Flipping Houses

The Offhand Tip That Ended Up Saving Me $11,000 on a Disastrous Flip

Expertise: Real Estate Investing Basics, Real Estate News & Commentary, Personal Development, Flipping Houses, Landlording & Rental Properties, Personal Finance
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The topic of finding a good contractor is discussed frequently on BiggerPockets — in the Forums, on the Podcast, and here on the Blog. Good help is hard to find.

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My flipping career started off fairly small, with cosmetic changes and minor repairs. I did nothing structural in those first flips, and I didn’t need to hire anyone to help me out.

Our first major flip had us rearranging the entire first floor and building a second story. We couldn't do this work ourselves and felt confident we did our due diligence by interviewing three contractors before deciding on one. As it turns out, sometimes people tell lies in order to get your business.

The Warning Signs of a Bad Contractor

I could write volumes about the problems we had with this contractor. I’m still surprised that they turned out to be so bad, because one of the things that swayed the vote in their direction was their story of buying houses to flip during the winter so their guys would have work. (This was in Wisconsin where winters are tough and construction projects end for six months.) Here are just some of the issues we had with them:

  • Showing up late
  • Skipping days
  • Shoddy work
  • Blaming others for problems they caused
  • Stealing from the job site
  • Padding the final invoice

They tried to cut corners in a lot of ways, too.

  • They installed insulation themselves. The biggest insulation installer in that area came and gave us a quote to do it. They buy in such volume that they can purchase the materials AND install it for less than what it would cost me to buy it at the local supply store. But my guys wanted to save costs, so they did it themselves. Not a very good job, either.
  • They did their own flatwork. Flatwork is flat cement finishing, similar to a sidewalk. I needed a new patio poured, and they started to do some of it. After the concrete was poured, they started to smooth it out — WITH A BROOM! I demanded they stop, and we hired out the rest of it to someone with a cement company.


Related: The Ultimate Guide to Finding an Incredible Contractor

The Offhand Comment Worth $11,000

My father, who was heading up the construction of an office building for his company, gave me an offhand comment: "Make sure you get signed lien waivers from all subcontractors before writing the final check to the general contractor." At least it seemed like an offhand comment at the time.

We were about a third of the way through the job at that point and still had a good relationship with the contractor. I felt silly asking him for something like that at this point in the job. They had been delivering on their promises, and it felt like I was telling them I didn’t trust them — or that I was trying to renegotiate the contract after it was signed.

When I brought it up, I blamed my dad. Total cop-out, but I was feeling really nervous about asking for them in the first place. I said, “My dad recommended I get signed lien waivers from you before I write the final check.” And then held my breath.

The contractor didn’t act like this was anything out of the ordinary or any big request, so all that worry was for nothing. They agreed to get them from the subcontractors they had already paid and would get them moving forward. No problem.

Of course, that was all agreed to during the honeymoon phase of the job, when everyone was still all happy and smiley. Things got worse, as they tend to when you’re working with unprofessional people.

The Problems Start

The “great” crew leader quit or got fired. Turns out, he was showing up drunk to the jobsite. Even drunk, he had more construction knowledge than the other guys. No one told me he wasn’t going to be working there anymore, and I kept waiting to ask my questions until he showed up. (He actually came back to the site a few months later. I never noticed him drunk, so maybe he went through rehab. He knew more than all the other guys put together.)

The guys stopped showing up for work on a regular basis. Sometimes they wouldn’t show up for days. Subcontractors arrived in foul moods, too. It’s never a good sign when they all show up mad.

Drywall was the final project they were coordinating for us, and of course it was a disaster. Dust everywhere, they started a day too early — we had planned on them starting Thursday when we would be out of the house. I was so angry at the whole process taking so long that every little thing was blown out of proportion. (Did I mention we were living there at the time?) The dry wallers left, and almost immediately the contractor started asking for his final check.


The Piece of Paper Worth $11,000

I insisted on the signed lien waivers from the drywall company and electrician/plumber before I would write the final check. The contractors didn’t have enough money to write the check to the drywalling company without my check. The drywallers didn’t want to sign the waivers before they got paid. Rinse, repeat.

In the end, I held fast in my refusal to write the check without the signed lien waiver. I told them they could come pick up the check and drop off the waivers at the same time, but I would absolutely not write it before then. I don’t know what coercion techniques they used to get the dry wallers to sign the waivers, but I received them before I wrote the final check.

Related: 8 Simple Tips for Managing Contractors Without Losing Your Mind

Of course, that was the last I ever heard from those contractors. The next day, the drywaller called, frantically asking if I had paid the contractor yet. He also wanted to know if I had a contact number for the contractor, as he wasn’t picking up his phone.

This sordid tale doesn’t end happily for the drywaller or the electrician/plumber. Both of them signed lien waivers before they got paid, and neither of them were paid the full amount they were owed. We spoke a couple more times with the dry waller, who confirmed he was never paid for the work he did — $11,000. The electrician/plumber had done lots of work for this company in the past and was paid for about half of what he did.

But I only had to pay once. I held up my end of the bargain, which was to pay the general contractor for the work that was performed. Those offhand words from my dad saved me at least $11,000. Having never had to use contractors before, I didn’t realize that this could happen. If I hadn’t listened to my dad, the drywall company could have put a lien on my house for the $11,000, essentially making me pay twice for the same job.

So I share my story with you, in the hopes that you never have to go through this, too. If you are using any contractors or they are using any subcontractors, keep track of everyone who works on your house and get a signed lien waiver from every single company who does anything for you.

If you are a contractor, don’t sign the lien waiver until you get paid.

[Editor’s Note: We are republishing this article to help out our newer members.]

What are YOUR best tips for finding and managing contractors without pulling your hair out?

Let me know with a comment!

Mindy Jensen has been buying and selling homes for more than 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real est...
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    Tammy Parsons Investor from Akron, Ohio
    Replied almost 5 years ago
    Very good advice. But you forgot to mention that you should record the lien release at the county, right away. The lien release is no good if you hold onto it and a contractor or a sub beat you to the county to file a lien against your property. As soon as you receive that lien release, got to your county recorder and record it.
    Cornelius Charles Investor from Oxnard, California
    Replied over 4 years ago
    I know i’m late to the party on this one, but i thought I read somewhere that you only need to have subs sign lien waivers if you are hiring them yourself. If the GC subs out to others to do some of the work, i did not think that the subs could put a lien on the property since you are not the one who directly hired them. Any light that anyone could shed on this would be helpful. Thanks.
    Joseph Anthony Investor from Beaverton, Oregon
    Replied over 3 years ago
    Wow! This article was listed on the email newsletter, but it looks like I’m a few years behind. 🙂 Great article Mindy! What would have happened if the contractor wasn’t able to get the lien waver from the subcontractor? Would the subcontractor still be able to place a lien on your property? Would you just pay the sub at that point?
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 3 years ago
    I would not have written a check without having the lien waiver. If the subcontractor would have balked at giving one before receiving payment, I would have arranged for them to be present at check delivery, and would have given them a check for the amount they were owed, and the difference to the GC. I’m devastated for the drywaller and plumber/electrician. That is a LOT to just eat. However, I did not want to be responsible for $11,000 twice. That would have been too much for me to just eat, too.
    Pancham G. Investor from Jericho, NY
    Replied over 3 years ago
    wow!!! this is a good lesson… we are going to ask that going forward.
    Ken Wang Rental Property Investor from Laurel, MD
    Replied over 3 years ago
    Thanks you for sharing Mindy! it’s especially useful for newbie… wondering how much insight i don’t know and it can screw up the whole investment….
    James Kokalj from Madison, Wisconsin
    Replied over 3 years ago
    Just a note, “theft by contractor” carries both civil and criminal liabilities in Wisconsin and is applicable to the person: so s/he cannot shield her/himself behind a company, LLC, etc. This is a long ways from my primary legal expertise, but from the outline of what you wrote, it seems it may apply. Your insisting on the waiver, however, is much better than the headache of litigating it and trying to get triple the amount from the contractor. As for the subs, hopefully they made fast friends with the DA, who really has the leverage to push GC’s to make subs whole.
    Uhone Thathaisa
    Replied over 2 years ago
    thanks for the knowledge, my question is how do I know if the guys will deliver do I have to do research on their previous jobs