First rehab - contractor went MIA

Phil Bottfeld

Certified Public Accountant (CPA) · COOPER CITY, FL · Member since 2015 · 126 posts · 36 votes

10y

Originally posted by @Darnell Kramer:

Well that's a tough one.

Personally I would retract any payment I could. Stop the checks. Dispute the credit card etc.

Second yes find a new, recommended contractor in the area. licensed, etc. Did you get the first guys. Report it.

You probably will not recover anything from the actions, but may help others that do their due diligence.

Sorry to hear.

Hope it all works out.

First and foremost I am not an attorney. I agree with Darnell it might be difficult to get your capital back in the near term. However, if the contractor is licensed, file a complaint with the better business bureau or state regulatory agency. You are doing others a big favor. Secondly, if you had a contract with him and he has breached it, consider talking with an attorney, be make sure not to breach the contract yourself.

Third, structure contracts with contractors that favor you regarding when payment is made.

On my last rehab I had an executed rehab contract where I paid 1/3 after paint was complete 1/3 after flooring was complete and 1/3 after the kitchen was remodeled. It kept my contractors incentivized and they liked it because I kept to my word.

Hope this is helpful.

Kind regards,

Phil

Darnell Kramer

Investor · San Diego, CA · Member since 2013 · 64 posts · 25 votes

10y

@Phil Bottfeld

Agreed.. I get frustrated by contractors that want money up front... or ask for a payment because I must pay my workers... RED FLAG.

We are all in business. We must all budget.

Okay you want an initial drawn for supplies. Give me the list. I will buy them.

Then I own them, you are out zero, and you can get to work.

Rant off.

4 Reply

Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes

10y

@Jimmy Chin Sorry to hear that, you need to read more on handling contractors. While advancing for materials like HVAC can be quite expensive, I would definitely let client buy big ticket items. Your problem relies on paying the contractor too much, therefore he has no incentive to work at your location. Before going forward, read your contract, there should be some arbitration clause there, and the following advice is not legal but only based on knowledge of being a contractor. Legally, you will have to file a complaint through your contractors board, then you will have to call his contractor bond company and file a claim, make sure your new contractor has complete paperwork and fully insured. Make sure you gather any and all paperwork, checks, receipts, and lien waivers (I hope you have these). The board and bond company will need for you to use all your efforts to the "full extent", if still unresolved, it is time for you to hire one, then the bond company will cover the cost of the next contract, up to a maximum of whatever they bonded the contractor.

I would disagree with @Darnell Kramer on red flagging a contractor who needs to pay their crew, a common generalization among investors is they are looking for the biggest bang for their buck, so their typical hires are three guys with truck and tools, hopefully licensed, and mostly don't pay real worker's comp. A bigger company like ours could finish a 30k project without taking a draw, however what makes a client think that they are entitled for us to finance their rehab when they are paying dirt cheap? If you want a turn-key project, you will have to pay premium, and that will cost thousands, if you are willing to pay that, then sure, you will have better contractors, some don't even accept any project lower than 100k. Like contractors, sometimes investors also flake or promise contractors this and that, but have clear intentions of not paying them.

Mark Brogan

Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes

10y

Please do NOT ever pay these guys up front ever @Jimmy Chin

Make sure you have all contractors sign lien wavers and all else spelling out their work

find another contractor

Good luck

Rick BassettBusiness Member

Property Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes

10y

I echo most of the previous comments about limiting upfront money and using progressive payments to contractors. We typically purchase the majority of materials and bring them to the job site just as needed so the contractors don't walk off with them. You learn the hard way.

We once had a new contractor that we paid about 33% upfront (about $800) for a small job as he had to pick up materials. He showed up the first day with the materials and started prepping the job, he left that day with some of our materials on his truck and then went MIA and wouldn't return calls.

After about 3 days days I left him a simple message (via Vmail, email & text): I've left you several messages and it appears that you're avoid me. You removed about $800 of our materials from our job site. we intend to report this as a crime to our police department and press charges against you at the close of business today.

He responded to this within an hour, gave us some BS excuse (definitely a lie) and returned to the job later that day and finished up the next day. We paid him the balance upon completion and never used him again.

Rick

475-900-3100

Bassett Property Management5108 Reviews

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Nate Hawkins

New to Real Estate · Nampa, ID · Member since 2015 · 66 posts · 49 votes

10y

Jimmy Chin This is horribly unfortunate and I'm sorry your going through this. Whenever I've hired a licensed professional I take references but not just to check them before work but for when this happens you can hound the people they know to get ahold of them. This happens often and mostly when payment before finish. This a portion of what I write in my contracts. 60% after initial rough-in inspection PASSED 40% after final inspection PASSED I never ask for money up front this shows i am incompetent with money. Hope this helps.

Kris Haskins

Investor · hampton, VA · Member since 2009 · 428 posts · 249 votes

10y

many good ideas guys. i think buying materials and paying contractor for labor that's finished is the safest way.

Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes

10y

Nate Hawkins How would you mediate, after receiving 60% and passing inspection, the investor tells you "You know what, I'm waiting for my money to hit the bank from my finance company, you might have to come back next week". Then doesn't answer your calls for a month. I do understand it's not as big of a deal if you're doing the work, but what if you are paying someone on a weekly basis, how would you manage that? Let's assume, the work is a somewhat larger than cosmetic, maybe $50k.

Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes

10y

Kris Haskins The risk is, you will be missing minor materials. Glue, blades, buckets, tapes, etc. You need to know how much that would cost, a HD reloadable card will solve that though. Contractors does not have to wait for you when buying those minor things, but yes, you have to buy big ticket items.

Scott Carder

Investor · Owasso, OK · Member since 2013 · 166 posts · 90 votes

10y

I would never pay anyone up front. No one pays me upfront.

Jimmy Chin

OP

Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes

10y

@Darnell Kramer I had a feeling that there was no way to recover the funds and that's very unfortunate. I definitely did not take enough precautions and will learn from this mistake. I'm not sure the contractor would have accepted no money up front - but I wouldn't know that because I didn't try asking him.

@Phil Bottfeld Thanks for the advice on handling contractor payment structuring. There's nothing I can do about it now but I'll use your technique going forward.

@Manolo D. I plan to file a complaint against this guy soon but my priority right now is to get my rehab back on track with another contractor. What is BPs policy for posting this awful contractor's info here to make sure he never works with any BP member again.

@Mark Brogan The lien waiver is something I never took into consideration. Thanks for pointing that out.

@Nate Hawkins I made the mistake of using someone's recommended contractor without checking the contractor's background (big fail on my behalf). Lesson learned here. I've been trying to follow up with people that know the contractor but every one I've contacted tells me they don't know the guy (obviously).

Thanks to everyone who is providing input on this thread. I'm running behind schedule now so I'll just have to eat the loss at the moment and continue moving forward. Very hard lesson to learn here and soured my first REI experience.

Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes

10y

Jimmy Chin Not sure about that, you might want to ask one of the moderators. I would keep personal transactions out of BP though. Before you move forward, make sure you don't miss some steps before you let the new contractor in. Make sure you call the consumer department of your contractors board first before taking any other actions, fully documenting everything is key to contractor transition, if you don't do it right, it will be your second mistake, or third or so. Good luck!

Tim Campbell

Real Estate Agent · Minneapolis, MN · Member since 2015 · 112 posts · 40 votes

10y

I'm not sure where this occurred. In Minnesota, the state has a contractor's recovery fund. If you hired a licensed contractor in Minnesota, you could file a claim and the state would reimburse you out of the recovery fund up to a certain amount and then go after the contractor. Your state may have something similar.

Mark Fuller

Investor · Wylie, TX · Member since 2015 · 19 posts · 9 votes

10y

With my regular crews I approach things entirely different than new contractors. With new contractors I buy most of the supplies (myself or meet them at Home Depot or wherever) & pay them every week for labor starting the end of the first week. A reputable contractor will agree to this or you need to find another contractor. This way you can inspect their work before you cut them a check. I've had to fire a lot of contractors over the years because of this fact...they say they can do the job when in reality they don't know what they're doing.

Account Closed

Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes

10y

Consult an attorney.

Jenet Christiansen

Saint Petersburg, FL · Member since 2015 · 10 posts · 4 votes

10y

I just finished my own gut reno. I fronted him 50% of his labor cost up front as well as purchasing all of the supplies. I still got burned, he never cleaned and his "guys" were people who did work on his home, which he had just finished doing a major reno on and because of that, he got a contractor's license. My realtor recommended him to me when I bought my condo. Both of us are sorry. Towards the end of things, I had to pay him because he had no money to pay the subs to finish my job. He claimed at the beginning he would be doing much of the job himself, this was a LIE. He took half of the cost of labor and pocketed it. I ended up paying too much for the condo, and too much for the reno. I still do not have plumbing that drains for my washer. I think of it as an invaluable lesson. Trust NO ONE.

Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes

10y

I would agree to Mark Fuller , weekly payments is fair, in this business, there are too many flaky contractors but there are as many flaky investors/clients, who intend not to pay in full if not pay at all.

Bill ThompsonPro Member

Rental Property Investor · Jamaica Plain, MA · Member since 2015 · 60 posts · 88 votes

10y

@Jimmy Chin Lots of good advise here BUT there is no need to push the panic button just yet. Unfortunately, most contractors tend to juggle many jobs at the same time and as a consequence, may disappear from your job site for a few days. There are also scheduling logistics to take into consideration. For example, the contractor may be at a stopping point waiting for a subcontractor to complete work before proceeding. There are many dependancies with construction. I'm not trying to make excuses for the contractor... just want to let you know there is a good chance that although he is MIA, he may return to finish the job. Of course, all of the drama could have been avoided with better communication from the contractor.

I use the same approach as @Mark Fuller and pay for materials directly plus weekly time/labor, which mitigates a lot of the "robbing Peter to pay Paul" situations with many GCs. In any event, I suspect you will hear from your contractor this week with some some sad story about why he couldn't be on the job... that's just the way some of them roll.

Monty Cowan

Contractor · Bogart, GA · Member since 2015 · 10 posts · 3 votes

10y

There are just as many flaky investors. As a contractor and investor I see both sides of the coin. I require a deposit to effect a contract. I have a good reputation with my clients and lots of references. 10% should be enough to get a contractor on site with weekly draws based upon what is done.

Drew Shirley

Attorney / Multifamily Investor · Houston, TX · Member since 2009 · 173 posts · 136 votes

10y

You can sue the contractor in small claims ("justice") court if the total dispute is $10,000 or less.

You don't necessarily have to have an attorney... but in a typical breach of contract case in Texas, the plaintiff can recover his attorney's fees if he wins the case.

It depends on whether the defendant has assets and can be located and stuck with the judgment.

2 Reply

Adam P

Investor · Chicago, IL · Member since 2010 · 76 posts · 55 votes

10y

Unfortunately, you are unlikely to get this contractor to finish the job, or provide you any of your money back. I would treat it as a lesson learned, one that most investors go through early in their real estate career.

Construction attracts many deadbeats, since the barrier of entry to many trades can be so low (ie painting). There are also many amazing contractors, who are wonderful to work with. It can just take some time and mistakes to find the great ones. I lost a few thousand dollars at first on contractors, before I found my current team who are fantastic.

I always pay for all materials. I provide home depot gift cards, within $100 over estimated costs. That way no contractor can complain they are out of pocket. I then pay only after work is completed. No half up front, or on last project the painters had completed 2 rooms out of 8, and claimed they were half finished.

When contractors start complaining that they need money up front, I tell them they can take the job, or leave it. They provide a name and a license, I provide a building. I have far more to lose by being shady than they do. On a larger job, we will break out cost by task, and pay when each task is complete. This can get you a better price too, as the contractor is then not building in contingency for unknowns.

Guy Gimenez

Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes

10y

@Jimmy Chin

You've learned a valuable lesson Jimmy. NEVER pay a contractor upfront unless you want to never see him again. Had you partnered with a seasoned investor, you would have learned this lesson without the loss of capital.

Your next course of action is to move on and stop living in the past. You made a newbie mistake and you won't ever make that mistake again. Get the rehab done and stop worrying about litigating with someone who likely doesn't have a pot to pee in while your rehab sits incomplete.

Jimmy Chin

OP

Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes

10y

@Adam P , @Guy Gimenez I definitely learned a very hard lesson with this one. This is the last time I will make such a mistake again and plan to keep moving forward. I will continue to fight this one on the side but that is not my main focus right now. I feel ashamed that I made this kind of mistake but I'm hoping that it makes me a smarter investor going forward.

I'm in the process now of finding a replacement contractor and will be filing a case against my contractor this week. I've also just come to learn that there are 2 additional investors that he walked out on, however, they may have lost less given that they are more seasoned. In any case, I will not let this incident discourage me from my investment path!

Jimmy Chin

OP

Software Engineer · Houston, TX · Member since 2015 · 30 posts · 17 votes

10y

@Bill Thompson Turns out you were right. The contractor finally turned up and sent me an email late last night with his excuse. He apparently was juggling multiple jobs at a time and one of his big projects went south so he started "borrowing" advance money from other jobs like mines to pay back the losses on his other project. It seems that things spiraled out of control to the point that he can't hire any labor and he can't continue any projects.

He seems willing to repay me the amount over time - just not right now. Does anyone have an suggestions on how this type of payment arrangement should be setup? What kind of contract (if any) should I be using? Or should I just let the lawsuit take care of the repayments?