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| Actual picture from one of our properties. |
One of the last things you want to do is to get scammed as a real estate investor. It will happen if you are not prepared and do not have systems and processes in place to keep you from getting scammed.
Story Time
When we decided to turn my in-laws house into a rental, we started to look for contractors to do the rehab on it because I was too busy with work to do it myself (and I wasn’t that great at what was needed anyway).
We asked around on Facebook, but didn’t get a whole lot of suggestions. A friend of a relative could do some of it, but we wanted to get someone to do all of the work.
My wife heard an advertisement on a local radio station for a home improvement contractor, so we called him to get a bid. He gave us a fairly cheap bid and said he could start working immediately. We decided to use him. (Mistaken Thinking #1: Since he was advertising on the radio, he must have been a legitimate contractor.) He told us he was licensed and insured, so we believed him (See mistaken Thinking #1). He then asked for a 30% down payment to be able to purchase materials, so we paid him the down payment. (Mistaken Thinking #2: It’s OK to pay a down payment before work starts.) After six weeks of no work being done except removing the one piece of baseboard and shoe molding in the picture above, in addition to him coming to us for additional material draws (that we paid), we finally realized that he wasn’t going to do the work.
We suspected something was up after four weeks, but didn’t want to believe it. Thankfully our state has a contractor Fraud law and between our complaints and complaints of other victims from surrounding area, there was enough to arrest him. He made a plea deal and has paid back almost half of the money he owes us.
Tips for dealing with contractors:
- ALWAYS VERIFY their state-issued contractor’s license! Your state’s Contractor Licensing Board or a similar entity should have a way for you to verify that the contractor’s license is still active via a website.
- ALWAYS VERIFY their Insurance Certificate! Call the insurance company and/or agent to verify. These days, anyone can create counterfeit insurance certificates online. Their insurance protects you if one of their employees gets hurt on the job.
- Check references. You usually will be referred to contractors by other friends or investors who have used them before and can vouch for their work.
- Sign a contract that details the following: (Disclaimer-I am not a lawyer & I don’t play one on the internet…always check with your own attorney!)
- Scope of work to be performed
- When the work will start
- How long the work is expected to take
- What milestones need to be achieved, satisfactorily, to qualify for a draw
- Check on the contractor’s work frequently to ensure timely completion
We eventually found a really good contractor who came in and rehabbed everything in the house for us in about a month for a really good price. And we have been renting out the property ever since.
Let me know what you think in the comments. Ask questions, tell your story.
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