On Investing and Accountability: Why We Look Out for Each Other

Investors, especially flippers, work with a wide variety of people on a daily basis: realtors, wholesalers, title agents, mortgage brokers, insurance agents, home inspectors; the list is long. Each and every one of these roles is important to the investor; however, there is one role which is arguably more critical, and more challenging, than any other: that of the contractor. The contractor is the point at which “the rubber meets the road” in any flip project. The contractor is responsible for juggling the most aspects of any rehab: producing the estimate, hiring and coordinating the subs, pulling permits, acquiring materials, making sure the work gets done; put simply, he is indispensable. Unfortunately, the very things that make the contractor so critical are also the things that put him in a position to do so much damage if misused. So, what happens when a contractor “goes bad”?

There are excellent contractors out there; just ask the flippers who have found consistent success, and you’ll likely learn a few pro tips in that regard. However, contractors can drop the ball in a number of ways (as can any member of the real estate team, but the focus here is on contractors). Some simply cannot manage their costs and do a poor job of keeping up with their finances. Others simply do not have quality crews or are just not adept at their jobs. The worst kind, however, are those that take advantage. While they are not the majority, this minority leaves a painful sting on everyone with whom they work. Rarely does a dishonest contractor get away with just a few hundred dollars; no, these individuals deplete life savings and ruin lives. How, though, do they manage to do this, over and over again? The answer, when it comes to investors, is simple.

Investors, in general, seem to have a dismal track record for holding their contractors accountable. When projects go south and contractors are fired, rarely do most investors publish the fact. They cut their losses and move forward, while avoiding that contractor in the future. I’ve spoken with numerous people, investors and non-investors alike, who have lost literally tens of thousands of dollars and never put a word out to the public. There are reasons, of course. “Not dwelling on the past.” “Moving forward.” “Time is money.” “Live and learn.” All of these have perceptions have validity, and they all share one common denominator: they do absolutely nothing to help save others from the same experiences.

When someone, contractor or otherwise, makes a clear effort to deliberately profit off the loss of a client, or is so negligent as to waste significant quantities of their money, the client has a responsibility to make the public aware to the best of their ability. This notice can take many forms, depending on the nature and severity of the situation. Reviews on such review sites as Yelp, YellowPages, Angie’s List, HomeAdvisor, their company Facebook pages, and the Better Business Bureau can help others immensely in their due diligence on potential contractors. Be specific. Use both the company name and the name of the head point of contact (if available) in all reviews. Depending on the amount owed, taking them to court, even small claims court, can help recoup lost funds and leave a public record for others to find. In some extreme cases, even taking the case to law enforcement can help prevent them from damaging others.

As investors, we must focus on the bottom line. We must move promptly in all things, and always continue forward. However, we must also not forget that others are doing the same, and that when someone deliberately takes advantage of us, chances are they already are or will also do it to others. We can help mitigate the risk, for ourselves and our colleagues, but we must take an active role. We must stop “letting things go”, and we must not be concerned that we’re being “vindictive”. Justice is not absolute, but we have a duty to try. If we don’t, we might just find that the next big loss, is ours.