5 Red Flags to Escape a Bad Contractor Hire!

What’s easier to find, a unicorn or a rock star contractor? If you asked most value-add real estate investors, the answer would be obvious: “Unicorns, of course.”

We all know the inherent value contractors bring to any real estate investment. A great contractor can help you reduce costs on renovations, save money on holding costs with quick turnarounds, and manage the project with limited guidance. The end result is a beautifully renovated property that gets finished on time and brings in a big payday.

However, reality often paints a very different picture. Headaches, delays, and disappearing acts are commonplace. Investors are always looking for contractors because they either assume all contractors are created equal or simply don’t know what to look for. In either case, the quality of your contractor can make or break the deal.

Whether you fix and flip or buy and hold, properly vetting and hiring reputable contractors is essential. Here’s what you need to know about bad contractors and how to find good ones.

How to Spot a Bad Contractor

Sleepless nights. Endless delays. Excuses. Theft. The list goes on and on. This more or less summarizes my experience with the first contractor I hired as an out-of-state investor. Everything that could go wrong went wrong.

Here’s the gist of the story: The contractor promised a one-month turnaround on a gut job at a bargain price, so I decided to give him a shot. Week after week, he would mention all the progress being made—yet all he sent pictures of was the framing, plumbing, and electrical. All were done incorrectly and without permitting, so the town shut down the project. We had to start from scratch and redo everything. The kicker? He stole $15,000 and stopped responding to calls and texts.

After applying for permits and getting a new contractor, we ended up behind on the project by two months. If I had paid attention to the red flags from the beginning, this project would have finished two months earlier, with less stress.

Pay close attention to these five warning signs.

1. Lack of Licensing

Some contractors subcontract work to unlicensed professionals to save on costs or pocket more for themselves. While it may be tempting to hire an unlicensed contractor for a lower price, the risk is usually not worth the savings. Make sure that the contractor and team members used on the project (such as electricians and plumbers) are licensed.

2. Unrealistically Low Bids

Another red flag to look for in a contractor is an abnormally low bid. Unethical contractors know property owners are looking to cut costs, so they’ll provide cheap labor and cut corners to land the job. Be sure to review bids against your required scope of work to make sure you’re being charged for everything you need.

3. Poor Communication

No investor wants to deal with a contractor who randomly disappears throughout their renovation. Contractors who go MIA put your project at risk and delay return on investment. Pay attention to a contractor’s communication skills from the start.

4. High Upfront Deposits

Contractors usually ask for a certain amount of cash upfront before getting started on renovations. However, you should not have to come out of pocket for more than a week or two of material and labor at one time. This gives them enough to get started but holds the contractor accountable for the work.

5. Lack of Reviews and References

Contractors with one- or two-star reviews—or no reviews at all—are difficult to trust. Whether a contractor has online reviews or not, they should definitely have at least a few references. If they’re unable to provide even one, they’re probably not someone you want to work with.

What to Do If You’re Already Stuck with a Bad Contractor?

If you come across these strategies once you’ve already started working with a bad contractor, you’re probably asking yourself, “Now what?” Here are some options to explore.

Align on Expectations

Try having a conversation to align on expectations and see how they respond. Create project checkpoints where you can manually verify that the work is being done correctly before going further.

Move On and Start Fresh

Start exploring additional contractor options. Get bids with timelines to see how early they can get started. After vetting and verifying your new contractor, have a hard conversation with the contractor you plan on replacing. Make sure to agree to payout terms and document everything.

How to Find a Trustworthy and Reliable Contractor

Here are five strategies you can use to prevent contractor red flags from slipping through the cracks.

Only Hire a Licensed Contractor

Working with an unlicensed contractor is always risky. Minimize the chance of project delays and noncompliance fees by making licensing a priority.

Ask Previous Customers

Reaching out to previous customers is necessary when bringing on a new contractor. Following up with references and checking online resources will help you gauge customer satisfaction.

Get Referrals

Asking friends, family, your real estate agent, and others you trust is the best way to find contractors. These people are the most likely to give you honest reviews.

Check Litigation History

Knowing if a contractor has ever been taken to court by a customer can save you a major headache in the future. Check your contractor’s full name, the name of their company, and any DBAs associated with their business.

Vet Thoroughly and Take Your Time

It’s better to hire slowly than hire the wrong person from the start.

Final Thoughts

As soon as you see one of these red flags in a contractor, run as fast as you can in the opposite direction. Hiring the wrong person for the job can easily double your renovation expenses and push out your renovation timeline by weeks if not months. Learn from others’ mistakes and make informed decisions to ensure your projects run smoothly.

Should you need an experienced Commercial Real Estate Mortgage Broker, please feel free to contact me at 281-222-0433.

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