10 Signs You Might Have a Bad Contractor
One of the most important things you could do to achieve investment success is create an expert team. No one is a one-man band in this industry. To achieve high profits on your fix and flip, you must work with the best contractors, realtors and of course, hard money lenders. In going to The Investor's Edge, you accomplished half the battle. But today, we’re focusing on contractors.
There are plenty of fantastic, hard-working and honest contractors out there. Unfortunately, you may have to wade through a sea of less-than-the-best in order to find them. But we want to make your quest for the best a much easier task. Therefore, we compiled a list of ten warning signs to watch out for when seeking out or working with a contractor. These signs will help keep you from wasting any time or money on a poorly-executed rehab. They will also save you some sanity in preventing you from having to work with nightmare contractors.
Warning Sign #1: Showing up Late
This one is a no-brainer. However, you wouldn’t believe how many new investors excuse contractors who show up habitually late. Here’s the deal: contractors who take pride in professionalism take pride in their work. A contractor who shows up when he says he will tends to also do what he says he will. If you hire a contractor who doesn’t care to show up on time, you have to ask yourself what else he doesn’t care about – working hard? Providing expert craftsmanship? A contractor who shows up on time is one who cares about their work. This is the kind of contractor you want working for you.
Warning Sign #2: Skipping Days (or Weeks) of Work
This is another red flag which is unfortunately common. Many contractors out there will throw you every excuse in the book for not showing up. With fix-and-flips, time is essential and directly affects your financial takeaway. You only have 5 months in which to find, purchase, rehab and sell a property. Otherwise, you’re stuck with points and interest mounting higher and higher, eating away at your overall profit. You definitely don’t want to work with a contractor who holds up the rehab process longer than necessary. Basically, a contractor sets their own hours and these hours indicate their professionalism and dedication to the project. It they shave time off of a 30-hour work week, you are not working with a good contractor.
Warning Sign #3: Asking for a Ton of Money Up Front
First and foremost, your contractor should not ask for an unreasonable sum of money up front. You won’t receive the entire rehab fund up front, why should they? The lending process for rehab projects works this way: first, after receiving bids and hiring the contractor, you submit a draw request for the first portion of the rehab work. Then, the hard money lender grants that portion to pay for materials and labor. Draw requests are usually parceled out into three or four over the course of the rehab, depending on the policy of the hard money lender. Therefore, if your contractor requests a sum larger than 15% up front, you will definitely want to consider that a red flag.
Warning Sign #4: Cutting Corners
Bad contractors will attempt to cut their own costs and sacrifice quality workmanship, sometimes while pocketing a profit behind your back. Here are two horror stories about contractors who cut corners with their work.
On a dark and stormy evening, evil contractors attempted to install the insulation themselves. The investor wanted to go with a professional installer, but the contractors skillfully persuaded, promising lower overall costs. The installation was such a shambles that they ended up having to redo the work twice before finally agreeing to hiring a professional. And then, they tried to stick the investor with an installation fee for the terrible work they did!
In the cool moonlight of All Hallows’ Eve, a black cat crossed the path of a wicked contractor attempting to pull off their own cement finishing. The property needed a new driveway and the contractor actually started to smooth out the newly-poured cement with a BROOM. The cat insisted they donate the broom to Witches Without Transportation and call a cement company instead.
Warning Sign #5: Terrible Workmanship
This tell-tale sign goes hand-in-hand with cutting corners. A bad contractor requires top dollar for shoddy workmanship. This includes poor materials, cheap tools and a terrible execution of projects. One horrible contractor attempted to cut costs by using a wooden 2×4 lintel for a door rather than a concrete lintel or a rolled steel joist (RSJ). The door structure was under a supporting wall. As a result, the entire project had to be completely redone to avoid the entire structure crumbling to pieces.
Warning Sign #6: Terrible Reviews
When building up your team of REI experts, online reviews should become your very best friend. You can tell a great deal about a company or contractor by the amount of reviews they have, how many are positive and how many negative issues are resolved. If you hire a contractor who resolves problems, odds are you won’t have problems with them showing up on time or performing terribly on the job.
Warning Sign #7: A Terrible Attitude
You can tell a great deal about a contractor in the first impression. When you meet the contractor, keep diligent notes about how they communicate. Are they friendly, aware and knowledgeable? Do they take pride in their work and communicate effectively with their team? Or on the other hand, are they short or dismissive with you? Do they get easily frustrated or give the impression they don’t want to be there? You can clearly tell how they work by how they communicate and present themselves. If you get the feeling the contractor would much rather be playing golf, the work is far more likely to suffer and the timeline to be pushed out on your rehab project.
Warning Sign #8: Blaming Others for Problems They Caused
This warning sign also goes hand-in-hand with the terrible attitude. Is your contractor less-inclined to take ownership of a problem or fess up to a mistake? Then, you definitely don’t want to work with them. The good contractors own up to their mistakes and take an active part in putting them right. The bad contractors play the blame-game. They blame everyone else for any issues or hold-ups in the project. Clearly, when you hire a contractor, you want one who provides solutions and not excuses.
Warning Sign #9: Stealing from the Job Site
This red flag can be tricky to spot. For example, your contractor may over order on supplies and keep the excess after your job is done. Or, they may bid you for a job and order cheap materials, pocketing a profit under the table. Though this kind of theft is difficult to detect, there are many precautions you can take in preventing it. Compare the bill of materials (BOM) list with the receipts for materials your contractor actually ordered. Being aware of items on the BOM and keep diligent notes on bids will help you spot this potential problem easily.
Warning Sign #10: Stealing from Your Overall Profits
A terrible contractor can steal from your overall profit in a variety of ways. First, they can take their sweet time completing the job. This forces you to pay points and interest that could have been avoided if they finished the work sooner. You earn bigger profits by rehabbing and reselling the property as quickly as possible. Therefore, you want a contractor who works quickly and diligently. Second, a contractor can take away from your overall profits by gouging you on bids or nickel-and-diming you to death on materials. Be sure to do your homework and get solid numbers on bids so you’re not surprised by any costs during the rehab process.
The Investor's Edge helps every client deal with potential contractor issues. First off, we can recommend excellent contractors with whom our borrowers worked in the past. Second, we provide a specialized project manager for every rehab project we fund. This ensures your rehab will finish on-time and on-budget and you can completely avoid the headache of being on top of contractors.
It’s time to open the door to financial freedom!
Learn how you can flip properties with us by attending our next webinar.