Biggest Red Flags of a Bad Contractor (and How to Fire Them)

Ashley:
This is Real Estate Rookie, episode 206. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, information and stories you need to hear to kickstart your real estate investing journey. One of the things we love to do on this show is highlight some of the amazing reviews we’ve gotten from the Rookie audience. Today’s review comes from Jesse Bruce. Jesse wrote, “So many gems! I love this podcast. It breaks down people’s journey in a way that is understandable for rookies while still providing value for seasoned investors. So many gems in each of these episodes. I feel like I’m getting a crash course on different aspects of real estate investing every single week.” Jesse, we appreciate you. If you guys haven’t yet, please leave an honest rating and review on whatever platform it is you listen to, Apple, Spotify, iHeartRadio, YouTube. The more reviews we get, the more ratings we get, the more people we can reach.

Ashley:
Yeah. Thank you guys so much. We love it when you guys leave us a great review. Don’t forget, you can also call and leave us a voicemail. The voicemails get sent directly to us. We get to listen to every single one, and we may play your voicemail on the show. You can call in at 18885-ROOKIE. Even if you want to share just a win with us, we would love to listen to that too and play it on the show. That’s 18885-ROOKIE. Today, Tony, I am going to use this as a therapy session, a lesson that I have learned so all of you can also learn this lesson. I fired a contractor, a general contractor, a GC. I had to let him go. We’re probably about 75% done with the project when I let him go, and I know that you have done this too, that you had to let a contractor go during it, so I thought we could do this episode on firing contractors as painful as it is to talk about.

Tony:
Yeah. I’m glad you said that, because so many new investors, I think, one of their biggest concerns is managing that relationship with the contractor. The truth is, it is not always easy. The level of professionalism and business acumen and just integrity in the world of contracting varies quite a bit. There are a lot of people in that industry who are fantastic people. There are a lot of people in that industry who are just full of BS. You’ve got to weed your way through these different folks until you find the right person. Ashley and I both had some of those experience. We thought it would be good to share with you guys. Ashley, why don’t you go first? Tell us about your recent experience. What led up to you firing that contractor and what was the final straw that broke the camel’s back?

Ashley:
Yeah, this is the second time I’ve ever hired a general contractor who’s just going to do the whole project. The first one I hired was actually the builder that built my house, and it’s a one man show and he does everything. He had built my house. He’s also my neighbor. Everything went so smooth with my house project. It was wonderful, so I had him do another property for me, a pretty extensive rehab on that. It went amazing, no oversight. Didn’t have to really keep an eye on him. An idea came up, he would ask before he did it. And so, that was such a great experience for this. It’s my A-frame project, so if you follow me on Instagram, @wealthfromrentals, you’ve seen pictures of this project. And so, when we closed on it, we ended up hiring a contractor.

Ashley:
It was a crew of three people, and then they had one part-time younger kid that would come and help them. Right away, there were red flags that I was so amped up and ready to get this project going that I was blinded by them. The first red flag was that they wanted to be paid hourly. That is something I’ve always gone against, doing that, and I was… They could start right away. They went through the property, were telling me things that needed to be done and looking at… Giving me ideas of how to do it, that I was so blinded by that, and I didn’t stick to what my criteria is with a contractor. And so, they started right away. At first, it was such smooth going. I mean, they started working on the structure of the actual building, and it just seemed like they were flying through. Then after about two and a half months, it’s just like, it went stagnant.

Ashley:
It felt like there was no progress. There was one person on the crew that any time we would say we wanted to change something or do this, he would question us, “Why do you want to do that?” and turn it into this huge conversation. And it’s like, just do what we want to do. And then, there was a couple things that started to come up, questions they were asking that just didn’t make sense, that maybe they didn’t know what they’re doing or they were trying to get us away from… Almost, I don’t want to say gas lighting, but making me question myself that I know what I’m doing. And so, I finally got to the point where I didn’t even want to go to the property because I was so depressed over the slow progress that was happening. And so, my business partner would go and he would update everything and keep an eye on things.

Ashley:
Finally, I just got to the point, I was like, you know what? I think that I’m going to let them go. I went to the property one night when no one was there and I went through stuff and I was like, the bleeding has got to stop at some point. This was, I think, a Friday night I went and I said, okay, Monday morning, when they come, we’re going to cut them their final check and send them off. They can pack up their tools, everything, and send them on their way. That’s what happened. Darrell went to the property Monday morning, let them know that we were going in another direction, it wasn’t working out, sent them on their way with their last check. Since then, it was two weeks, and we hadn’t got anyone else in there and I am very impatient.

Ashley:
I just went in there with two of my kids last weekend, and we started going to town on stuff. We bought everything needed to do the tiling. We got set up for tiling. We cleaned up a ton of the garbage. There was a whole bunch of drywall and everything. My kids hauled it all out. We started working on that. And then now, my business partner, he came in and he’s like, that’s all he’s doing right now, is just getting this cabin to finish, get it to complete. My biggest takeaways, my lessons learned were, first of all, have your contractor criteria and stick to it. If it seems too good to be true, these people fell into our laps the right time, they could start right away, and the hourly rate was only $20 each, we were paying them.

Ashley:
It was not very expensive. It was actually pretty cheap, but it’s just they took so long. Then as I was going through, last Saturday, when I was going through the project with my kids, I was looking at things that even I noticed were wrong. Me, who literally knows nothing about construction rehab. And so, my second thing would be is if you do know something, don’t second guess yourself just because somebody else says that’s not the way it was done. For example, the tile for the back splash was done in the kitchen, and there was about this much gap of drywall, because it’s the A-frame, so the wood slats come down. There was no bull nose, but they had already grouted the tile and everything. That’s one thing Darrell worked on today, was adding the bull nose on top and re-grouting it.

Ashley:
And also, the shower just… I would’ve done Hardie Backer board onto it, and they did a cement board and then they muddied it and then they put primer over it, where I would’ve just put the Hardie Backer board, maybe some Aquaphor on it. All these little things that were happening, I was second guessing myself because I’m not a contractor. My first thing would be stick to your contractor criteria. When you are hiring a contractor, don’t be impatient. Wait. If you can’t get a good contractor, figure that into your holding costs. And then, just don’t let anyone gaslight you. If you stick to your gut, if you think you know something is wrong, speak up and stick to it. Don’t let somebody tell you that it’s not. Those were the biggest things. Honestly, I should have probably let them go earlier. The third thing would be to hire slow, fire fast. That’s my rant. That’s my therapy, my word vomit, going to call it that, mental breakdown of my life. Yeah.

Tony:
But so many good lessons in there.

Ashley:
Yeah.

Tony:
I think your point about, the fact that they could start right away, to me, that in and of itself is a huge red flag because most good crews today are…

Ashley:
So busy.

Tony:
… backed up. Maybe they can say, “Hey, I’ve got a project ending in two weeks, but my next one starts in six weeks. Maybe I can give you four weeks”. But if they’re like, “Yeah, sure. I can start tomorrow”, that means nobody else is thinking about them, and there could be a reason for that. And then, I say this, Ashley, because something similar happened to us as well where we found another crew and they were able to start immediately and they were relatively inexpensive, and we had to fire them. They were about 75% through one job and maybe about 10% through another job.

Tony:
I mean, a lot of the same lessons you spoke to as well, is that… Actually, the one thing that we did that I was proud of is that we did pay them on a milestone basis. It was like a 10% upfront, then I think a 20%, 20%, and the last one was a 60% payment. We were able to withhold that last payment. And then on that first [inaudible 00:10:41], we only gave them 10%. The payment didn’t hurt us as badly, but then we still had to go out, pay another crew to finish the first job, and then pretty much go off and start the second job, so now we’re over budget on both of those flips by a decent amount because we had to pay two crews and all this other stuff. Yeah, really good points on the busy-ness piece and the pay progress. The other thing you said that I thought was interesting that I’ve experienced as well is letting them go sooner.

Tony:
The mistake that I made, we had a… It was this crew, the same crew, it was our first time working with them. We gave them one job, and we already felt like their work was good. The work they were doing was good. We had no concerns with the quality of their work, it was just the speed at which they were moving. The progress was coming way too slow. I felt like it was an issue, but our hands were tied because we didn’t have anybody else. We just got another flip under contract and our go-to contractor was still too busy with our other flips, so we had decisions like, can we find somebody else? We couldn’t find anybody else. It was like, either we sit on it or we give it to this other guy who hadn’t even finished his first flip for us yet.

Tony:
We made the mistake of giving him two properties before he finished one, which is why we ended up having to fire him from both. To your point, and just add on to that, I guess, make a contractor finish a job before you give them a second one. See it all the way through the end, because someone could look amazing on day one, but look very different on day 90. You want to make sure that you see the day 90 version of someone before you give them an opportunity to do a second job for you, because that really came back to bite us in the butt on our flips too. Lots of lessons learned on both sides.

Ashley:
Yeah. I know. It’s frustrating to look back at. It’s like, wow, geez, why did I let this go on for so long? I think that I just… I get busy. So many other things going on that it’s like, “Ugh, I don’t want to have to deal with this, so I’m just going to let it keep going” or “It’s easier to keep them on the job and bleed money in holding costs letting the project drag on than it is to fire them”. But really, all it takes is some work. Okay, me and the kids and even my business partner, he’s in there now working on things. We made some phone calls. We got all the flooring installed by an installer. We have a roofer coming out to take care of the roof. And so, it takes that extra work, but you’re going to get a better product and you’re going to probably save more money than if you do just keep letting the job drag out and hope that they eventually finish.

Tony:
Yeah. It reminds me of this, I don’t know, this saying that I’ve heard recently. I was literally just telling my son this last night, but it was about choosing your hard. I gave him the examples of, it’s hard to study for your test, but it’s even harder to have Fs. It’s hard to get up in the morning and train for basketball, but it’s even harder to not play as much as you want during a game. As a real estate investor, the idea of having to fire a contractor seems hard, but it’s significantly harder to continue to work with a bad contractor.

Ashley:
Yeah.

Tony:
You can fire that contractor and it’s hard for five seconds, five minutes, however long it takes to have that conversation, or you could deal with him for the next four months while you go through this rehab, and that is much, much harder. Just choose your hard. Short sacrifice for the bigger, long term day.

Ashley:
Tony, I remembered before when you had shared stories of things you have told your son, and I wish you would share more, these analogies and lessons that you give him, because I appreciate that. I listen intently. I do. Thank you.

Tony:
I appreciate that. Hopefully, he’s listening as intently as you are.

Ashley:
Yeah. Thank you guys so much for joining us for this week’s Rookie Reply. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram. Make sure you guys leave us a review on your favorite podcast platform. We would greatly appreciate it. Check out the Real Estate Rookie on a YouTube channel and make sure you are subscribed. Thank you, guys. We will see you next time.