Why Do Contractors Lie?

The INVESTOR'S GUIDE to Hire the Right Contractor for Success

J.O.A. Maurice

• Publisher: Morgan James Publishing
• Year: 2020
• ISBN:
  9781631950698
• Topic: Business
• Subtopic: Construction Industry
• Index: Business

Why Do Contractors Lie? gives real estate investors the necessary knowledge to approach the contracting process from a higher level of expertise.

Real estate investor of many years, J. O. A. Maurice, equips investors with the appropriate and repeatable skills to hire the right contractors for the right jobs, at the right price, and for the right duration. In Why Do Contractors Lie?, Maurice lays out the appropriate and effective skills investors need so they don't have to lose their investment due to a lying contractor. Within Why Do Contractors Lie?, real estate investors learn how to:

• Find a contractor they can trust
• Spot when contractors start to lie
• Make sure their project gets completed perfectly on time
• Avoid end-of-contract arguments or lawsuits
• Never again lose another investment because of terrible contractors

Chapter 1:

The Pain of Hiring Unsuitable Contractors

Have you ever had an opportunity to be involved in real estate refurbishing in any significant way? Many who have owned homes may have done one form of restoration or another. These are typically one project here, one project there, and may not present major complications. Those in the real estate rehabbing business experience more turbulence than ordinary homeowners can imagine. The moving parts in an actual rehabbing project are many and varied. For beginners, these parts could take a long time to master. Without going through the rigorous process of learning, formally or informally, a new business owner may experience unimaginable stress and loss of investments.

For starters, rehabbing is the process of restoring and improving a property to a satisfactory or superior condition. The process can take weeks to months to years depending on the nature of the work to be performed and the exit strategy desired. The exit strategy could involve renting, flipping, wholesaling, or holding for oneself. Your exit strategy determines how many resources you may put into the house and the amount you can make from the endeavor.

The big picture of rehabbing a property involves purchase, restoration, and renting or selling. The actual steps involved are many and will become clear as you read on. Of these steps, hiring a suitable contractor for your specific job represents one of the most challenging parts of the process. Getting the hiring right can mean the success or failure of your job.

When you talk to seasoned investors, they will tell you that contractors come in all hues and shades. Some nasty. Some pleasant. Some somewhere in between. Whatever shade they come in, don’t be fooled by their outward look. Sometimes the ones who look and sound horrible can be the most pleasant to work with. Sometimes the ones who seem friendly and decent can be the nastiest. Please don’t let the outward appearance fool you. Look at every individual’s total picture, as you will learn later in the book. In other words, evaluate the personality and the contents of the application. After many false starts and deep disappointments in my business, I finally found my footing. The story of my real estate journey in the next chapter tells it all.

Diagnosing Rehabbers’ Main Problem

At a local real estate meeting in Baltimore, a speaker wishing to develop a consensus of what troubled investors the most in the rehabbing process asked questions to over one hundred attendees. Captured below are the answers from one of the investors, John Jacobs, which were in line with the majority of the answers from the other investors:

What drives you crazy in this business?

That many building contractors lie often, and I keep losing my investments because of them.

What worries you the most and keeps you up at night?

The fact that I keep losing money when rehabbing and also the struggles with contractors during construction. I have researched my problems and have come to realize one of my weaknesses is the wording of my contracts with the contractors. My contracts have loopholes which the contractors exploit. Many of the lying contractors know how to twist some of the wordings of the contract to get off the hook when they breach the engagement terms. My concern is that I am not running my business efficiently.

In fact, in one of my current rehabs, I have fired two contractors. The third one who came with a lot of promise now only shows up twice a week. He doesn’t even pick up my calls. This contractor calls when he wants to. Now I’m wondering if I am the problem or if it is these contractors?

What are you most frustrated by, John?

That I have been in the business for many years and still make rookie mistakes because I started and continue to run my business the wrong way.

If you were to complain to a friend, what would you say?

I am stuck in my real estate project. I am now on my third contractor in this project, and things are not going well. I am not satisfied. I wish there was someone who could take over the project and continue it to completion. At this point, I don’t care how much I pay a consultant. I just want the property finished.

What do you think the cost of not solving this problem is?

Sleepless nights, floundering business, and money in terms of holding costs—to pay taxes, heating, utilities, and general property conservation.

What do you Google when trying to solve this problem?

1. 1.Investor support organizations
2. 2.Suing a contractor
3. 3.Breach of contract
4. 4.Choosing the right general contractor
5. 5.How to find a reliable contractor
6. 6.Hiring a licensed general contractor
7. 7.Contractor red flags

The Main Problem Defined

There were many varied answers, but a consensus seemed to point to a situation that the speaker summarized as, “I need to know how to find good contractors who’ll get the job done on time so I don’t lose my investment.” Again, as this investor has realized on many occasions in his real estate career, the caliber of a contractor can make or break an investor. A pleasant contractor who does not finish a project on time is just as horrible as a nasty contractor who may finish projects on time but ends up stealing materials or tools from an investor. So where is the middle ground, one may ask? Strictly speaking, the answer must be that it is the contractor who gets the job done well and on time. You have to learn to cut off the in-between crap. Be focused as a business owner. The judgment should strictly be on the results and completion time. However, the speaker in this meeting said, many things in real estate are neither that simple nor that straightforward. There are many grey areas that you learn to navigate through with experience.

When you view your real estate journey, picture the path as paved with thorns. Your question and answer should be: how should I walk on thorns? Cautiously and methodically! There are no two ways about it. As the speaker said: verify, verify, and keep verifying both your steps and the people you interact with in this business.

The high dollar amounts involved in real estate investing dictate that an investor proceeds carefully and meticulously. Apart from hiring and managing contractors, you will be dealing with realtors, mortgage brokers, your city, government regulations, attorneys, tenants, and managers. A breakdown in any of the processes or dealings can result in a massive loss of income unless corrected in a timely manner. That is why many people don’t recommend starting a real estate business without some formal education in investing in real estate. In the absence of that, they recommend getting a mentor or being involved with some form of consultancy or another. You need to understand that a high dollar business like this may also have a high number of opportunity seekers who may take advantage of you as a newcomer.

At one point, the speaker approached one of the participants and asked if she had tried other ways to solve this problem of finding a good contractor who’ll get her jobs done on time so she doesn’t lose her investment. “Everything,” the participant responded quickly and added that she now feels lost in the business. She said she still gets the hiring wrong, going by the caliber of contractors she gets. At that point, the speaker told her she may need a one-on-one with a seasoned investor, and he suggested they have a discussion at the end of the session.

Still, at the same meeting, the speaker asked everyone who has ever invested or considered investing to outline what their dream come true was. After perusing many answers, he again picked on John’s answer. It was in line with the general idea of many in the group: to hire great contractors that get my real estate projects done on time. Many in the group agreed that if someone can get a good contractor, put in place the right policies, and manage the process well, then money will come. Such well thought out and properly designed policies will, in many cases, minimize the pain that may come during the rehab process.

The speaker said the initial thought process in any new business should not be to become profitable from the get-go, but to put in place proper business and management procedures, and then money will come. He also said the weakness of many new rehabbers is to worry about making money straight from their first rehab. This focus on profitability takes away from building your business on sound structures and understanding. These sound structures and understanding become your solid foundational bedrock that contributes to your future peace of mind, longevity, and profitability.

Another desire for many in the room was to learn the importance of managing the investor—contractor relationship in a way that reduces the deep mistrust that sometimes occurs between the contracting parties. To this, the speaker presented case studies of some successful investors. From analyzing the paths of these successful investors, you will realize that many of them spent time upfront learning about the business. “Knowledge is power,” people say. The consensus is to spend time learning about the business you are in so you can hire the right contractors. That successful path may take engaging consultants to help navigate the rough waters until you know what you are doing.

Another way is to be involved is continuing education and spending time with like-minded individuals through membership in the local and national chapters of the real estate investment associations, meet-ups, and other networking groups. Attendance at such group meetings may also keep you updated on the regular changes in the real estate environment, including the basic legal requirements of the industry. You may also learn some key characteristics of a good contract, as John had mentioned that this is one of his problems in the business. Contracts are covered extensively later in the book. Poorly structured contracts represent one of the ways contractors will cut corners and lie to you just because they can, and also because they can tell from what you accept of the wordings of the contract that you have little knowledge in the business.

The bottom line is that you may experience problems as you commence your real estate investing business when you start on shaky grounds. When you start on the wrong footing without knowing where you want to start and end, you may experience a myriad of problems that may include sleepless nights, floundering business, and loss of money. However, if you start well, with the right education, consultancy and a good team around you, you will progress well. You will get grounded in the correct methodology of hiring the right contractors who will get projects done well and on time so you don’t lose your investment.

Chapter 2:

My Journey with Contractors

Why do many contractors lie? Why do even some decent contractors lie? These are the questions that have, for a long time, haunted me and many of the investors I have interacted with since starting my investment career over fourteen years ago. I am always shocked when I visit investors at their job sites and other venues. The one key overriding complaint is on the challenges of hiring and retaining good contractors. As someone who has been in the real estate investment trenches for many years, I can state with a deep sense of conviction that my business took off once I was able to resolve my questions dealing with hiring and retaining suitable contractors. I can also state emphatically that other investors have gained and will continue to gain from my research as they seek to better handle contractor and contracting issues.

The year 2006 was pivotal for the U.S. economy. The first part of the year recorded a hugely accelerated growth. The second part saw a significant slowdown. Since the U.S. economy had been experiencing tremendous growth for the prior three years, people were spending money as if the economy would grow and grow, ad infinitum! Real estate went through the roof. These were the days when you wondered how people qualified for houses. Many people who wanted to buy a house got one or more.

It was a time of creative financing, creative appraisals, no doc loans, and stated income. In many instances, when you wanted a house, you didn’t have to put money down and you didn’t have to prove your income. I, too, got into the game and experienced the ups and downs of the market. It was a rough ride, but I rode it with optimism and fear! Optimism that I was in a business line I had always admired. Fear because people were buying houses too fast, and as a keen business student, I suspected that this level of growth was not sustainable. Somewhere along the line, a burst would come. Nevertheless, many people were joining the business, and I knew you could only win if you were in the game. I stupidly stayed on and played along!

I was forty-five years old, with a Master of Science in accounting, and a number of finance courses under my belt from a prominent school within the state university system of New York (SUNY). I also had a bachelor’s in business administration from a liberal arts college in the Midwest. I had also taken a number of doctoral classes online in business administration (DBA). In general, I was already well schooled in the field of business and finance before starting on this investment route. Also, before setting up my business as a real estate investor in 2006, I had worked in the corporate world in various capacities for over twelve years—some in managerial positions. My experience in the real estate investment field started when I worked in a real estate investment company (REIT) for six years. I saw first-hand what was going on in the real estate investment world. Also, during three of those years, I helped a friend manage a start-up in a real estate and rehabbing company on a part-time basis. Experience in this small company was an eyeopener, since it gave me the opportunity to interact with contractors, realtors, and other investors.

In the REIT and my friend’s company, I rubbed shoulders with teams that comprised of contractors, attorneys, mortgage experts, and other real estate professionals. In my opinion, I was seeing all the aspects of real estate investing. In 2005, I resigned from my REIT corporation job with the goal of starting my real estate rehab company. I thought I had seen everything I needed to know to start my company. I was wrong. In mid-2006, right before the noticeable beginning of the major economic and real estate downturn, I bought my first investment house. It was a turnkey investment with a tenant and little touch-ups to do. A turnkey investment is a residential property that an investor may buy with tenants already in it, so he starts making money immediately without doing much work, if any. I started collecting rent the following month right after closing on the deal. The turnkey was a good start, but I needed experience with an actual rehab. Soon, I bought my first rehab, and then many more houses within a short period. The going seemed good, or so I thought! It appeared like my REIT experience and part-time work in my friend’s business was beginning to pay off. I had believed my experience, especially in the REIT world, would easily translate into a personal thriving real estate investment empire. This was true for a short time.

As a finance student, I quickly learned the concept of using other people’s money (OPM) to advance my real estate business. Using a combination of my s...