7 Red Flags I've Seen After $500M in Construction — Before You Hire Any Contractor

[Brandon M. Townsend]

After years in commercial and multifamily construction and overseeing $500M+ in projects from ground up to completion, I've watched investors lose serious money not because they picked the wrong market — but because they trusted the wrong contractor.

Here are 7 red flags I've seen cost investors hundreds of thousands of dollars. Know these before you sign anything.

1. Can't Provide Proof of License & Insurance

Any contractor who hesitates when asked for a current license and certificate of insurance is a major liability. If something goes wrong on your property — injury, damage, code violation — you're holding the bag. Ask for it before the first conversation goes further. No docs, no deal.

2. Vague or Missing Scope of Work

This is the single biggest money burner I've seen in construction. A vague scope is how a $60k rehab becomes a $140k nightmare. Legitimate contractors provide a detailed written scope — materials, quantities, methods, and milestones for every single line item.

Watch out for these commonly missed scope items that blow budgets wide open:

• Unforeseen structural repairs — rot, deteriorated framing, compromised load bearing walls hiding behind drywall
• MEP upgrades — Mechanical, Electrical and Plumbing systems that don't meet current code and require full replacement
• Hidden water damage — moisture intrusion behind walls, under floors, and in crawl spaces that doesn't show on a walkthrough
• Asbestos and lead paint abatement — especially on pre-1980 properties, this alone can add $20k-$50k nobody budgeted for
• Site work surprises — poor drainage, soil conditions, and utility conflicts that only show up after demo
• ADA and code compliance — older multifamily properties often require costly upgrades to meet current building codes before a certificate of occupancy is issued

If it's not in writing, it doesn't exist. A scope without these line items accounted for isn't a scope — it's a guess.

3. Asking for Too Much Money Upfront

Standard practice is 10-15% upfront with draws tied to completed milestones. A contractor asking for 40-50% before a single nail is driven is either cash-strapped or planning to disappear. Never fund work that hasn't happened yet.

4. No References From Similar Project Types

A contractor who did great on single family flips isn't automatically qualified for a 24-unit multifamily rehab. Always ask for references from projects at similar scale and type — and actually call them. Scope experience matters as much as quality.

5. Pressure to Start Immediately Without a Contract

Urgency is a manipulation tactic. Any contractor who says "I can start Monday but I need a handshake deal" is telling you exactly who they are. Contracts protect both parties — a professional welcomes them. No signed contract. No start date. Period.

6. A Lowball Bid That Doesn't Add Up

Nobody works for free. A bid significantly below everyone else either missed major scope items or plans to make it up in change orders after you're committed.

The biggest money burners I've seen disguised inside lowball bids:

• Change orders — the contractor bids low to win the job then hits you with change orders every week once you're too deep to walk away
• Value engineering without telling you — swapping specified materials for cheaper substitutes that fail faster and cost more to fix later
• Skipping permits — unpermitted work that gets flagged on resale or refinance and has to be torn out and redone at full cost
• Subcontractor quality — low bids often mean bottom tier subs with no accountability and no warranty on their work
• Mobilization gaps — contractor takes your deposit, starts another job, and your project sits idle for weeks burning your carrying costs

I've seen this play out hundreds of times. The cheapest bid almost always costs the most in the end.

7. Poor Communication Before the Contract Is Signed

How a contractor communicates before you hire them is a preview of every conversation during the project. Slow responses, vague answers, missed callbacks — these don't improve once they have your money. If they're hard to reach now, they'll be impossible later.

These aren't theories. These are patterns I've watched repeat themselves across hundreds of projects and hundreds of millions of dollars in construction.

Hope this saves someone from a costly mistake. Happy to answer any questions in the comments — and if you're an investor who wants a second set of eyes on a contractor bid or scope of work before you commit, feel free to send me a message.

[Jay Hinrichs]

Quote from @Bruce Woodruff:

Great post on an important topic. Should be a sticky....

its a catch 22  with these rehab's  in low priced markets of the mid west virtually nothing would work financially if you hire full priced contractors the whole market would stop in its tracks. On new construction with bank loans etc.. this is the way its done for sure.. its a tough one for flippers though trying to navigate price that makes sense given the wholesale price of the assets in todays market.. if you had to go with full blown GC type construction the value of as is houses would have to drop a ton.. At least in the mid west were we operate..