Importance of a good contractor vs a bad one
Hi Bigger Pockets members,
I wanted to share my horrible experience using a bad contractor.I was an out of state investor at the time living in San Diego while investing in Indianapolis. Had great success buying my first rental because it was rented out a week after i bought it and produced $348 in cash flow since day one. My second rental was a BRRRR and went great because it produced $518 after i pulled out $21K in refinance money to pay off my line of credit i used to fix it. On my third property I bought things went wrong because of the contractor we used. The area was Greenwood IN and we bought a distressed property for $80K in a area that sells for $160-180K, so i was excited and called my old contractor I've used in the past. He told me that he couldn't help me because of his double knee surgery in two weeks. He gave me some referrals and i also received referrals from my property manager and real estate agent. I called them all and only 5 showed up out of the 12 i called. Then i only received a quote for $12K for labor only, another for $45K for labor only and a third for $95K for material and material. I've read books and listened to podcasts that said to go with the middle quote. So i chose Alpha Y Omega because of their quick response and price. They seemed confident and ready to start that week, they also said they finish in 3 month which would have been great. I paid half up front and bought $20K of material to get them started and busy. The first 2 months where great and the entire property was completely gutted. New electrical/pluming being installed and we visited to and found out the foundation was completely shot and that the house was starting to cave in. so we paid an extra 15K to fix it and 5K for framing. then fast forward 6 month. We are disappointed in the little progress thats being made. the contractor says its going slow because of Covid and he had to lay off all his workers except one guy. so i felt bad and used my credit card to pay him $20K to hire more guys to finish the property because the hard money loan was expensive and killing any profits we might make. Then fast forward to 9 months Im unemployed and so is my wife. we have a hard money loan we are paying $1,400 on each month while floating all our other bills and credit. He finally almost finished before my wife and i fly out and try to help him finish. Then we start realizing a lot of the walls are crooked, the cabinets and not leveled, and so many other problem too long to write down. So we fired him after we saw all that terrible work and then ordered an inspection report to see what was left to fix. turns out 80% of the work was not up to code and the house was dangerous unless we brought in guys who where specialist and did things up to code. So we spent so much time on the phone trying to find companies to make this house right and safe. My wife freaked out and cried because we had no income coming in and our credit was reaching its limit. We had to sell out of our best performing rentals for a profit of $30K. So with sweat equity and spending the $30K we just made plus $5K in credit card debt we finished the property on the 11 month. We thought we where going to loose so much money because the house we bought was $80K, fist contractor cost $65K, materials cost $80K , other specialist to fix all the contractors mistake that where not up to code $30K, total money in was $255,000. The market when we fist checked had homes selling at $180,000, but luckily during Covid around August the market was hot and we listed the home for $245,000. luckily after a month we received a full price offer but the appraisal came in at $240,000. we closed on that offer and only remained $15K in debt which was great considering we would have been in $75K in debt if the market was at $180,000 still. our next flip we just did luckily went so smooth, but ill explain more about that in another post. Please be carful because a bad contractor can turn a great deal into a disaster!!! I am happy to have found a great contractor now that doesn't charge a dime until the entire project is complete and fully walked through to your satisfaction. He completed my next flip in 3 weeks top to bottom! I'll give you his referral if your interested.