Читать книгу Why Do Contractors Lie? - J.O.A.Maurice - Страница 10

Why do many contractors lie? Why do even some decent contractors lie? These are the questions that have, for a long time, haunted me and many of the investors I have interacted with since starting my investment career over fourteen years ago. I am always shocked when I visit investors at their job sites and other venues. The one key overriding complaint is on the challenges of hiring and retaining good contractors. As someone who has been in the real estate investment trenches for many years, I can state with a deep sense of conviction that my business took off once I was able to resolve my questions dealing with hiring and retaining suitable contractors. I can also state emphatically that other investors have gained and will continue to gain from my research as they seek to better handle contractor and contracting issues.

The year 2006 was pivotal for the U.S. economy. The first part of the year recorded a hugely accelerated growth. The second part saw a significant slowdown. Since the U.S. economy had been experiencing tremendous growth for the prior three years, people were spending money as if the economy would grow and grow, ad infinitum! Real estate went through the roof. These were the days when you wondered how people qualified for houses. Many people who wanted to buy a house got one or more.

It was a time of creative financing, creative appraisals, no doc loans, and stated income. In many instances, when you wanted a house, you didn’t have to put money down and you didn’t have to prove your income. I, too, got into the game and experienced the ups and downs of the market. It was a rough ride, but I rode it with optimism and fear! Optimism that I was in a business line I had always admired. Fear because people were buying houses too fast, and as a keen business student, I suspected that this level of growth was not sustainable. Somewhere along the line, a burst would come. Nevertheless, many people were joining the business, and I knew you could only win if you were in the game. I stupidly stayed on and played along!

I was forty-five years old, with a Master of Science in accounting, and a number of finance courses under my belt from a prominent school within the state university system of New York (SUNY). I also had a bachelor’s in business administration from a liberal arts college in the Midwest. I had also taken a number of doctoral classes online in business administration (DBA). In general, I was already well schooled in the field of business and finance before starting on this investment route. Also, before setting up my business as a real estate investor in 2006, I had worked in the corporate world in various capacities for over twelve years—some in managerial positions. My experience in the real estate investment field started when I worked in a real estate investment company (REIT) for six years. I saw first-hand what was going on in the real estate investment world. Also, during three of those years, I helped a friend manage a start-up in a real estate and rehabbing company on a part-time basis. Experience in this small company was an eyeopener, since it gave me the opportunity to interact with contractors, realtors, and other investors.

In the REIT and my friend’s company, I rubbed shoulders with teams that comprised of contractors, attorneys, mortgage experts, and other real estate professionals. In my opinion, I was seeing all the aspects of real estate investing. In 2005, I resigned from my REIT corporation job with the goal of starting my real estate rehab company. I thought I had seen everything I needed to know to start my company. I was wrong. In mid-2006, right before the noticeable beginning of the major economic and real estate downturn, I bought my first investment house. It was a turnkey investment with a tenant and little touch-ups to do. A turnkey investment is a residential property that an investor may buy with tenants already in it, so he starts making money immediately without doing much work, if any. I started collecting rent the following month right after closing on the deal. The turnkey was a good start, but I needed experience with an actual rehab. Soon, I bought my first rehab, and then many more houses within a short period. The going seemed good, or so I thought! It appeared like my REIT experience and part-time work in my friend’s business was beginning to pay off. I had believed my experience, especially in the REIT world, would easily translate into a personal thriving real estate investment empire. This was true for a short time.

As a finance student, I quickly learned the concept of using other people’s money (OPM) to advance my real estate business. Using a combination of my savings, home equity line of credit, and hard money financing, I bought ten houses in quick succession, within one year. My business was booming. I was on a roll. My experience in the REIT world was paying off big time. My interactions with tenants, contractors, banks, and other stakeholders were spot on. From the look of things, I was on the road to buying many more houses, selling some, renting others, and the circle would repeat. For two years, all aspects of my business were moving smoothly like a well-oiled machine. Money was flowing in. Everyone under my business umbrella was working in unison.

I met and exceeded my construction deadlines. I bought and rehabbed properties, rented, sold, managed, and bought some more. My team was a happy one. A team in a rehabbing or a real estate investing business is a group that an investor can have at his disposal to call on for work or consultation. Such team members may include general contractors and other specialized contractors, like plumbers and electricians, you can call on as needed. You may also have accountants, attorneys, financial advisors, bird-dog people, et cetera.

Then in 2008, at the height of the economic downturn in the U.S., property values started plummeting. All of a sudden, I got stuck with these beautifully constructed houses, unable to sell, as the after-repair value (ARV) was now below the total cost. In real estate language, most of my properties were now underwater. This meant that to sell the properties, I had to get permission from the lenders to allow for sales below the market value—a practice called short-selling.

In many cases, this meant the lenders would not receive all their investment in the properties, and I would mostly lose whatever I had put into the project. I tried to hold onto some completed properties believing the market would soon rise, as in other past housing downturns. I was mistaken. This was not just a housing downturn, but a worldwide economic mess. I thought of renting some of the houses I had rehabbed, but like many real estate professionals know, houses for rent and for sale are rehabbed differently. I was stuck. Houses rehabbed for sale can sometimes have delicate and expensive items, and many tenants are not known to properly care for such things. Homeowners can handle such items with care, as they know they are on the hook for their repair. It is their own home and they are responsible for repairs. I had to let most of my team members go. Many real estate businesses also downsized greatly.

I offloaded many of my investments at below market value, only remaining with those I had paid off or acquired using mainly cash deals. Soon, my portfolio reduced from twenty houses to five. I had put all my resources into real estate. I was devastated. I wanted to quit real estate, but chose to stay because I don’t believe in quitting, and I also wanted to use the mistakes I had made as a springboard to make me stronger. Through a combination of painful financial reorganization and re-inventing myself, I managed to have a fresh start.

This time, the goal was to utilize less debt and more equity through partnerships. The challenge at this point was that, with less money and extremely controlled spending, it was not easy to get any form of a meaningful team behind me. Teams require money and a sense of assurance that they are in a thriving business. The hope of longevity and seeing a thriving business keeps team members together and captive. No one can blame them. Who stays put in a sinking ship?