Protecting yourself from potential bad contractors
I’m currently in the middle of having a construction loan completed for a single family home that will become a rental. I’ve got my general contractor set in place and have signed all the documents needed but am always just afraid of getting scammed or burned :/. Wondering what’re some things to keep in mind or if there’s documents that can help protect my investment. Any advise helps!
#2 Real Estate Agent Contributor
- Real Estate Broker
- Coppell, TX
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#2 Real Estate Agent Contributor
- Real Estate Broker
- Coppell, TX
Pay for progress. Every contractor wants 1/3 up front or more. You negotiate something different....where you pay for work completed....I don't care if that is every week. If they need to pay employees or subs....you pay for work done. Don't ever deviate from this no matter what the story...and there are great stories...there are great salespeople. You don't want promises, you want performance. That way your money doesn't disappear, that way it keeps them coming back when they get super busy. Get lien waivers for materials and work from the subs as you pay. No wavier, no pay....and that is on the GC to get.
There are plenty of contractors here and others you will meet that just won't work this way....and when you deviate at some point you will get burned. Happens to everyone who is active and deviates from the plan. Of course contractors will tell you over and over they want money up front and they've been burned too many times from owners/investors. So you have to move on to the next guy who is hungrier. They're out there.
The guy above me is right on with paying as you go. I personally havent used a GC before but I have looked, and you have a lot lower chance of getting burned if your contractor has a good reputation, lots of reviews, references, satisfied customers etc.
Quote from @Bruce Lynn:
Pay for progress. Every contractor wants 1/3 up front or more. You negotiate something different....where you pay for work completed....I don't care if that is every week. If they need to pay employees or subs....you pay for work done. Don't ever deviate from this no matter what the story...and there are great stories...there are great salespeople. You don't want promises, you want performance. That way your money doesn't disappear, that way it keeps them coming back when they get super busy. Get lien waivers for materials and work from the subs as you pay. No wavier, no pay....and that is on the GC to get.
There are plenty of contractors here and others you will meet that just won't work this way....and when you deviate at some point you will get burned. Happens to everyone who is active and deviates from the plan. Of course contractors will tell you over and over they want money up front and they've been burned too many times from owners/investors. So you have to move on to the next guy who is hungrier. They're out there.
Never heard of lien waivers but sounds like a great idea! Fortunately, in Livingston, TX the issue is just finding contractors that are still working. I keep a long list on my phone and add names as I encounter them. By the time I call to use them they are usually gone.
Quote from @Bruce Lynn:Explain lien waivers. Let's say I buy a house from a wholesaler. Needs $50k in rehab, I'm interviewing 3-5 GC, how do these lien waivers work and how you do convey them?
Pay for progress. Every contractor wants 1/3 up front or more. You negotiate something different....where you pay for work completed....I don't care if that is every week. If they need to pay employees or subs....you pay for work done. Don't ever deviate from this no matter what the story...and there are great stories...there are great salespeople. You don't want promises, you want performance. That way your money doesn't disappear, that way it keeps them coming back when they get super busy. Get lien waivers for materials and work from the subs as you pay. No wavier, no pay....and that is on the GC to get.
There are plenty of contractors here and others you will meet that just won't work this way....and when you deviate at some point you will get burned. Happens to everyone who is active and deviates from the plan. Of course contractors will tell you over and over they want money up front and they've been burned too many times from owners/investors. So you have to move on to the next guy who is hungrier. They're out there.
i get the premise they can't file a lien on a property, but how does this also protect me from guaranteeing the job is done without pre paying?
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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- Austin, TX
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
- Austin, TX
Don't pay until work is completed. I have people I have worked for for a year that I still don't pay until works complete.
Quote from @V.G Jason:
Quote from @Bruce Lynn:Explain lien waivers. Let's say I buy a house from a wholesaler. Needs $50k in rehab, I'm interviewing 3-5 GC, how do these lien waivers work and how you do convey them?
Pay for progress. Every contractor wants 1/3 up front or more. You negotiate something different....where you pay for work completed....I don't care if that is every week. If they need to pay employees or subs....you pay for work done. Don't ever deviate from this no matter what the story...and there are great stories...there are great salespeople. You don't want promises, you want performance. That way your money doesn't disappear, that way it keeps them coming back when they get super busy. Get lien waivers for materials and work from the subs as you pay. No wavier, no pay....and that is on the GC to get.
There are plenty of contractors here and others you will meet that just won't work this way....and when you deviate at some point you will get burned. Happens to everyone who is active and deviates from the plan. Of course contractors will tell you over and over they want money up front and they've been burned too many times from owners/investors. So you have to move on to the next guy who is hungrier. They're out there.
i get the premise they can't file a lien on a property, but how does this also protect me from guaranteeing the job is done without pre paying?
Lien waivers are not a substitute for paying a contractor after the work is completed, they go hand in hand with it. Even if you pay the contractor after work is completed, you have no guarantee he will then pay his subs, unless you get a lien waiver. If that happens, the sub that does work on the property can lien it, which causes you a bunch of headaches. So you basically get the subs to waive their right to put a lien on the property in exchange for payment.
