Why Do Contractors Lie?. J.O.A.Maurice
on the rehab. They probably realized they could manipulate me due to my ignorance. And manipulate they did! They gave me plans of what they believed was pleasant to hear, but not necessarily what they intended to do. When they showed up to work, they cut corners as much as possible. Since we didn’t write out specifics of the project, they left themselves wiggle room to say that what they did was what we had agreed on. They asked for additional money if I wanted to do more to fit what I had wanted from the beginning.
I learned my lesson that it is important to spend time and resources upfront to be able to control your destiny, or unscrupulous people will control you and your resources. When someone is controlling you, sometimes they put their interests first and yours last. In many cases, they put you in a losing situation or one that minimizes your gains as much as possible.
How I Did a Strategic Retreat
Some retreats are permanent and fatal. Others can be temporary and designed with the goal of bouncing back up. In this case, when I took a strategic retreat, I buckled down and started learning from scratch. My first lesson was on how to manage contractor hiring and relationships. The years 2008 to 2010 were tough for me and others in real estate. Most of the properties that people bought in the year 2006 were underwater by the time 2008 rolled around. The U.S. economy was experiencing tough times. With property values down, and the lending rules changing, it was hard to refinance or sell rehabs. I, like many people, got stuck with properties. Painful financial reorganization, including surrendering some properties, stared me right in the eye. I did both just to reduce my stock and re-group to a manageable level.
My new strategy was to buy mostly using cash deals, or in case of a mortgage, give a sizeable down payment so I would have a low monthly payment. Excessive debt was the problem from 2008 to 2010 for many investors. My experience was that an investor with excessive debt generally concentrates on debt management at the expense of sound control of his investments. He slowly descends into a survival mode instead of a thriving path. The results are mostly disastrous.
Using Consultants and Getting More Education
A business professor at one of my universities once said there is no such thing as free lunch. There’s always a price to pay somewhere. What matters is whether someone pays upfront or at the backend. But the truth of the matter is, there’s always some payment attached to different situations. The good professor was fond of finishing a business management class that way. I learned and confirmed this reality the hard way when I started in real estate. I had a tight budget that did not involve extensive initial educational expenses in real estate. I also didn’t have a budget for any form of consultancy. I was there alone, in many cases, with and among the “hyenas,” so to speak.
The hyenas were, in many cases, those who presented themselves as people who would help you, only to try to figure out if you had good credit they could use, or if you had enough resources to buy their rehabbed houses or those properties they were putting up for wholesale. Wholesale properties are those that some people purchase at a low cost, then put some markup and sell to you without doing any rehab. This is perfectly legal, except that some investors don’t tell you upfront if they want to help you as a newbie or if they just want you as their customer. The proper way is to disclose this conflict of interest before you engage each other in a business relationship.
Real estate investing is a cutthroat game. Whoever you chose as your mentor wants to sell you a house that, in many cases, has some hidden defects or issues like water in the basement. They try to sell you such houses during dry seasons when you may not detect the water problems. In a way, someone has to be aware of the vested interests of a mentor or consultant. Free advisors come, but they want to sell you something. Their services are not free. It is always a good idea to allocate a budget for education and consultancy so you don’t go for free stuff with your eyes closed because you have no resources for education or consultancy.
A preacher at a local church in Baltimore, I don’t remember who, once said, “Be careful of free stuff. In many cases, free is never free.” I was taken to the cleaners for believing that there is such a thing as something being genuinely free. The free mentors sold me their houses at exorbitant prices, and in many cases, the houses needed repairs sooner than they had made me believe. When I confronted them with these problems later, they stopped picking up my calls. Some stopped talking to me.
Soon, I realized the best way is to budget for education and consultants in the business structure. Many established and successful companies budget for Research and Development (R&D) amounts in their annual budgets. My business operation started to change once I came up with an inclusive budget that realistically gave me wiggle room for education and training. I now had a consultant and a team for every question I needed answers to. My investment life became manageable in ways I had never experienced.
Have a Plan and Work that Plan
One of the lessons I learned in my real estate educational journey was the importance of having a real estate team in place before starting a rehab. Some members of this team became my paid consultants. The team should be composed of a real estate attorney(s), realtors, mortgage and private money lenders, accountant(s), financial advisors, and contractors of all kinds like plumbers, electricians, and general contractors. In addition to having a good team, you should be a regular at different real estate association meetings, and you could be a formidable investor. The goal of having a team is to make sure there is readily available expert advice for every question an investor may have without wasting too much time or groping in the dark, so to speak. From my educational classes, the instructors and speakers emphasized the importance of having a plan and working that plan. As Yogi Berra once said, “If you don’t know where you are going, you might wind up someplace else.”
I learned the importance of starting a real estate business, like any other business, with some basic knowledge and a plan. A plan provides a road map so there is no guesswork. You just need to be disciplined and stick to it. Also, a clearly written and communicated plan can be incorporated into a contract that guides the conduct of all the contracting parties. A contract may also provide for inspection and review points that can unearth mistakes in a rehab in a timely manner to be rectified.
As you will note in this chapter, I have had a long experience starting with venturing in this business without the necessary required knowledge, making several mistakes, then stepping aside, taking a much-needed strategic retreat, then re-starting my career in the right way. This re-starting involved factoring into my budget amounts and time for education so I could build my business on a strong foundation, the way you need to when starting. If you are already in the business and experiencing turbulence, you may need to take a strategic retreat and re-group. I hope my story inspires you to re-start in the right way like I did.
Chapter 3:
From an Insecure to a Confident Investor
Do you ever wonder why some people feel insecure in the daily operations of their businesses while others seem to manage just fine? Have you ever stopped to think why some people lose money, lots of it, year in, year out, while others seem to move along methodically, with less struggle?
As a newbie or someone who has been in any business and still struggling, these are questions you may confront from time to time. In real estate investing, since people deal with big dollar items, business challenges can be daunting. There are usually many moving parts to real estate investing. There is buying, rehabbing, renting, and selling. In all these processes, you can say that a contractor plays a pivotal role at every stage. A contractor could help with analysis before buying. A contractor could be key to your success or failure in the rehabbing process. A contractor is key to your maintenance issues in the rentals. A contractor could also help with the building design that keeps prices low so you can make a profit when you sell.
In the field of real estate investing, mastering the art and science of dealing with contractors