topics you can discuss before the property goes under contract . I will try to rephrase here , but I don't expect you to get this . The investors risk tolerance , their budget consideration , are they looking for a contractor with better communication and management , or are they looking for a contractor who can give better price but ok to bear with communication problems , are they planing to rent or are they planning to flip  . The investor might evolve over the next six months , and they can evolve and do things different after engaging you , but these are only some of the things that you can do. An experienced GC who is business savvy might add so many things to this list .

Thanks for sharing the link - It seems Maryland permits 1/3 rd as soon as the contract is signed . So if a client is willing to pay that to you - great . But If i understood you correctly - you want 66% even before you lift a hammer. I am not a lawyer but that extra 33% is illegal - its same as deposit , because you haven't done any work . Keeping legal things aside , If a contractor is asking me 66% even before any work is started , I don't know a single investor or home owner who want to do that . may be you have clients doing that . For any one reading this and thinking of putting 66% before work starts , I would ask you to spend few hundred and get a consultation with an attorney , call up any investors or any home owners you know in your circle who has got some rehab work done , read through the posts in this forums by searching with "contractor" keyword , general google search and even call other established contractors in the area - Then Make a decision , This is subjective but I would not run , but I would "bolt" from there , ha ha . 

Keeping all this aside , including my personal opinion - how would you justify a 66% upfront payment , because in any deal , both sides should share the risk . Particularly in an industry where consumers tend to have lot of bad experiences .

And absolutely I don't find fault with any business entity for writing contracts in their favor . I would do the same for my business - with in the law .

Yep , the mistakes are always in favor of these companies . I wonder why?

 I hate to sound pessimistic , But I would go in to any transaction , particularly anything in real estate , with no assumption . But I think , in this specific scenario , I don't feel your mistake was big , but depending on your situation , if that 100 $ was your cash flow , then the punishment was bigger .

I would see if they officially as per contract - made that statement about rent . I bet they did not . Even if they did they will be sure to include a clause that - all of this is approximation . I don't now if it's a honest mistake or intelligent fraud , but it's a lesson for all of us that - anything that's not legally binding is worthless.

Its fascinating but crooks usually , make sure that there is no legal recourse.

I don't know where your numbers came from - can you  post your source ? 

You are not answering qns about a property , for that matter you are not answering anything , you are trying to understand the investors rehab strategy , his/her expectation , If she is ready to pay retail prices ( perhaps she needs work done fast or whatever reason ) , you don't need to have a property to understand her strategy and when she has a property under contract , you will be able to charge top of the market price , and provide value . On the other hand , if her budget and situation only allows her to pay investor prices and you would rather do one retail job than three investor jobs , it means you are not the right fit for that customer. Understand that I am not saying that one of you is right or wrong

Ok - understood that you have a unreasonable customer , but why is it a breaking news ,  Every business has unreasonable customers , and also understand that when I asked some one to do a job for 90k they said its ridiculous , their quote was 170k , with in a month some one was willing to do for 95k .so "unreasonable " is subjective

I understand that an iron clad contract is what is protecting you 

Can you help the OP understand what should be included in the contract such that - everyone wins

Every one planning to engage an agent should see this thread , Its funny how what you explained in the simplest terms in rocket science for the "expert" agents .

If the expert agent is so proud of his advice  , he should try putting this thread on his website and see what his prospective clients feel :-)

what is he forcing ? have you never seen a property that sold 14 k less than list . Don't you think the agent should have explained why he thinks it's a low ball offer .  How is the agent 100% sure that the seller won't accept .

Did the agent try to present the offer or educate the buyer that , there are ways to make an offer more appealing , high earnest money , Fast close with cash - should the agent not have discussed these strategies

House listed for 74 k , repair estimate is 11k , buyer wanted to offer 60K . So how will this "ruin his reputation" . 

May be he should offer 73,500 and the "expert" agent will present that offer . He should be an expert form filler to do that .

I know many people here suggest that you should work with a investor friendly agent , yes it definitely helps , but if an agent can't understand the above calculation , I would seriously reconsider . 

Agent saying that he is not making any money is really funny . May be if he thinks that he is skilled and an expert , may be he should move to market where median price is 500k to 1 mil , prove his value and make more money . If he finds one good deal , he could literally make 100k , This is all not some fantasy thinking . There are hundreds of fha buyers who buy 500k to 1 mil multi units in chicago , and even as an investor if an agent brings a "real deal" ( reasonable) - I will also use him to sell after the flip . And I am not being nice in doing this , it's a win win for agent and myself .

There is no point in crying that he is not making money when he is not even willing to offer .

I don't know whats wrong with handing out cards in walmart - He might be a starter with no marketing money , and willing to pass on the savings to his customer . Lets say he buys a promoted package on "Houzz" or "angies list" - that's doesn't make him great .

It could be a contractors business strategy to not talk to some one with out the house under contract - its completely up to you as the business owner . But why can't a contractor have a conversation about her budget , the work that she is anticipating to get done , her likes disliked , if out of 10 contractors that she reached out , you are the only one who took the time to explain and ask qns , who would she call , when she has the property under contract - 3 months down the line . Or you could be the 5 th guy walking in to the house which is "under contract" to give her a "bid"

Also - lets say the investor/buyer has to wait until the property is under contract to talk to a contractor , I just went under contract for  a property on 21st ,  I had few references that I could call , but surprise , none of them even answered , now I have to get new referrals , call them , schedule walk through s and out of the 4 who answered , 3 are clearly out of contention as these are the ones who want 50k for a medium end kitchen job ( no problem with this - they can charge anything ) but if we had a conversation before the  property was under contract , it would have saved their time and my time . Now understand that - all of this should happen in 5 days , or may be 10 days .

Not at all surprised to hear that - for every unscrupulous contractor there is a unscrupulous investor , I would challenge that , but lest assume that's true , would you like to provide some pointers of how she can protect her down payment . Also I think you are not serious when you say that - if a home owner doesn't want to down pay it means they didn't have money :-)

I am not an expert and definitely the other experts can provide better practical ways to protect your down payment , But try asking for insurances , last 3 references , a contract with a tight scope of work , any judgements/ official complaints .

I don't know for some weird reason as soon as I ask for half of these , they stop responding . I think its industry standard to not carry licenses , insurances , not having good references , not agreeing to sign the contract 

By the way - I think its also important to know that - different states have different laws , even for people with 30 yrs of experience or great contractors , for ex in California you can't ask for more than 1000 $ down .I am not making it up, see here .  

http://www.cslb.ca.gov/Media_Room/Press_Releases/2012/August_15.aspx

Also your state of Virginia seems to be agreeing with that 1000$ down ... I know the experts would have shared this sooner or later ..

http://www.dpor.virginia.gov/uploadedFiles/MainSite/Content/News/What%20You%20Should%20Know%20Before%20You%20Hire%20A%20Contractor.pdf

Hope this helps