My Early Real Estate Transactions: Contracts for Contractors

Back in 2005 I saw a building for sale on a main road near my parent’s property in North Carolina.  The road is a well-traveled and busy thoroughfare so I thought it would be a great investment for a commercial property.  Aside from the location the asking price was around $25,000.  That, I thought, was a steal.  I contacted the owner went through the negotiation process and bought the property at $22,000.  

Now the property needed some renovation so I asked some of the people my dad knew in the area about renovations and they recommended a guy to me who wasn’t licensed but did great work.  I contracted the job out to him and he started work.  I told him that my payments to him in the beginning would be small but that I would have more money to give him in a month or so.  This was my first mistake.  I should have drawn up a contract and clarified everything in writing.  

They contractor complained a few weeks in about getting payment and I told him that I had a large payment that was coming in a couple weeks.  When I did pay him, I gave him extra to pay for future work so he wouldn’t feel neglected.  To my dismay, he took the money and ran.  I never heard from him again, neither did the guys who recommended him ever hear from him either.  It was a dramatic and painful first lesson to rehabbing.

Because the work was still incomplete I asked a buddy of mine who owned several properties what she knew about renovations (because I was totally clueless as a newbie).  She actually had a guy working for her who had family in NC and said that he could come down and work on the project.  He wasn’t licensed either but I trusted my friend.  This time around I drafted a contract for the work.

This new contractor actually worked his tail off and did a lot of the work the other guy didn’t complete.  Unfortunately his work was nowhere near the quality of the previous contractor.  After he was done I had to hire another contractor to come and correct some of the issues that were unresolved.

All in all I spent about $7,000 to get the place renovated and was able to appreciate the value at the time to around $50,000.  Although it could have been better, it was a good first investment and I learned a lot.