How to attract good contractors. Stop wasting time searching!

Question

"How do you find reliable contractors?"   I have heard this question many times on the forums and in the podcast.   The answer is that reliable contractors are all around and you have either rejected them or scared them off.   I  have been a contractor for 20 years and recently sold my contracting business because I hate being the one who cares the most and works the hardest  to complete a project -- but still get paid begrudgingly and very often, late.   I will continue my rant in a few hours but feel free to chime in.

George W. · Answer

i think the core problem with investors that they want things done fast & cheap. When things are done fast & cheap, quality goes right out the window. Fast & good is too expensive for a investor to justify. Good & cheap means a contractor isn't charging enough; which is usually when you start seeing problems with contractors bailing.

also working in the construction industry, it can be hard to collect from a small time investor. Especially when they aren't in the same state.

Joel Florian · Answer

Do justly:

To me, this means treating others right, keeping my word, fulfilling my contractual obligations -- in spite of the cost and the other party's actions.  I can only control my own actions and attitude.   I cannot count on the police or the muni or the courts to force any one else to "do the right thing"

Because I honor my word, I am less likely to make commitments.  To me, even seemingly trivial commitments like "I will meet you at X:00" or "I'll buy you lunch tomorrow" are opportunities for me to keep my word.   If I say I'll meet someone at a certain time, I communicate if I think I might be late or if I get stuck in traffic on the way.

Investors:  avoid paying contractors up front but make progress payments promptly (assuming the work is progressing to spec)  If you build a reputation of  paying on time and not short paying, good contractors will give you better pricing and do more work on credit.  If you pay late or short pay (in spite of good performance), the contractors gossip network will warn everyone.  Do it consistently and you might as well wear a lighted billboard that says "I profit by cheating contractors"    Your  smile and winsome personality will not overcome your reputation.

Joel Florian · Answer

I'm not sure the best ways to find good contractors,   I'm just trying to help you not scare them off if you happen to run into one.   I'll throw out some ideas.  Keep in mind that my experience comes from the 3rd largest town in Alaska which (the whole state only has about 750k people on a big chunk of land.)    All the major Alaska contractors know about the others and most employees have worked for multiple contractors over the years.  I'm guessing big cities are like a bunch of small towns close together, but I could be wrong...  The best way to find good contractors in Alaska is to talk to people.   It is easier if you are local and already have friends and relatives here.  But if you use my formula (to be revealed in a later post), you can make friends anywhere. Talk to people in the waiting room at the Doctor and dentist, the airport, restaurants, maybe even Home Depot or Lowes.  Another possibility would be to find the commercial suppliers in your area (the big warehouses with little or now showroom that sell to HD and Lowes and the big contractors) ask to speak to outside sales.  Take him out to lunch if necessary.   The outside sales reps know which of their customers have the most volume and pay the quickest.   The best contractors will probably have high volume and pay quickly.   If you're residential,  Drive around and look for new homes under construction with contractor vans in front -- go talk to the workers -- best if you can show up around lunch time or 3:30pm or whenever quitting time is.   If some of the guys look promising but don't want to give you the time of day,  offering to bring pizza and coke at lunchtime tomorrow might get you some attention.  If you promise lunch, don't forget or the rumor mill will quickly inform everyone that you don't keep your word.  If you're a commercial investor, look for lots with chain link fences, cranes, cement trucks, job trailers, and contractor signs and talk to people -- sign in at the front desk, wear proper PPE, observe posted safety protocol if you enter the jobsite.  Leave your card and a description of the kind of work you need.  If they tell you to get lost, ask for a referral.  Most construction workers are willing to do side work for cash and if you treat them right, they will tell their buddies and maybe even plead your case to the boss (assuming you need a large project done).

I would say that after vendors, the best referrals for contractors come from construction workers.  Construction workers are constantly networking with eachother, evaluating options for the next project (after the one they are on) or considering higher-paying work.  Construction workers also get to see how different companies operate over a long period of time.  They have a good idea who pays quickly, who cheats on permits, who hires illegal immigrants, who likes lawsuits, who inherited the company and is riding on "Pop's" coattails, which companies are staffed by stoners, who is cheating on taxes, and who can run a job and get work done on time.  If you can hire one or two that look decent, treat them right, they will give you referrals.   It is up to you to discern whether the "buddy" is a good worker.   Some guys refer out of pity and others only refer hard workers that they enjoy working with.   Obviously you want the hard workers.   Keep in mind that some otherwise reliable contractors are not compatible with certain others -- because of family feuds, lawsuits, past history, gossip, or just personality differences.

Sorry this is so wordy.   I learned in college to cover up my ignorance with lots of words.  Much of the knowledge we learn in school is informed speculation anyway....

Joel Florian · Answer

Aaron, you make some good points.   We like to joke that contractors offer 3 things:  Quality, Speed, and Price,  Pick 2.  No contractor is going to be the best at all 3.   Keep in mind that as a new investor (or new in an area) the contractor will be more loyal to known, high-volume clients so you probably won't get the same price, service, or priority until you establish trust.   Trust takes time to build but can instantly be destroyed.   Keep your word,  pay on time, treat the contractor with respect.

Steven Lowe · Answer

I feel your pain.  It is rare that a client has realistic expectations about how long a project will take, how much it will cost, and it is difficult to overcome that even with up front and very honest communication.  If they have money issues you are the first one they stiff and even if they don't have a valid reason not to pay they will make one up.  The last check is always the most difficult to get because clients will assume once they pay you, you're gone.  Not true for all contractors but again it's hard to overcome that stigma.

I've learned over the years to move on from bad clients quickly and never to allow them to get too far ahead of me.  In the past I used to just keep working even if the money slowed down or stopped hoping it would even out in the end.  Got burned a few times doing that.  Now, if someone is giving me a hard time about money, I first make sure I have met my contractual obligations, and if I have, I just inform them that I am unable to continue the work until they get caught up, lien the job if they don't pay, and just let the lawyer deal with it.

A good client will understand that a contractor is not a lender and can't give them an interest free loan on their rehab.  A good contractor will work hard to make sure that the client is happy and regularly communicate about the progress on the work without being chased or prodded to do so.

Just as there are bad contractors out there, there are also bad clients.  Important for both sides to be careful about whom they work with and that expectations are communicated clearly.  Best to have difficult or unpleasant conversations up front than to let things fester.

Steven Lowe · Answer

I'm not a lawyer so don't take this as anything other than my own personal understanding of how this process works.  Basically, yes, if there is cloud on title it needs to be satisfied before the property can be transferred...it's possible to bond around it but that's another convo.  The lien itself is little more than an annoyance.  However when your bulldog of a lawyer calls the debtor and says, "I'm about to file a mechanic's lien on behalf of this unpaid balance owed to XYZ person.  I'm taking your house/property unless you pay this bill," that's when people can't just blow it off.  It's the lien followed by the credible threat of a civil lawsuit to perfect the lien.  Sometimes it is necessary to file a lawsuit but from what I have seen usually these things will settle out of court.

Joel Florian · Answer

@Steven Lowe

Correct me if I am wrong, but filing a lien requires means notifying the recorder's office  (in the county or borough of the property) of failed payment for services rendered.  It requires documentation for proof and possibly a nominal fee.   Once filed, the lien must be satisfied before title can be transferred.  That means a contractor would get paid on a lien fairly quickly on a flip but could wait years on a buy and hold property.

With government projects, bonds are used instead of liens.   And liens against a bond must be satisfied before the permits are closed and final completion.

Steven Lowe · Answer

Mechanic's liens can be effective if applied in the right way and the attorney handling them effectively applies pressure to the debtor.  Filing one and not following up does nothing.

Joel Florian · Answer

Stories -- and direct experiences -- like these make contractors reluctant to work with new investors -- especially ones from another state.  Remember that the foundation of commerce is trust.  A strong, favorable contract with an untrustworthy party is a bad contract.   The contract only is enforceable in court (or a factor in arbitration or mediation if stipulated by the contract)  Going to court requires a lawyer which costs money and time.   Every time I have been confident we could win in court, my lawyer has told me that his fee would be at least as much as the damages and there was at least a 10% chance we might lose (after 2 or 3 years writing letters and going to court) and have to pay damages plus the other party's legal costs.   Filing a lien or going after someone's bond is another very slow and uncertain way to recover payment.

I'm sure an experienced contractor could match any investor scar for scar.   But I'm not here to bash investors.  I'm here to learn how to be a better investor and I'm trying to build a bridge using my knowledge of contracting.  I believe investors and contractors can work together symbiotically.  But both have to move towards trust and away from fear to achieve symbiosis.

Steven Lowe · Answer

I hear horror stories like this all the time but its usually the other way around, IE, contractors getting stiffed.  $70K here, $20K there.  Every single person I know in the business has been burned by a bad client, including me.

In 2017 I had a guy bounce almost $90K in bad checks.  Thankfully I had just started two restaurant projects for him and was only into it for about $15K.  Never did get my money.  Right now the guy is in prison for not paying back child support, supposedly.

Heard one about a GC that was owed $850,000 on a high rise condo development close to where I live.  He had been calling the developer for weeks demanding his money.  Went to the guy's office and was told, "I'm not paying you, I don't care, go get a lawyer."  So he went back later that evening, not with a lawyer, but a baseball bat.  Allegedly he told the developer that he no longer cared about the money but he was going to break every bone in his body.  Chased him around his office.  Apparently he got paid.

A mason I know--nice guy from Guatemala--did a bunch of tuck pointing for a lawyer on some of his rental properties and the guy stiffed him for almost $70K.

I do hear occasionally about contractors running off with the money.  I did hear about a GC that was working on a big commercial project with the City of Chicago.  He got a $1M payment and absconded, supposedly to Mexico.  Left about 100 workers high and dry.   The stories are endless. Construction is a crazy business.

How to attract good contractors. Stop wasting time searching!

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