A fraud story in our first BRRRR!

A fraud story in our first BRRRR!

Rental Property Investor · Member since 2018 · 46 posts · 64 votes

Hey guys, I want to share an interesting story with you, so newbies like myself remember to take extra care when selecting a contractor or anyone, really, for your team. My husband met this local contractor (let's call him Mike) at a showing of an MLS listing (Mike was showing on behalf of an owner). Coincidentally, we were looking for a contractor in that area for our first BRRRR, so my husband took him to our to-be-purchased property (under a contract) and got an estimate. He quoted much lower than other guys, said he was insured, and promised to show other projects he had worked on. We were back and forth with him for close to 3 weeks (all the due diligence period and more), creating SOW and contractor agreement (he didn't have any forms, so my husband had to sit down with him numerous times to create a detailed SOW and go over the specifics). Surprisingly, this guy was always available for these meetings - a rarity in the world contractors, who are always busy to pick up the phone, let alone to sit down for long meetings like that. We thought it was a bit strange, but who cares - his price was so good! What gave us real peace of mind was a meeting that took place at one of our rentals that was scheduled for the city inspection (and why waste time waiting for the inspector, when you can meet your contractor and discuss the SOW at the same time). The city inspector came in and immediately greeted Mike as an old acquaintance: "Heeeey man! How you been? You worked on this house?". Right away we knew this guy is golden if he has such rapport with the city inspection office! There was just one thing that was left to be done before we give him deposit - for Mike to send us a copy of his contractors license. My husband made a copy of the door key for him at Home Depot, so he wouldn't have to do that later, and we agreed to have the job started tomorrow, once he sends us a copy of the license and we pay the deposit. He looked a bit bummed that we wouldn't sign the contract and give him the check before he shows us his license, but promised to do that the same night.

That was the last time we saw Mike. We called a number of times, and he wouldn't pick up. After a week of calling, we figured the guy was unlicensed, decided to move on and called another contractor for an estimate. While he was working at the house on his estimate, a random guy showed up with some tools and said that his "landlord" rented this house to him and gave permission to store his tools at the garage (mind you, the property has no utilities and needs a complete rehab!) And who is this "landlord" who "rented" the place to him?... Yep, it's Mike! It turned out that the guy is currently renting from him and wanted to move, so Mike took him to our property like he's the owner, with the key we gave him, and told him that he can move in and work on this house while he lives there. Oh, and collected a deposit of $900 from the guy, too!!

We've been in touch with this guy, who filed a police report the same day we saw him. Since then we learned that Mike scammed another person by renting the second floor of our house. As if that's not enough, it turned out that the place that this guy was renting from Mike since November is not Mike's, as the actual owner (long-distance investor) showed up and was surprised to find an unknown tenant living at his investment property! The poor guy paid rent to Mike since November, thinking he is the landlord. Who knows how many more people were scammed by Mike this way! 

Lessons we learned: (1) don't trust an unknown contractor with access to the house before everything is verified and the contract is signed; 2) if the contractor's quote seems too good to be true, it probably is; 3) if you are a long-distance investor, have a team in place that can check on your property, or you may find a squatter living there next time you visit; 4) never give any money before everything is verified and the contract is signed (at least we were wise enough on this one!).

Do you have any stories like that for your rehabs?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

If in your state a license is required you simply pop on the contractors board and see the license there active or not. or no license.. 

We may ask for a copy but the real due diligence is done on line with the regulating authority.  its quick simple and accurate. 

its a slippery slope this rehabbing..  to get the pricing you need you have to many times risk contactors that cant carry a job or require deposits before they start.. and sometimes they just steal your money.. it happens to all of us.

What i like about new construction.. is that every sub can carry the job.. and you dont pay them but once a month they buy all their own materials.. and you pay after inspections.. this is what MOST HML do these days as well. they pay for work in place.. this is why when folks look at HML they also need to have cash to float the rehab payment since contractor wants to be paid .. HML is 3 to 5 days later. and they reimburse you

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  • Rental Property Investor · Galveston, TX · Member since 2018 · 49 posts · 29 votes
    7y

    Wow

  • New Rochelle, NY · Member since 2018 · 235 posts · 151 votes
    7y

    @Alexandra Chaploutskiy That's crazy, hope you changed your locks so you don't end up with any more surprises.

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y

    @Joseph A. yep that was done the same day we met our "tenant" :) Thanks!

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    If in your state a license is required you simply pop on the contractors board and see the license there active or not. or no license.. 

    We may ask for a copy but the real due diligence is done on line with the regulating authority.  its quick simple and accurate. 

    its a slippery slope this rehabbing..  to get the pricing you need you have to many times risk contactors that cant carry a job or require deposits before they start.. and sometimes they just steal your money.. it happens to all of us.

    What i like about new construction.. is that every sub can carry the job.. and you dont pay them but once a month they buy all their own materials.. and you pay after inspections.. this is what MOST HML do these days as well. they pay for work in place.. this is why when folks look at HML they also need to have cash to float the rehab payment since contractor wants to be paid .. HML is 3 to 5 days later. and they reimburse you

  • Gary SiverPro Member
    Flipper/Rehabber · Orange Park, FL · Member since 2014 · 180 posts · 83 votes
    7y

    @Alexandra Chaploutskiy. I would never give someone a key who is supposed to work on a property. Always use a lock box or a numeric deadbolt. Once someone does something wrong or finishes with there portion of the job you can just reset the code. Pretty simple peace of mind for me.

  • Rental Property Investor · Union City, NJ · Member since 2018 · 40 posts · 66 votes
    7y

    @Alexandra Chaploutskiy

    It would be helpful for those of us who live in north jersey if you provided the contractor’s real name as opposed to using an alias.

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y

     Hey Jay, thanks - you're absolutely right. I was under impression that I needed his license number in order to look him up, but now realizing I can do this by name. 

    As for the rehab contractors, I completely agree with you: unfortunately, their pricing often correlates with the quality of their job - the lower the quote, the lower the quality. Just have to be careful and at least verify their legitimate business and have them take you to their job sites. Speaking of money upfront, what would you consider an acceptable deposit you are willing to give a contractor?

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y
     @Gary Siver

    Hi Gary, we definitely learned our lesson and already have a lockbox there. Thanks for the tip!

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y
    Originally posted by @Sen A.:

    @Alexandra Chaploutskiy

    It would be helpful for those of us who live in north jersey if you provided the contractor’s real name as opposed to using an alias.

     Hi Sen, yes for sure. He is not in North Jersey, however. He "operates" in Mercer County and parts of South Jersey. His name is Jared Bogart and his company's name is Bogart Home Improvements.

  • Architect · Providence, RI · Member since 2016 · 258 posts · 195 votes
    7y

    In my experience, a price much lower than other contractors equates with a contractor who won't finish the job. If they underbid, they will walk off because they realize they can't make money, OR they are just trying to scam you. Sometimes they are even legitimate contractors, but they've screwed up their number. At best, the low bid contractor will be challenging to work with, especially on schedule, because they'll put your project on the back burner. 

    We recently had a contractor drop their price by half after we said they were too high. This was also a huge red flag and we took a pass on them after further investigation. 

  • Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
    7y

    @Alexandra Chaploutskiy wow, thanks for sharing. Good job not paying anything and sticking to your gun to get a copy of his license.

  • Investor · Punta Gorda, FL · Member since 2015 · 35 posts · 30 votes
    7y

    @Alexandra Chaploutskiy

    Wow. I hope it all works out.

    The red flag for me was right when you said he didn’t have any forms/contracts.

  • Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Alexandra Chaploutskiy - Where’s your rehab in jersey? I can recommend some people to you to try out after getting a zillion recent quotes myself in Mercer County.

    Thanks for sharing your story. It’s definitely true. I got a quote $10000 for rehab work, materials included, and got a second quote $5500 for the same work, labor only, (about 2000 in materials). The second guy has been a disaster and I’m trying to figure out how to fix it without starting over. Live and learn!

  • Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
    7y

    @Alexandra Chaploutskiy NO SUCH THING AS CHEAP LABOR. The horror stories on BP often come from people ignorantly going with a low bid. I’d say the best way to break this cycle I keep hearing about, is find something small for a contractor to do, and let him know if he does well, you have more. If he does good, give home more. If he does good on that, then you might have your guy! Don’t give a new guy your whole house to remodel! Build a trust and experience with someone, then increase the scope of work. Scary hearing this story, since my wife and I just watched the landlord movie “City Heights” where a professional tenant moved in and takes everything.

  • Real Estate Agent · Renton, WA · Member since 2017 · 204 posts · 151 votes
    7y

    @Alexandra Chaploutskiy thanks for sharing, glad you caught it early. Best Wishes!!

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Account Closed

    Hi Alexandra, I once had a real estate agent I gave a key to for showings move an illegal migrant worker of his into one of my properties.

    This was, thankfully, not in this country.

  • Rental Property Investor · San Diego, CA · Member since 2018 · 15 posts · 8 votes
    7y

    @Alexandra Chaploutskiy

    Crazy story! Thanks for sharing!

  • Rental Property Investor · Cedar Park, TX · Member since 2013 · 13 posts · 7 votes
    7y
    @Alexandra Chaploutskiy - Wow. This guy, "Mike" certainly has a creative mind. Too bad he's using it to scam people instead of work. Sorry, you had to deal with that craziness!
  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y

     Thanks, David. We will definitely add a low bid to one of the red flags for us. 

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y

     Hi Kelly, thanks! We wasted a lot of time on him (so he still cost us money), but you're right - at least we did not lose $4k in deposit!

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y
    @Chuck Mader:

    You are so right, Chuck! And being available for all these meeting to create them- also a huge red flag. 

  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    If you think it's expensive to hire a professional, try hiring an amateur.

    I would have walked when he didn't have any forms. 

    His license could be verified by calling the City or checking their web site. I'm in a town of 9,000 in Wyoming and can find every licensed individual in the City or county, along with their contact information.

    Never hand over keys until all requirements are met.

    I also wouldn't accept the building inspectors recognition as verification of licensing. It could be they knew each other from school or that the building inspector recognized him from other scams.

    Thanks for sharing so others can avoid making the same mistake.

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  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y
    @Natalie Schanne:

    Hi Natalie, thanks - I will pm you.

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y

    Hey Jonathan, you bring up a great point and something I forgot about until now - we did give a very small roofing job in one of our rentals,  when we just started our conversations with him. He did an okay job. He was probably trying to win or trust for a bigger gig, though. You are right, we should've given him a couple more jobs before considering him for a whole house remodel. 

  • Rental Property Investor · Member since 2018 · 46 posts · 64 votes
    7y
    Originally posted by @Quito Keutla:

    @Alexandra Chaploutskiy thanks for sharing, glad you caught it early. Best Wishes!!

     Thanks so much!

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