Pay Up: Don’t Be That Person

Written by Posted On Friday, 27 April 2018 11:59

Successful real estate investors learn quickly that prosperity doesn’t happen without a good team of experts by their side. They come to count on their mentor, CPA, attorney, lenders, insurance agent, real estate agent, and title company, as well as a host of subcontractors. Without these individuals, their real estate investment business would go bust.

Unfortunately, I’ve begun to see more and more investors neglecting to pay their subcontractors for work done on their rental and flip properties. Plumbers, electricians, and general carpenters do the work, but the investors find some justification to withhold funds. Although these investors believe that they are making money by stiffing the subs, in reality, they are losing. Let’s see why.

Bad Reputation

It doesn’t take long for word to spread that you don’t pay when a subcontractor does work. When this happens, people won’t want to work with you. It may be true that you will make a bit more money on this one particular house by not paying the electrician, but in the end, you won’t have subs to do future work.

Not only will you lose out on subcontractors, but you are likely to lose out on other potential team members as well. As a real estate investor, your word is your bond. Other investors or lenders working with you expect you to follow through on your promises. When they learn that your own best interests are more important bringing together a deal, they will look elsewhere.

Lowered Quality

As more reputable sub-contractors refuse to work with you, you will be forced to hire those who are less than ideal. This means that the quality of the work done on your properties will go down. As the quality diminishes, so will your return on investments.

Besides the investor, the contractor and sub-contractors can be seen as the most important members of the team. Without the right work done at the right price, any given deal can go from a high return on investment to costing a fortune. That is why you will need professional, competent, licensed, and insured individuals. If you burn your bridges and have to resort to those with lesser credentials, you are bound to end up with a loss of profits.

Wasted Time

One way to make money with real estate is to have systems in place that reduce the amount of time spent on recurring issues. This is especially true for rental properties in terms of maintenance and repairs. You can avoid maintenance crises by having a great team of subcontractors. Once you’ve built a trusting relationship, these subs can often handle maintenance issues the same day and without you being present. You become a priority to them.

If, however, you fail to pay your subs, you have to find someone new each time an issue arises. If a tenant has a water heater leak, not only do you have to take time out of your day to call around and find someone willing to work with you, you have to find someone that is willing to work with you on your immediate schedule. Plus, you may even have to meet the sub at the property to explain what is needed, rather than just make a simple phone call.

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John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

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