I have completed over 155 flips in my career and have a lot of experience fixing up houses. I have also fixed up rental properties and my personal houses. I have learned a lot over the years about how to fix up houses, and I am still learning new things all the time. I have also made plenty of mistakes over the years that have taught me more than anything else. I don’t fix up the houses myself (I did one time, which was one of my biggest mistakes). I use contractors, subcontractors and my own crew. There are many things that a homeowner or a real estate investor should do when repairing a house. There are also many ways to spend too much money, get taken advantage of, and come away wishing you had sold the house instead of spending any money on it.
Why are homeowners and real estate investors often taken advantage of when fixing up houses?
It seems like one of most common ways that people are swindled out of money is from choosing the wrong person to fix up their house. The most valuable possession for most people is their house, and others figure if they are going to scam someone out of money, they might as well scam them out of as much money as they can. There are also confusing laws and regulations when it comes to working on houses. Some states require contractors to be licensed, while others do not. The permit requirements vary from city to city. Most people never go to a contractors office to find them; the contractor goes to the client’s house. It is easy for a contractor or person pretending to be a contractor to act like they know what they are doing when they have no license, no insurance, and no office.
In the house-fixing-up business, the contractors usually get paid some money up front. When you are getting your car repaired, you don’t pay for half the work to be done up front: you pay when all the work is done. The repair shop knows that if you don’t pay, you don’t get your car. Most contractors are actually much more protected than homeowners when they are fixing up a house as well because they can place a lien on a house for unpaid work. A homeowner usually has to sue a contractor to get any money for shoddy or incomplete work. Of course, most contractors still want to be paid up front before they will start any repairs.
When fixing up houses, there are plenty of opportunities for people to be ripped off. You pay money up front before any work is done, and it can be tough to know how professional the contractor is that you hire. Not all contractors are bad. I work with many honest and fantastic people who work on my houses. The trick is finding the good ones and limiting the chances of paying too much money to one of the bad ones.
Why fixing up a house myself was one of the biggest mistakes I ever made
The biggest mistake I ever made was fixing up a house myself. Although it was a huge mistake and made me miserable while costing me money, it was an amazing learning experience as well. I bought a house that needed a ton of work, and I decided that in order to save money, I would do almost all of the manual labor myself. I figured I would save all kinds of money over hiring contractors. Here were the numerous problems I ran into:
- I had worked on houses before, but much of what I was fixing up on this house I was doing for the first time. It took me at least three times as long to do the work as it would have taken a pro.
- Since I was new at much of the work, the quality was not as good as it would have been if a pro was doing it.
- I spent all my time at that stupid house. I was miserable and hated being there.
- While I was working on the house, I did not have time to work on other parts of my business like selling houses as an agent or finding more investment properties.
Doing the work on that house cost me so much money in lost opportunities and money on the house because it took me so long. I learned how valuable my time was and why I should focus on the things that make the most money in my business, not trying to save a few bucks by doing the manual labor myself. I suggest almost all real estate investors hire the work out. Most horror stories I hear from investors come from them doing the work themselves. If you are a homeowner, it might make more sense to do the work yourself because you live in the house and can do it in your spare time. However, you still need to be careful you’re not biting off more than you can chew.
Why paying a contractor too much money up front is a huge mistake when repairing a house
Most horror stories with contractors come from a homeowner or investor paying a contractor too much money up front. Some contractors will want half of the estimate before they do so much work. If the contractor decides to skip town with the money, there is not much a homeowner can do except sue them. In order to sue them, you have to find them. If the contractor does not do any work, it could be a criminal offense, and the police may get involved. However, if the contractor does some work, the police may say it is a civil matter and will not help at all.
The best way to avoid getting taken by a contractor is by doing your homework.
- Before you hire a contractor, ask for references. Check with people who have had work completed by the contractor, and if the contractor will not provide references, it is a very bad sign.
- Does the contractor have an actual office in your area? Some contractors may work from home, but they should have a local address.
- Try your hardest not to pay the contractor too much money up front. I pay for all the materials myself, which eliminates one reason a contractor would claim they need a lot of money before they start. It also stops the contractor from up-charging all the material costs.
- Be wary of contractors who come knocking on your door. Not all door-knocking contractors are bad, but many are from out of town. Roofing contractors love to bombard areas after a hail storm.
- Ask friends, family, your real estate agent, or other people you know for names of contractors. A referral does not guarantee a good contractor, but it is usually better than picking someone randomly.
I did a video that goes over exactly how I find and pay contractors below:
How over-improving a house can be a huge mistake
Another big mistake that many homeowners and investors make is over-improving a house. I would love to be able to make every house I fix up perfect, but if I did that, I would most likely lose money on most properties. Even if someone is willing to pay a higher price because I fix up a house to look amazing, the appraisal may come in low. A low appraisal could cause all that extra work and money to be for nothing. It is also hard to sell a house when it is the most expensive house in the neighborhood. Most buyers have set prices they want to pay in certain areas. If your house is much larger or much nicer than the surrounding houses, it could make your house worth much less than a similar house in a different neighborhood.
Here are some guidelines that I work by:
- I almost never complete additions on houses, unless it is absolutely necessary, and the addition does not make the house much larger than the surrounding houses.
- I do not spend money on high-end materials. I get almost all of my supplies from Home Depot, where you can get similar-looking fixtures, cabinets, etc, as you can at stores that will charge 5 times as much. Many contractors like to shop at the more expensive stores because it is not their money they are spending.
- I do not make structural changes to most of my houses because it can be very pricey.
- If possible, I do work that does not need building permits as that can add tons of time and cost to a project.
How not keeping tabs on your contractor can be a huge mistake when fixing up houses
I have had up to 22 flips going at once. It can be crazy keeping track of all the houses, rehabs, and contractors. I have a project manager who helps me now, but at one point, I was trying to do it all myself. I would often not visit job sites for weeks, and that is a great way to get yourself in trouble. If a contractor knows you are not paying attention, they will think you are not in a hurry and they can focus on other things besides your job.
I visit every job site at least once per week to make sure my contractors are there, working, and doing what they are supposed to be doing. Many times, contractors will forget exactly what they are supposed to be doing and just do what they think should be done. If you are not there to keep track of things, you may be very disappointed with the work that is done.
Here are some more tips for keeping tabs on a contractor once you hire them:
- Always get a written contract signed by the contractor that is very specific about what work is being done and what it will cost. A text message does not count.
- I like to take a picture of the contractor’s license plate and vehicle if I have never used them before…just in case they decide to skip town. I am not shy about them seeing me do this either so that they know I have a record of who they are.
- I also like to start a brand-new contractor on a small job to see how they do before I let them work on a large remodel.
- I visit and talk to the contractor every week. I do not tell them when I am coming as I want to see if they are working when I stop by unannounced. I had one contractor who would tell me when to stop by, and he always had about 5 guys working, but when I stopped by unannounced, there was no one there on multiple occasions.
It is easy to fall victim to a fast-talking contractor who promises a lot for a small price. If it sounds too good to be true, it probably is. It is best to take your time hiring contractors, get multiple bids, and make sure you are in constant contact with them throughout the work. If you notice problems right away, they seem to not know what they are doing, or they aren’t showing up, don’t be afraid to fire them and find someone new. There are many really good contractors out there as well, and it is shame that they get a bad name from the bad ones. If you find a good one, treat them right! Realize that not every job will go perfectly, things will take longer than you think, and repairing houses is not an easy process. If you are thinking of taking on a major remodel or addition, it might be smarter to sell your house and buy one that already has what you need.