A fraud story in our first BRRRR!

60 Replies

I always thought that new and untested contractors are a big risk.  I have tempered my growth because of this.  One of the best ways is to get a referral from someone you know.  Another, is to test a new contractor with a smaller job.

I've been ripped off by a new contractor, but it was a trial run.  He disappeared after a deposit, but it was a minor loss.  I was still infuriated.

Thanks for sharing.  You're helping people realize this risk and be careful.

WOW is right....people's ideas on how to make money are interesting!

That is insane, it is a shame that there are people out there thinking of every way possible to scheme rather than taking those same efforts to do something worthwhile in life.  That's why these forums are so key for anyone in the game who isn't seasoned!

Originally posted by @Nathan G. :

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.

Live and learn!! We will definitely not repeat the same mistakes again.  Thanks,  Nathan!

Originally posted by @Alexandra Chaploutskiy :

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?

First of all - I commend you and thank you for posting this , most ( even myself) dont like to post the negative stories . so big thanks

As usual - I see the "you get what you pay for" comments , this is the biggest myth . No matter what you pay , a crooked contractor will be a crooked contractor its just that their scams will be more sophisticated , more polished . In fact a sophisticated scammer will have better protections in terms of contracts so you will be "screwed officially" . 

Remember that most people hiring the contractors might be doing it first time , and the con artists have perfected this as its their job , so there is a huge imbalance in the "knowledge to screw " . 

The key word is "risk mitigation" . Chart out all the worst case scenarios and see how your contract can protect you in those scenarios .

I know talking to Attorneys is not the most pleasant thing when you are paying 400 $/hr , but if the project is large scale or if you intend to do this on a regular basis , get the contract drafted by an attorney well versed in litigation/arbitration/mediation .

I have been doing this exercise since the past 15 days  so if any one is in this phase of hiring a contractor , we could definitely bounce some ideas off

Originally posted by @Gillian Mealer :

I would add ask for a current drivers license as part of your due diligence before hiring. I had an issue with a sub contractor whose name did match that of a licensed contractor with a nice website, lots of great reviews etc.. however it turned out to be a family member's license and my guy had no credentials and was working under their name unbeknownst to them. I made the mistake of hiring him without seeing his license, he had a good excuse for not having it on him, I was in a bind, and he references were more than happy to talk about how awesome he was. It was a big mistake, which ended up being a costly one. Lesson learned! 

The drivers license is also a small preventative measure against theft, fraud etc...

 Thanks for sharing, Gillian, and a great tip - will add a copy of DL to the list of requirements!

Originally posted by @Dennis M. :

I know there are some good ones out there , but I’ve had better luck with unlicensed handymen doing my work than licensed insured “ professional “ contractors . Maybe it’s my dumb luck but it seems like every time I get screwed it’s by one of the pros . In this business I’d rather have good referrals from other other local investors than positive online reviews and all the right paperwork .

 A good referral from another investor is definitely a golden ticket. Unfortunately, we didn't have recommendations from anyone at the time. We probably should've asked for them right here on BP forums rather than waste time on this genius!

@Alexandra Chaploutskiy Wow, what a story. Best of lucking moving forward. This story reminds me of my kitchen remodel a few years ago, but nowhere near the criminal aspect of yours. I hired a GC to remodel my kitchen in my personal residence. He came highly recommended. I vetted him and his company, no red flags, all was good. This was approx a 6 week project and my family lived here while he was doing the remodel. Needless to say, I got to know the GC fairly well as I saw him every day for 6 weeks straight. He was a genuinely nice guy and we hit it off pretty well. The contract called for 4 equal payments, last payment when job was finished. He finished the kitchen as scheduled and it looked fantastic. He came over to pick up his last payment, I handed him a check and he started to root thru his pockets. I said is everything ok, he said I'm looking for your house key. I said you already gave it back as you left it on the counter top yesterday. He said here's the extra key as I always make a second copy of the client's house keys just in case they decide not to pay, he winked at me and away he went.

Originally posted by @Joseph ODonovan :

@Alexandra Chaploutskiy Wow, what a story. Best of lucking moving forward. This story reminds me of my kitchen remodel a few years ago, but nowhere near the criminal aspect of yours. I hired a GC to remodel my kitchen in my personal residence. He came highly recommended. I vetted him and his company, no red flags, all was good. This was approx a 6 week project and my family lived here while he was doing the remodel. Needless to say, I got to know the GC fairly well as I saw him every day for 6 weeks straight. He was a genuinely nice guy and we hit it off pretty well. The contract called for 4 equal payments, last payment when job was finished. He finished the kitchen as scheduled and it looked fantastic. He came over to pick up his last payment, I handed him a check and he started to root thru his pockets. I said is everything ok, he said I'm looking for your house key. I said you already gave it back as you left it on the counter top yesterday. He said here's the extra key as I always make a second copy of the client's house keys just in case they decide not to pay, he winked at me and away he went.

 Thanks for sharing, Joseph, and I do hope he joked about the reason for the second copy! Honestly, I am starting to think keyless locks are the way to go these days! You can change an entry code easily without the hassle of having to run to Home Depot. We use that for our Airbnb rental and it's awesome. 

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