CONTRACTOR HELP! Issues & advice please

[Monique Pett]

HI guys. 

I am struggling to get one of my projects in Indy done. 

I started off and paid someone who completely lied about credentials $10k to start the job. He was trash. 

Hired another guy to finish. Everything was going great and then he falls off and I can’t get in touch with him. No one can. And he has around $7k worth of money that he has done nothing with. 

Then I got a third quote for 20% more than my Inital 2 estimates but I know he’s legit. 

What do you guys do in this situation? Definitely getting legal involved and tapping their insurance for sure. 

Does anyone have a reliable gc that won’t cost an arm and a leg at this point? 

Any advice is appreciated. 

Thanks guys 

[Scott Trench]

There is a saying here on BiggerPockets that goes something like this: 

"If you think hiring a $100 electrician is expensive, then try hiring a $10 electrician." 

This is a painful lesson that I have learned several times over when dealing with contractors. More often than not, when I go for price without checking credentials and references. I bet you that nearly every investor on this site who has been doing this for 5+ years has an experience similar to what you are going through (although yes, this is particuarly large theft). 

First, I'd focus on finishing the project. Without knowing the specifics of your situation, my instincts suggest that the market rate for the work is likely the 20% more that you are being quoted by this "legit" contractor than the folks that you have had working for you in the past. Hire the GC that can do the work, well, on time, and on budget. Underwrite your investments with quality GCs factored in going forward. Do yourself a favor and finish the project, the right way, with quality help, at a fair (likely higher price). Or, commit to doing it yourself. If the numbers don't work, switch your strategy, or again, do it yourself.

Second, I agree, this is a case to get your legal team involved. In the unlikely event that you are able to contact the folks who have made off with your money, you should at least attempt to collect what is owed, and charge them. You owe that to yourself in getting the chance to recoup your losses, and to the community so that they at least have to change up a few things and skip town to steal the next investor's money. That's my opinion at least. 

Third, let's think about how to prevent problems like this when working with contractors and when the cards are in your favor and allow you to dictate terms of the engagement - this may or may not apply to the current situation, depending on the financial pain you are feeling and pressure to finish the job.

@David Greene does a great job explaining contracts in his BRRRR book. He has a process that more or less looks like this:

- Contractor quotes the work and says it will cost this much and take 8 weeks. 

- You quote the work and structure the contract such that if the project is done to your satisfaction in 10 weeks (ample time on an 8 week estimate), a 5% bonus is awarded. 

- If the project takes longer, a 5% penalty is applied for each week past the 10 week deadline. 

- Payment is made in installments throughout the process after well defined intervals. 

This takes time and skill in understanding the project to get right, on your part. A GC might obviate the need for these. (Or, you might structure this with the GC directly and let them use whatever systems they want with subcontractors). But, this is one example among many that some investors have found success with and reduces the risk of a situation like this recurring. 

[Andrew Postell]

@Monique Pett good advice above (of course) but something I would add -  I would certainly recommend networking with local real estate investors in Indiana.  Posting here is a form of networking I guess but there are groups that are local to Indy and it would be good to reach out through those.  Some will post on meetup.com and some will post here on the Bigger Pockets marketplace and even facebook.  How about using a contract that has already been vetted by another investor?  That's what a local real estate investor can provide.  And while nothing is fool proof, that should help limit your risk here.  And you can do that with anything - property managers, lenders, insurance agents, anything!  So keep Bigger Pockets in mind to post here and learn but sometimes we need that local person to give us the best chance of success.  Hope all of that makes sense.

[Monique Pett]

Quote from @Andrew Postell:

@Monique Pett good advice above (of course) but something I would add -  I would certainly recommend networking with local real estate investors in Indiana.  Posting here is a form of networking I guess but there are groups that are local to Indy and it would be good to reach out through those.  Some will post on meetup.com and some will post here on the Bigger Pockets marketplace and even facebook.  How about using a contract that has already been vetted by another investor?  That's what a local real estate investor can provide.  And while nothing is fool proof, that should help limit your risk here.  And you can do that with anything - property managers, lenders, insurance agents, anything!  So keep Bigger Pockets in mind to post here and learn but sometimes we need that local person to give us the best chance of success.  Hope all of that makes sense.

@Andrew Postell thank you!

[Monique Pett]

Quote from @Scott Trench:

There is a saying here on BiggerPockets that goes something like this: 

"If you think hiring a $100 electrician is expensive, then try hiring a $10 electrician." 

This is a painful lesson that I have learned several times over when dealing with contractors. More often than not, when I go for price without checking credentials and references. I bet you that nearly every investor on this site who has been doing this for 5+ years has an experience similar to what you are going through (although yes, this is particuarly large theft). 

First, I'd focus on finishing the project. Without knowing the specifics of your situation, my instincts suggest that the market rate for the work is likely the 20% more that you are being quoted by this "legit" contractor than the folks that you have had working for you in the past. Hire the GC that can do the work, well, on time, and on budget. Underwrite your investments with quality GCs factored in going forward. Do yourself a favor and finish the project, the right way, with quality help, at a fair (likely higher price). Or, commit to doing it yourself. If the numbers don't work, switch your strategy, or again, do it yourself.

Second, I agree, this is a case to get your legal team involved. In the unlikely event that you are able to contact the folks who have made off with your money, you should at least attempt to collect what is owed, and charge them. You owe that to yourself in getting the chance to recoup your losses, and to the community so that they at least have to change up a few things and skip town to steal the next investor's money. That's my opinion at least. 

Third, let's think about how to prevent problems like this when working with contractors and when the cards are in your favor and allow you to dictate terms of the engagement - this may or may not apply to the current situation, depending on the financial pain you are feeling and pressure to finish the job.

@David Greene does a great job explaining contracts in his BRRRR book. He has a process that more or less looks like this:

- Contractor quotes the work and says it will cost this much and take 8 weeks. 

- You quote the work and structure the contract such that if the project is done to your satisfaction in 10 weeks (ample time on an 8 week estimate), a 5% bonus is awarded. 

- If the project takes longer, a 5% penalty is applied for each week past the 10 week deadline. 

- Payment is made in installments throughout the process after well defined intervals. 

This takes time and skill in understanding the project to get right, on your part. A GC might obviate the need for these. (Or, you might structure this with the GC directly and let them use whatever systems they want with subcontractors). But, this is one example among many that some investors have found success with and reduces the risk of a situation like this recurring. 

 @Scott Trench thanks for your input here! It is appreciated. Even with these tips I've learned PLUS referrals, still struggled with this deal. I won't be letting it go, but man- this is a tough one for me! 

Thank you so much for your advice. Let me buy you coffee sometime! LOL

[Dalton Foote]

@Monique Pett

Monique,

I have been in the industry (for other companies) here in Indy so I have seen and heard all of what you stated. I personally pay my guys more than most because of what paying them less brings. Rather pay a little higher price at first to know that it will be done right the first time and by chance if something does screw up you can trust them to make it right. I have a few guys that work for me but we do not do it all at this point because I vet pretty heavily. I have other contacts though in the industry I could recommend though. If you ever need advice pm me! 

[Eliott Elias]

Never pay up front unless you’ve built rapport with them. Set milestones and pay them accordingly. You really can’t do much other than use it as an educational expense. If you really wanted to you could take it to court, not worth it

[Bill Jones]

Construction is all management. You’ll make mistakes but you’ll learn a whole lot. Never trust a contractor.

[Sergey A. Petrov]

Just takes time to build a team you trust! A good friend of mine bought a decent chunk of land in Hawaii (they are not in Hawaii nor have spent any quality time there before the purchase). Went through several contractors, lost money on deposits / work not being done on time (or at all) before they found a trustworthy one who eventually built their house. An expensive way to learn and create that network of trusted professionals. Talk to locals, find a good one you trust and can work with and chop it up to lessons learned. I’d still send a notice of default / opportunity to cure letters to the prior contractors and consider legal action…