Ep. #57 How to Deal with Bad Contractors

Hiring and managing contractors is one of the hardest parts of investing in real estate. 

Deni and Brian walk through what you need to know about screening out bad contractors, managing repair jobs to avoid problems, and how to handle contractors if they go bad on you. 

Audio Podcast Version

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Brian: Hey, guys. Brian Davis and Deni Supplee, here from Spark Rental. Happy Tuesday. Deni: Hi, everyone. Brian: Thank you so much for joining us today. You know, as always, we do broadcast these live and then we release them later as a podcast and video casts. If you’re joining us live, ask questions. You know, this is just as much about you guys. And we want to keep this an interactive show. This is not just a prerecorded podcast under ideal conditions. You know that we go back and edit thoroughly later. Right. It’s got rough edges, right. Because we broadcast it live. So, on that note, let us know where you are tuning in from. We obviously love to hear that stuff. I’m a big traveler, so I love to hear about all over the country, all over the world, you know, where you guys are and what you’re experiencing, where you live and where you have properties. So today we are jumping in to talk about how to deal with bad contractors. Deni and I were talking before the show, before going live, that, I mean, I actually think dealing with contractors is significantly harder than dealing with tenants, dealing with bad contractors. One of the most challenging parts of being a real estate investor and being a landlord. Deni: It is. Brian: last week I had Becky Nova on the show of Lady landlords, and she’s lucky in that her husband is quite handy. He’s able to do some of the work on some of their properties. I am like the least handy guy alive. I’ve always had to hire contractors and it’s always been about a lot of trouble for me. Deni was saying that she used to be a general contractor back in the day. she’s trying to wrangle subcontractors and, you know, which is like herding cats. I mean, it’s incredibly difficult. on that note, Deni, let’s jump in here and just establish a baseline of what makes a bad contractor? Deni: What doesn’t make a bad one? Well, a big one is they don’t show up. you can even call, you confirm, and you think they’re going to be there and then you maybe take off to meet them there. And no show, no call, no text. Just. It’s no show. That’s big one, and its pain in the butt, especially I was explaining to Brian, when you have other contractors, depending on the contractors’ work. if an electrician is doing something so that a plumber can finish his end of things and the electrician just doesn’t show up, and then the plumber has got to be rescheduled. So, it’s a pain, right. Brian: you end up with a whole cascade effect when one contractor doesn’t do their job or at least doesn’t do it on time, then, yeah, you have a whole cascade of problems that ruins your whole timeline and can potentially ruin your budget as well, because you might lose some of those later contractors down the line. then you end up having to hire a different contractor for that segment of the work, someone who’s more expensive. Deni: And right now, with, you know, with what’s going on with Covid like it’s hard to even get a contractor schedule within three weeks to a month. So then that flow gets messed up. And it’s really a nightmare right now. Brian: Well, yeah. I mean, that’s a good point, that right now it’s actually it’s hard to even hire bad contractors at the moment because there is such a housing shortage and because contractors are in super high demand right now, both for renovations, for construction projects. We’re actually we’re experiencing this a little bit with our co-investing projects. You guys might know that Deni and I with Spark Rental are partnered with Drew Surjit from Detroit. He operates in Michigan. we bought a property with him, along with a few audience members as a joint venture co investing project where people own fractional shares of this property. And almost all the renovations are done. It’s all in schedule on budget, except for the HVAC. They had a couple big floods; storms happen earlier this summer. And all the contractors are booked solid for weeks in advance. we lost the original guy like he just is MIA, like you said, Deni, we can’t reach him. And the other quotes we’ve gotten have been like twice as much money because they’re all dealing with, you know, ruined furnaces and, ruined hot water systems and stuff from all these flooded basements. And those floods happened like six weeks ago. It wasn’t like last weekend. again, you have this cascade effect. So anyway, then you were telling us what makes a bad contractor. Deni: Oh, OK. Well, poor workmanship. That’s a big one. I mean, everybody’s going to tell you, you know, oh, we do great work, blah, blah, blah. And then all of a sudden you go in, and I’ve seen nightmares with that. not following your directives or getting the exact, desired work, whether it was a miscommunication or maybe they found an easier way to do something or whatever, but it’s just not what you wanted. Oh, this this gets to me. They asked for a down payment and a rather large one before the work even starts. I could tell you nightmares after nightmares of people that have lost big chunks of money, like thousands, because they gave a contractor a lot of money. I don’t part with my money very easy. So, I’m very suspicious with stuff like that. But when I hear this, I’m like, why? Why did you do that? don’t give a down payment. You know, that’s like a huge amount. Brian: We’ll talk more about that later on. But a lot of contractors ask for materials deposit up front because materials do cost money. Right. But yeah, we’ll talk in a few minutes about how to stay ahead of contractors and not letting them get ahead of you with money. Deni: Right. And then the good old estimate. you get an estimate and then they get in there and something is different or wrong, and they change the price constantly throughout the job. I know a big thing with outside contractors because I remember helping a new settlement project, and they were building houses and they hit rock. that’s different because they hit rock. That’s going to cost a lot more money. But some these contractors will find, I don’t know, just ridiculous things to say. Oh, no, it’s going to cost more now. And you just got to be careful with that as well. Brian: Right. So, it’s a shady business practices basically where I mean, it’s built into their business model where they underbid the projects and then when the bid and then halfway through the project say, oh, wait, wait, wait, you know, here are all these things that were surprises. that now is going to cost you five thousand dollars more and, you know, blah, blah, blah. But yeah, you have to be really careful about these unscrupulous contractor practices. And unfortunately, it’s not uncommon at all in this industry. Deni: And just their behavior sometimes can be tough. You know, again, I was overseeing a new housing project, and I remember, and this is so embarrassing, but I’m going to tell you this story. I remember showing a couple the homes, because these are big time, expensive homes and we’re talking way back. And they were expensive then. I’m walking them through the samples, and we see a stream of urine just flowing down from one of the windows. And it was because one of the contractors, one of the framers was standing up there and he just didn’t want to use the bathroom or anything. He just. Yeah. So those things like cursing and stuff like that, there’s things that you just got Watch out for. Brian: Yeah. Your definition of professionalism is going to be different than contractor whose definition of professionalism. it’s something to bear in mind. And that’s even among like contractors who do decent work and who actually are reliable. Deni: Exactly. Brian: Something to bear in mind. All right. So, Deni, let’s talk about how to choose good contractors and how to screen out the rotten apples. So, when you’re hiring for projects, what should landlords, ambulance investors be looking out for? What should it be doing? Deni: Well, I think it’s easier now because of the Internet to find them. I mean, back in the day, it was asking people and that was all you had. And they’re still good, referrals are a great way, because if somebody is using somebody that they like, generally, it’s going to be a, a good referral. Just be careful of, my brothers, uncles, friends, or something like that, because that tends to be an issue, too. But as long as you got a decent amount of referrals, like if you have other real estate investor friends or realtors or, anybody like that, and you get that name keeps coming up. that’s probably a good one. Another one is check out the social media groups. They’re good for that. My husband’s a contractor and I like to think he’s a good contractor. And you can tell because his name comes up, he doesn’t even put it in there. somebody else will say, do you know somebody who does this? And in his company comes up constantly. And you’ll notice that too you’ll see a repetitive name that comes up or a couple of names, especially in your local groups and things like that. Deni: So, check them out. Look for the popular or the names that keep coming up. Because the masses don’t lie. if you see one name trotting in there, here and there, but if you see a name keep coming up, it’s somebody reputable. Google them! Because there’s so many review sites. Google has their own reviews. And Facebook has a review. So, I mean, definitely Google their company name and their personal name, if you know that, just to make sure that they are reputable and, everybody gets a bad review now. And again, it may not be fair, but you will be able to balance them out as to whether, if there’s like 50 good reviews and a few bad ones, then, it’s not so bad. But if you see a two star and tons of bad reviews, even if they’re affordable, you want to run away from them, because in the long run, they’re not going to be affordable. Brian: Yeah. And Angie’s List is a good resource for that as well. That’s an oldie but goodie website, specifically for rating contractors and seeing other peer reviews of contractors in your area. So, yeah, Angie’s List is a great resource for that as well. Deni: They just changed their name. I forget what it is now. Brian: Oh, well, shows that I know. Deni: Yeah. And that’s about it. I think asking other contractors, too, is awesome, because often a plumber will use this electrician that he loves and it’s and they’re usually because they’re good. if you find a good contractor, ask them, you know, who they use. Brian: Yeah. Because they’re putting their name on the line there. they would not refer you to someone who’s no good. But yes, I mean, referrals, it really does come down to trusted referrals and seeing other peer reviews online. another way that you can that you can check for contractors is making sure that they’re licensed, making sure that they’re insured and bonded because and that will protect you in several ways. One, it shows that there is some third-party credentialing. Right? But if they if they mess up repeatedly on jobs, they will lose that credentialing, when people file a claim against their bond or their insurance. if they’re no good, then, you know, customers will file complaints, file claims. they’ll lose that credentialing. the credentialing does help as your screening contractors. And we have a comment here from Christina And she says now the contractors are super busy and there’s a lack of labor. More and more are asking for 50 percent upfront. Yes. Your thoughts on that, Deni. Deni: Again, if you know this contractor and you’ve worked with them before, I think I probably wouldn’t have a problem with that. But if it’s somebody new that you’re using, I don’t know. I think I would wait it out and find somebody else., recently I just heard somebody who was at four thousand dollars because this guy just skipped out. Brian: Went off to Mexico (laugh) Deni: Serious. And she’s exploring legal action. the likelihood of that getting anywhere is null. sometimes it’s better waiting it out for the good ones. And if you have a good one, paying a deposit isn’t as risky. Brian: Christina, my thoughts on that are, first of all, 50 percent upfront. really depends on the size of the job, too, right? I mean, if it’s a 600-dollar job and they ask for a 300-dollar materials deposit, I would consider that. If it were a six-thousand-dollar job and they asked for a three-thousand-dollar materials deposit, I would be way more wary about that. that’s my first thought, is that the size of the job does matter some there. Right. the larger the job, the more you want to break it down into draws and release a little bit at a time and so forth. Brian: My other thought on that is I like to buy the materials myself. I will go with the contractor to Home Depot or the wholesaling store or a supplier. And we’ll walk around together and, they’ll get the materials they need for the job. I’ll take a look. And now I’m not a layperson with this, but I do have some experience, overseeing renovations. Brian: if it looks like they’re buying way more materials than they need push back against them on that so that they don’t try to stock up on materials for other jobs. But in general, they won’t do that, especially if it’s someone like you said, Deni, that you have a relationship with, you’ve worked with before. And then I will swipe my credit card to buy the materials to check out, so first of all, I get the points on that. Right, the reward points on the purchase. Second of all, I get to finance it with no financing charges or fees other than the interest if I fail to pay it back that month. So, whereas, you can’t pay a contractor with a credit card or if you can, they’ll usually hit you with a three or four or five percent write service charge. So that’s one of the ways that I get around that upfront material deposit requests from contractors is I will buy the materials for the project myself so that they don’t they no longer have an excuse to ask me for money upfront. Deni: And it could save your money because a lot of times they’re going to pad the materials anyway. Brian: Correct. And that’s a really good point. And an important point is that, again, a lot of contractors are not so scrupulous about these things, and they will overestimate the materials costs. And even if they do that, not intending to rip you off, it’s not like they’re going to refund you if they end up spending less on materials. Right. they’re going to overestimate to protect themselves, but they’re not going to refund you the difference when it comes when it ends up coming in a lot less than that. Deni: You’re not going to get. Oh, I spent less here. Brian: So, I highly recommend that you pay for the materials yourself with your own credit card. If they’re asking for a material deposit, upfront say, no, I’m not going to give you deposit, but I will buy the materials myself. Deni: Absolutely. Brian: All right. Deni, other tips for choosing good contractors, screening out bad contractors. Deni: Just. check the reviews and what we said, be careful, ask people and be careful with the deposit. Brian: All right. So, you hire somebody, you read through your estimates and your bids. You pick one that you feel comfortable with. before we actually move on, I will say this. It’s worth contacting previous customers and asking them about their experience with the contractor. Yes, the contractor is going to be cherry-picking their client referral or their client testimonials. Right. It’s still worth speaking to these people. You know, it’s a five-minute phone call. It doesn’t hurt you. It doesn’t take a lot of time out of your day. But you can if you keep asking them probing questions, you can get to the root of, did it perform the work on time to this day in budget? Were there any surprise changes in the bid? how did they show up on time? when they were going to show up to meet you for to buy materials at the store, did they show up on time? All that stuff. But yeah, it’s worth spending just a few minutes to contact previous clients to ask about their performance. All right. Moving on. So, you pick someone, you sign a contract with them. Deni, how do you manage these contractors to keep them on budget and on schedule? Deni: Well, we had already talked about the first to the down payment and considering purchasing your own supplies, my daughter is putting a laundry room in right now, and she bought her own washer and dryer because they will pad that to make money on that. Brian: So, the margin on top of that stuff. Deni: Right. And you know what? Things are all delivered now. So, you can order it online, even some of the supplies your contractors need. A lot of times you can get a list from them and have it delivered right to the house. So, I mean, that’s another way to help. But you definitely don’t want to just like leave them in the rental or whatever property you’re flipping or whatever you’re doing, and then just leave them there without checking on them. You do have to check on them for several reasons. you don’t want them bringing people in there that, partying or drinking beers. you laugh. But it’s happened. Brian: Well, I, I did that when I was 18. Yes. Deni: So, you definitely want to stay in contact with them. read through everything you sign, every estimate, every contract, all the hire orders. every contract there is fine print. And usually, the fine print is for the benefit of the person who’s providing the service. So, make sure that you read through all that. And a lot of those contracts will say stuff about, well, things are going to cost more and blah, blah, blah. And some of them will even say that they can just do it and charge you without bringing it to your attention first. make sure that you read those things completely. if there’s anything that you don’t understand, ask. I mean, you’re paying them. So, ask them even to the point of how they’re going about doing something. If it seems odd to you, maybe ask a friend, or post the question in a group or something to see if it seems kosher. And if it doesn’t, then ask them why, this isn’t the norm. I’ve seen how this is done. How come you’re doing it this way? Brian: That’s a really important point. Just asking probing questions about these things, it shows it demonstrates to the contractor that you’re paying attention and that they can’t necessarily pull one over on you. even if this is not an area of expertise for you personally, and you wouldn’t necessarily know any better. Just the fact that you are asking questions perpetually that will in itself deter them from ripping you off, or at least it will help in deterring them from ripping you off. And, Deni, you brought up a really important point of staying on top of the contractors. I like to visit the job site every single day during any kind of projects, you know, big or small. I think it’s really important that you show your face once a day as the owner of the property and for it exactly the same reason. It shows them that you’re paying attention and that you’re on top of things, and that deters them from trying to pull one over on you, trying to cut corners, trying to swoop in lower quality materials than we agreed to. yeah, even if you are not an expert and you don’t necessarily know everything that you’re looking at, obviously it helps them. The more you know, the more you’ll pick up on problems. But just being there, just showing up once a day and spending 15 minutes walking through the property, peering underneath things, looking behind panels, all of and asking probing questions like we were just talking about. all of that just sends the loud and clear message to the contractors, I care and I’m watching and I’m paying attention. Deni: Right. And educate yourself. And I’m not I’m not trying to be sexist because I’m a female. I’ve been through this. Unfortunately, a lot of contractors will look at a woman and think they’re not going to know, and they can pull wool over our eyes. And now I went through, the 80s where it was a lot worse. It’s getting better. get educated, everybody, women, men, everybody, so that you have an idea of what they’re talking about, know the terms, stuff like that. Oh, well, I think the mindset would be I’m not going to mess with them because they know the lingo, or they know what they’re talking about. there’ll be less to pull the wool over your eyes with all that too. Brian: Yeah, absolutely. And, to circle back around to the very beginning when you are collecting bids, this is one more reason why you want to collect at least three bids, maybe four or five, because with each bid that you collect and each contractor that you bring in to talk about the job with, you’re going to learn more about the work that needs to be done, what it should cost. You’ll pick up on more of the terminology and then bingo, like you said, Deni. So, by that that fourth or fifth estimate that you’re asking for and that you’re meeting the contractor over there and walking through, you will already have gotten something of an education on the process just by talking to so many contractors about the work in the project. we really can’t emphasize enough to get that education for yourself, even if you never plan to do this this work on your own, even if you never plan to become super handy. It really does help. And it does help if you do, make an effort to become a little handier yourself. And I say that again as someone who’s not very handy at all, but YouTube University, it’s free. You know, you can see exactly how to do any procedure. And that doesn’t mean you want to do it yourself, but you can learn a lot just for free online, you know, by watching videos, by going to blogs. So, get that education. It will help you save money in overseeing renovation projects and managing contractors. Deni: Absolutely. Brian: So, Deni, if you do have a bad contractor, you get ripped off. What should you do? Deni: Well, after you’re done crying, You want to get all the information together? Definitely take pictures. I like to take pictures of projects anyway. And I’m sure a lot of us do that. You know, the before and after’s and as it’s coming along. keep those pictures and gather them together. You definitely want to confront the contractor. If confrontation Person-To-Person seems unsafe, do it through text or email or something like that. Brian: OR phone, Deni: I always forget about phone these days and then get the story and then fire them if you have to. Again, keep track of the times and dates of all communication, because just in case you have to go to court, a judge respects somebody who has the information, like most people will be like I think it was like on a Tuesday. But if you say Tuesday, September, blah, blah, at four o’clock, I talked to him, and this is what happened. You sound more in the know. So, it goes a long, long way. The other thing is you can file a bond insurance claim. I’ve never done that. Have you ever done that, Brian? Brian: I have not. But, you know, this is one more reason why you want to use someone who’s insured and bonded is as the customer, you can file a claim to get reimbursed for any damage or any unfinished work that was contracted for. And then that comes either the contract or, they could lose their policy, or it comes out of their pocket in the, the insurance company who collects from the contractor. But you do get made whole by the insurance company when you do that. So, again, one more reason to hire a bonded and insured contractor. Deni: And then the big one is filing a complaint with the townships and the counties and whatnot or a licensing board if your county or local area has one of those. Because that real kind of puts the stop on them. it may not get you your money back right now, but it’s certainly going to prevent them from putting the screws to somebody else later. And take them to court. I mean, more often than not, you can take them to small claims. You got to check your location to see what the amount is. There are limitations, small claims are a little bit easier. You can go yourself. You don’t have to hire an attorney. And then you have to remember you’re going to gather all your pictures, all your communications. So, when you’re in court, you’re going to have all that. it should be pretty smooth. Chances are they’re not going to come to court, and you’ll have a judgment against them. Brian: No, no. So, you know, I wanted to circle back to something you said a minute ago that was important. You were talking about contacting the licensing board in your county or your jurisdiction. And when contractor’s licenses are threatened because this is their livelihood, they will make it right for you. I mean, that will cow them. I mean, if they think that they’re at risk of losing their license, they’re going to come back and they’re going to fix the bad work that they did. whatever the problem was, they’ll come back and fix it because the threat of losing their license is so dire for them. Deni: Absolutely. Brian: That in itself will solve 90 percent of these problems. You almost never have to take a contractor to court if there is a legitimate threat of them losing their license., you can obviously threaten to contact the licensing board for actually contacting them. give them a chance to make it right before you do that. And then, call the licensing board if they still refuse. Although, like we said, many will just a threat of that will call them and make good. Deni: Yeah, absolutely. And then this is, worldwide web review them everywhere. I have got I have done that. I have been so angry. I have taken the time and reviewed them everywhere. And sometimes they’ll even get a response. Not a lot, but it will be like, Sorry or whatever, and try to make good. So, And the other thing is, if you when you’re negotiate, they won’t make good on it, it’s like you can use what Brian just said and say, look, if you don’t do this, I am going to report you to, you know, this, that, or the other thing. And they might it might get them back, their traffic fix, whatever they need to fix. But. Brian: And the threat, the threat of leaving terrible reviews all over the Internet can sometimes change people’s tunes as well, you know, in my in my personal life. when Katie, my wife or I have been wronged by some company, we will call them up and say, either you’re going to make this right or we are going to plaster the Internet with terrible reviews about what you did to us. And at least half the time it works. And they say, well, OK, OK, OK, we know that. Let me let me talk to my boss one more time and see if we can make this work for you. And then magically, they actually will make it right for you. So, yeah, that that threat in today’s world, like you said, Deni can actually go a long way. Deni: And think about how many times like I know for me, like especially like Airbnb or short-term housing. I read those reviews because if you don’t read the reviews, it’s on you at this point. So, people read reviews. You’d be surprised. Brian: Oh, absolutely. And you should, too, before hiring somebody. Deni: Right. Brian: All right. Well, Deni, is there anything any other thoughts about either screening out bad contractors or managing contractors that you want to bring up before we call this episode complete? Deni: I think we pretty much captured at all. I mean, the other idea and I’m not a fan of it, but some people like to do it is to get a GC who oversees it all, and then you only have to deal with them. But that can be really hard, too, because you still got to stay in communication with them and you got to find a reputable one of those. And that can be really hard. Brian: So, I’m going to pay them a pretty margin. Yes. Or for coordinating the subcontractors, so. Deni: Absolutely. Brian: All right, guys. Well, we will see you next Tuesday at two p.m. Eastern, 11 Pacific here on the Spark Rental page. Have a wonderful week and let us know what you hear about next week. Deni: Have a great day. Brian: Talk to you soon.

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