We purchased a property in a nice neighborhood that we knew needed an extensive rehab. We got this property by diligently continue to follow it even after we had been outbid for the property by an all-cash buyer. The cash apparently fell through, so we put in an offer immediately that was reluctantly accepted.
This property needed a new roof, new siding, furnace, all new flooring, paint, all doors and windows replaced, new lighting, electrical work, and plumbing. The kitchen, all bathrooms, and deck had to be completely replaced, which included removing walls and moving plumbing. In other words, the house was a disaster, but we knew that going in. Once we started work on the house, neighbors would come by and tell us how happy they were that we had bought the house and were improving it because it had been a blight on the neighborhood for many years.
Shortly after we bought the property and began the renovation work, that area of the city was hit by a huge hail storm with 2" hail that did a huge amount of damage to the areas that were affected including this newly purchased property. To our surprise the insurance company covered the cost to replace the roof, siding, and some of the windows and doors.
Normally, my family and I do all of our renovation work ourselves, but hired a contractor to replace the roof and stucco the house, which was a nice upgrade thanks to the insurance covering the siding. The contractor we hired was an acquaintance who was referred to us by a few good friends, so we didn't perform our typical due diligence. He was the friend of a couple of our close friends, and a very nice, so what could possible go wrong?
He required 1/2 down, which is not uncommon here, so we wrote a large check to cover half the roof, deck, and siding. The plan was for him to start right away, which didn't happen. Delays turned into weeks with excuses ranging from work trucks getting stolen to the crew breaking down on the interstate. When workers did show up they were extremely unprofessional and obviously not competent to perform the task at hand. We affectionately referred to as "Weedy" since he would smoke marijuana in his car during breaks from working on the deck. The first day he showed up to work on the deck, he asked to borrow my level because he didn't have one to work on a deck! Needless to say, he wasn't on the project long. When your crew needs rehab more than your rehab, you know you have big problems.
The stucco crew was great, but they walked off the job after the first coat of stucco because they had note been paid and told us they would file a lien on the property if we didn't pay them immediately. We were told that they had already been paid by our contractor, which he later confessed that they had not been paid. It was clear that we couldn't trust anything he said and the point where I did some investigation into this contractor.
Things went downhill quickly at that point. He continually missed meetings we would setup with him. Then there were three way calls with us, our contractor, and his subcontractor screaming at him on the phone for not being paid for our project and prior projects they had been engaged in. The call from a big box store telling us our material was on hold because they hadn't been paid and that they had just called the police on our contractor for taking a shopping cart full of tools without paying for them.
It turns out that shortly before we paid our contact for half the cost of the roof, stucco, and deck, his Ponzi scheme began to fall apart. He was taking the down payment on new projects to complete previous projects, but he was so far behind that he could begin to complete everything and now nothing was happening on any projects. There were a number of complaints on the BBB website as well as the local building department's website. Our contractor was having trouble finding people to work for him because he had a bad reputation for not paying his contractors.
In the end, a number of people in the community had been scammed by our contractor to the point where he was on the local news. He was then arrested and spent two years in prison.
We were able to work out things with the stucco contractor, the big box store (gave us the material), and get the deck and roof finished with competent contractors (work done at cost). Despite our contractor and being way over budget, the house turned out beautifully and provides nice cash flow as a rental property in a nice and growing area of the city. We were able to work out things with the stucco contractor, the big box store, and get the deck and roof finished with competition contractors.
One of obvious lessons learned is to do all of your due diligence when checking out a contractor. Check reviews online, the BBB website, and the building department website as well as references. I also learned that half down at the start of a project is common but not required and can be negotiated. A big thing that saved this project from becoming an even bigger disaster was our cash reserve, which we had to tap. Without the cash reserve, we would have really been scrambling for funds to complete the project. Lastly, I found that having a supportive spouse (she is fully involved and all in) is crucial. I think it is one thing to get through a difficult situation like this on your own, but would have been far worse if my wife wasn't fully committed.
