Why Do Contractors Lie?. J.O.A.Maurice
plumbers and electricians, you can call on as needed. You may also have accountants, attorneys, financial advisors, bird-dog people, et cetera.
Then in 2008, at the height of the economic downturn in the U.S., property values started plummeting. All of a sudden, I got stuck with these beautifully constructed houses, unable to sell, as the after-repair value (ARV) was now below the total cost. In real estate language, most of my properties were now underwater. This meant that to sell the properties, I had to get permission from the lenders to allow for sales below the market value—a practice called short-selling.
In many cases, this meant the lenders would not receive all their investment in the properties, and I would mostly lose whatever I had put into the project. I tried to hold onto some completed properties believing the market would soon rise, as in other past housing downturns. I was mistaken. This was not just a housing downturn, but a worldwide economic mess. I thought of renting some of the houses I had rehabbed, but like many real estate professionals know, houses for rent and for sale are rehabbed differently. I was stuck. Houses rehabbed for sale can sometimes have delicate and expensive items, and many tenants are not known to properly care for such things. Homeowners can handle such items with care, as they know they are on the hook for their repair. It is their own home and they are responsible for repairs. I had to let most of my team members go. Many real estate businesses also downsized greatly.
I offloaded many of my investments at below market value, only remaining with those I had paid off or acquired using mainly cash deals. Soon, my portfolio reduced from twenty houses to five. I had put all my resources into real estate. I was devastated. I wanted to quit real estate, but chose to stay because I don’t believe in quitting, and I also wanted to use the mistakes I had made as a springboard to make me stronger. Through a combination of painful financial reorganization and re-inventing myself, I managed to have a fresh start.
This time, the goal was to utilize less debt and more equity through partnerships. The challenge at this point was that, with less money and extremely controlled spending, it was not easy to get any form of a meaningful team behind me. Teams require money and a sense of assurance that they are in a thriving business. The hope of longevity and seeing a thriving business keeps team members together and captive. No one can blame them. Who stays put in a sinking ship?
My Trials and Tribulations with Contractors
With my team gone, I had to rely on temporary contractors who I hired for specific projects. These contractors did not owe any loyalty to me or my company, except for the specific jobs they were hired to do. The result was that, as soon as a contractor landed a job with me, they were busy looking for another job, so when they were done with mine, they had another job waiting.
Sometimes, they signed up with more than two jobs, so they showed up at my job one week, another job another week, and yet another one the following week. By the time they got back to my job, they had lost their sense of continuity. I was now operating in a completely unfamiliar territory where I had lost my sense of control. How could I run a business where the contractors I had hired seemed to be in the driver’s seat? Sometimes these contractors confused my designs with those in other companies they worked for at the same time as mine. In other cases, they couldn’t remember at which company they had left their tools.
I wondered why a contractor would not simply tell the truth that from this date to this date, they would be working at a different site. Their lies led to mistrust, arguments, bad blood, and jobs done poorly. In one instance, a contractor I had worked with for many years persuaded me to advance him over $40,000 that it would make the construction cost cheaper as he would buy materials in bulk to reduce acquisition costs. In economic terms, he would get discounts through bulk buying, and the economy of scale savings would trickle down to me in the form of reduced material costs. He disappeared after he took my money. Mind you that this was a contractor I had worked with in many projects, over a period of six years. I was confused and beyond shocked.
To me, this guy had become more than a contractor. He was now a friend, a confidant at that. I had developed a level of trust with him, trust that many people only have with immediate family members. To say that I was confused and shocked is an understatement! I was mad. I was livid. I felt betrayal beyond measure. I didn’t know who else I would trust in this business. I had to use my knowledge from the corporate world to get most of my money back. Still, it was a lesson that you have to be on your guard in this business. You need to have proper rules of your own, and you need to follow the rules even if your dad is the contractor. Business is business! Trusting someone does not mean breaking your rules. Rules are rules. Period!
From all these instances, I thought that there had to be a better and easier way to work with contractors. I also thought that, if even with my advanced education and extensive experience in the real estate business, I could be lied to in this manner, then people with less education and experience were unquestionably at the mercy of these contractors.
I talked to various professionals, attended seminars, read books, and researched various systems that would create a streamlined method to help me with investor and contractor interactions. In the process, I solidified my belief that relationships with contractors are a major problem in the real estate business. In my research, I Googled, “How do I get the support I need to rectify contractor mess?” “Why am I always having problems with contractors?” “I need to find the right contractor,” and “I need to learn to detect and quickly fire a lying contractor.”
As many experts and investors in the industry will tell you, the success of a rehab or building process greatly depends on your relationship with contractors. Therefore, those new investors and homeowners seeking success in the industry need to know the best ways to hire and retain reputable contractors.
Painful Lessons
The road to riches in real estate can be rough and meandering. There can be a lot of turbulence. You have to be extremely focused and know what you are doing. Any stupid mistake or misstep can be disastrous. As I have learned from my story of many failures and successes, and from other investors, I have realized that if someone stays put on the long and meandering road, they are likely to end up in the bush. Success in real estate requires a clearly defined road map with strategic benchmarks. For example, when designing a rehab project, it is necessary to first understand what you want to do, then decide who will work with you on that project, and the materials to buy. It is also necessary to have an idea of what the finished product should look like. That way, you can be in charge of decision making from the beginning, middle, and end of the rehab.
Sometimes, such knowledge is not easy to gain. In my case, I had to take various classes, like those offered by some national and local real estate organizations. In the past, these organizations taught at a designated place in a city for three days, then asked you to pay for weekly private phone coaching. It was not enough. In many cases, I ventured into various real estate projects without the necessary knowledge. I paid dearly in terms of mistreatment at the hands of contractors, and even from investors who came into my life as mentors, only to sell me their rundown houses and then disappear. I sustained heavy losses in my investments. Frustration after frustration followed.
Wow, Some Contractors Can Be Heartless
My, my. Sometimes you have gone through a lot, you think you have seen it all. As I learned earlier on in rehabbing, no two houses are the same, no matter how similar in structure they may appear. Now, I had also believed that no two contractors are the same, no matter how similar in approach they may appear to be. A friend of mine would say, there is nothing new there. No two human beings are exactly alike even if they are identical twins. Except with contractors and rehabbing, you are dealing with your hard-earned investments, so your emotions are likely to run deep. The lesson here is that every contractor is unique and your only way out is to set ground rules that you strictly go by, save for a few minor deviations depending on different circumstances.
From time to time, I experienced how merciless contractors can be. My first mistake was not knowing the specifics of my final product. I let the contractors tell me what they thought I wanted. Each of the contractors I