You're about to discover 7 things that you should NEVER say to a contractor; or said another way; here are 7 common ways that contractors can screw you. Whether a big or small job, hiring a contractor is serious business and you must adhere to the following guidelines in this video or else you stand a good chance of being taken advantage of. You'll learn real world wisdom on hiring and dealing with contractors as well as get free access to a contractor agreement which can help you avoid some of the pitfalls that so many other investors experience.
If you're looking to hire a contractor for a job, big or small, you need to read this blog. I am going to educate you on how to develop a fair relationship with your contractor. Contractors can be a source of a lot of stress and anxiety in the world of real estate. They can be masters at extracting the maximum amount of profit, while putting in the least amount of work.
I want to share some important information to ensure that you're in a mutually beneficial and fair relationship with your contractor. This information might offend some contractors, but that's a small price to pay, for sharing the truth. I have been a part of transactions involving hundreds and hundreds of different contractors. I have also been screwed over by a ton of them, which makes me uniquely qualified to educate you on what not to say to contractors.
Seven Things to Never Say to a Contractor
1. Never Tell a Contractor They are the Only One Bidding on the Job
Always get a minimum of three bids, in fact, the more bids you get the better. Separate each bid into the cost of materials and the cost of labor. This will help you tremendously when comparing each contractor.. Don't ever tell a contractor that they're the only one bidding on a job, because that gives them too much power. You need to lead them to believe that you are considering many contractors for a job, so that they are held accountable for their bid.
2. Don't Tell a Contractor Your Budget
If you tell a contractor that your budget is $20,000 they will find a way to make their bid $20,000, even if it should be lower. Instead you should have them provide a bid for the work you need done, so you can compare the cost of material and labor with other bids, to make an informed decision.
- Cost of Materials
Be aware that many contractors will upcharge you for the cost of materials. It is important to independently verify the cost of materials after receiving a bid. I have had contractors look me right and the eye and inform me that material cost is $850, when I know for a fact the cost is only $550. I refuse to hire anyone tat will lie to me about the cost of materials, so I always verify costs.
3. Never Ask a Contractor for a Discount if You Pay Upfront
It is an extremely stupid to offer to pay a contractor the entire amount owed upfront. If you pay a contractor upfront, they can end up not doing a good job, or some will even take your money and disappear.
I have actually seen some real estate traders on Youtube teaching people to do this in order to save money. It is very dumb advice, because you have to be very careful about payments to your contractor. You will have to pay some money upfront to cover the cost of materials, but I actually try to work out deals where I am purchasing the materials myself. I dont trust contractors to buy the materials for me, because in the past I have had issues with contractors using leftovers from prior jobs, or purchasing cheaper materials then requested, thus scamming me out of money.
Now, there might be some attorney's reading this, that would argue that the moment you purchase the materials, you are crossing the line, and the contractor can now be considered an employee. I find this theory completely bogus, because the contractor owns a contractor's license, and work with many other clients. I have the right to purchase my own materials, so that I know they are purchased correctly.
Paying a Contractor
Personally, I give my contractors a little bit o money upfront, and then pay them over the course of the job as it is completed. I always save the final payment for after the job is finished, in order to protect myself from being scammed.
About a month ago, a hurricane began to approach Florida so my family and I decided to evacuate early, in order to get ahead of traffic. I own a large home, so I hired someone to put approximately 50 hurricane shutters up around my house. When it came time to leave, he was only about 3/4 of the way done, so I ended up paying him before he was finished. This resulted in me being screwed, because he never put up the rest of the shutters once we left. I had to get real serious with the guy I hired, and was able to get some of my money back, but I consider myself lucky for that, because some contractors just disappear after they screw you over.
So be advised that if you pay somebody upfront, there is no guarantee that they will finish the job. Don't give a contractor their final payment, until after the project has been completed.
4. Don't Tell a Contractor That You Aren't in A Hurry
If you tell a contractor that there's no rush to complete your project, they will give your job the lowest priority possible. They will take on other jobs and spend their time doing other things, besides getting your job done. You need to communicate timelines, and actually chart out the weekly expectations you have in terms of job completion. Be sure to set dates and deadlines, and let the contractor know that they will lose money if the job is not completed within a reasonable amount of time.
Never tell a contractor that you're not in a hurry, or else your project can end up delayed more and more, until you are pissed off and losing money.
5. Do Not Let a Contractor Choose the Materials
It is very important that you make the decisions on the exact materials you use for your project. With each type of material, there is a high end product, low end product, and something in the middle. Educate yourself on the difference between each type of material, so that you can choose based on your needs. If you allow the contractor to make all of these choices for you, they can really screw you over. They could use materials from other jobs, choose materials that are too expensive, or even too cheap.
In my contract with my contractors, I specify which materials they are to use. Picking the right materials can make all the difference in the world. If a contractor picks the wrong materials, the project is bound to go wrong.
I need you to choose the materials. Be specific on what materials they purchase, where they purchase it, and the price they pay for it.
6. Never Hire Anyone Illegally
Some contractors might offer to bring in people that aren't legally licensed to work on your jobs. You should never hire anyone that does not legally have the ability to do the job. If you are not diligent when hiring a contractor, you risk a huge liability if someone is injured. Make sure that the contractor is licensed and insured, and has evidence of an insurance policy. Be aware of any subs brought in by a general contractor, to ensure that they are covered under their policy.
You must be critically careful that the subs hired by the general contractor are getting paid.I always pay the subs directly, because if you only pay the general contractor, there is no guarantee he will pay the subs. If the general contractor does not pay the subs, you could end up with a lien filed against your property. Always pay the sub contractors yourself.
7. Don't Agree to a "Gentleman's Agreement"
Always, always, always put your agreement with a contractor in writing. I don't care if it is a simple, one page piece of paper, just get the deal in writing. I have a link where you can download a copy of a contract I use with contractors. It is very simple, and ensures, that you and the contractor both understand what you are agreeing to.
Having everything in writing has nothing to do with trust. It helps ensure that everyone is on the same page and remembers what the agreed terms are. So that months down the road, we don't start arguing to what we agreed to in the beginning. I write out very detailed contracts, with my exact expectations and a list of all expenses.
If you decide to let the contractor purchase the materials, have them provide receipts to prove each material cost.
Those are the seven things to never say to a contractor. They all might seem like pretty simple guidelines, but they're a lot more difficult to practice in real life. Oftentimes, we get busy, and try to take shortcuts in life. Do not take shortcuts with contractors or you will regret it. Take the time to do things right, and be very careful when working with contractors.
A lot of contractors actually have a criminal background. This doesn't make them bad people, it is just important to know someone's history from an ethics perspective. If you do not fully understand how serious working with a contractor is, you will get taken advantage of.
On the opposite side of the coin, don't try to screw over your contractor. It is very important that the people you hire make a profit. I actually have a great video that further explains why making a profit is a good thing in business.. I encourage contractors to make a profit, just not at the expense of you.