He asks if I can swing by and give him my opinion. No problem. I’m out looking at properties most days anyway and always pass through the area where the property is located.

When I pull up, I’m immediately confused. The house looks exactly the same as when I sold it to him. I walk inside. No renovations. No materials. No tools. Nothing. It was untouched.

I text the investor:
“Did you pay this contractor? And if so, how much?”

His reply:
“Yeah. I paid him $20,000. He said he’s just about done.”

He sends me interior photos what look like finished rooms. But here’s the kicker: it wasn’t even his house. The contractor was sending him photos from a completely different project, passing them off as proof of progress and completion.

I saved him $5,000 but he was still out $20,000 with absolutely nothing to show for it.

Hiring a contractor for your real estate investment or renovation project can be one of the most stressful parts of the job. Even experienced investors run into challenges so if you’re just getting started, it’s important to arm yourself with the right knowledge from the beginning.

Here’s a guide on how to find a reliable contractor, structure your agreements, and protect yourself from costly mistakes.

1. Know the Risks—and the Reality
Contractors often get a bad rap, and sometimes it’s justified. Even seasoned investors who’ve been in the business for 20+ years occasionally deal with contractors who cut corners or try to get paid without doing the work. The key is minimizing that risk by recognizing red flags early and putting systems in place to protect yourself.

2. Avoid Upfront Payments
One major red flag: any contractor who demands a large upfront payment. That’s a risky proposition—especially if the contractor walks off the job halfway through. Only pay for labor after work is completed. If materials are needed up front, supply them yourself rather than giving the contractor a lump sum.

3. Use a Draw Schedule for Payments
Instead of paying in advance, break the job into stages and set up a draw schedule. The payments are tied to completed milestones.

Example:

• Demo complete = $X
• Framing complete = $X
• Electrical rough-in done = $X

Only pay for the work completed. This strategy keeps your payments in line with the actual progress and helps prevent disputes or walk-offs. It also makes it easier to switch contractors mid-project if necessary.

4. Create a Detailed Scope of Work
A common mistake is being too vague in your work descriptions. Don’t just say “fix the wall.” Be specific.

A good scope of work includes:

• Materials to be used (e.g., type of flooring, paint colors, brand of fixtures)
• Exact measurements
• Pictures or diagrams if needed
• Clear standards (e.g., “install to code,” “smooth finish,” etc.)

Contractors follow the scope of work like a checklist. If it’s not in writing, you can’t hold them accountable later.

5. Don’t Fall Behind on Payments
It might sound contradictory, but it’s also important not to delay payments when they’re due. A good contractor deserves to be paid on time. If you get behind and tensions rise, you risk them walking off—and hiring someone to pick up an unfinished job will almost always cost more.

6. Hire an Inspector
If you are out of state, hire a licensed inspector. Give him the scope work and have him go through and check off all the items completed before you release a draw. Sure, you may pay for multiple inspections but it’s better than losing $20,000 like our investor. Trust me. You’ll thank me later.

7. Vet Contractors Thoroughly
Here’s how to screen potential contractors before hiring them:

• Ask for referrals. Start with people in the business you trust. Real estate investors, agents, or local property managers often know who’s good—and who to avoid.
• Check current projects. Ask the contractor to show you a job they’re working on. Visit the site and talk to the homeowner or investor. Get real feedback.
• Don’t rely on their word. Every contractor will promise quality and reliability, but the proof is in the work and the references.

8. Verify Licensing and Insurance
Always check that a contractor is properly licensed in your state or city for the type of work they’re doing.

Also ask for:

• General liability insurance
• Workers’ compensation insurance

If something goes wrong—like a worker getting injured on your property—you want to be protected from liability. And maintaining these policies is expensive, which typically means the contractor is running a legitimate, successful business.

A contractor who stays busy and can afford ongoing insurance premiums is more likely to be experienced and trustworthy. If they’re working consistently, that’s usually a good sign. All of our contractors have been with use for years. We take care of them.

Finding a great contractor isn’t about luck, it’s about a process. Use a draw schedule, create a detailed scope of work, hire an inspector, verify credentials, and always check references. Do the legwork on the front end, and you’ll avoid the all-too-common (and expensive) pitfalls many investors fall into.

Ready to start your next project? Make sure your contractor checklist is solid before you let them swing that first hammer.