[Guest]

We were recently contacted by an individual that is planning on purchasing an investment property. The property needs roughly $100,000 worth of work. The potential homebuyer is planning on doing most of the work himself and already has subs lined up for the parts he cannot do.

The only problem is that the bank will not allow him to do his own work. He is asking me to provide the following...

Bid for Project
Proof of License
Proof of Liability Insurance
Proof of Work Comp
2 References
Detailed Information about my Company
Tax ID #

Does anybody have any experience with such a request? It almost sounds illegal to me. I am pretty sure I will decline to bid this project but was curious to hear what other might have to say.

 

[Guest]

He wants to use you as a "Straw Contractor" so the bank will fund his loan. Depends on how the bank will structure the draws whether as to who's name/s is on the check.

 

[Guest]

He said that all checks would go to him and he would need to pay the subs.

 

[Guest]

How much are you gonna charge him?

 

[Guest]

I was thinking between 10-15%

 

[Guest]

What would be your part in this whole affair?

Andy.

 

[Guest]

I would be doing very little if any actual work. I would however be carrying the liability and insurance... Right?

 

[Guest]

Yup, & the liability to the bank & Bldg. Dept. that the job is done correctly. Also your headache if any subs don't get paid, since as far as the bank id concerned you are the GC.

 

[Guest]

Why would you risk it for 10% what if he f ups something big that will cost you the 10%?

No way in hell I would even entertain that scenario, thats just me though.

 

[Guest]

If the owner gets overwhelmed, you're on the hook

If the owner does sub-standard work, you're on the hook

If the owner overspends then cannot complete, you're on the hook

If the owner blows it all in Vegas, you're on the hook

Accepting responsibility for others is high risk. Essentially you become the bonding company. Ask yourself, would a bonding company bond that job, with the owner as a contractor? Does the owner have the necessary skills and experience to qualify for a bond?

 

[Guest]

That's what I figured. Thanks.

 

[Guest]

It sounds like you would have no control and all of the responsibility, that is a recipe for disaster in my estimation.

Andy.

 

[Guest]

I would be doing very little if any actual work. I would however be carrying the liability and insurance... Right?

Assuming the worst:

If someone gets injured and the amount exceeds your policy, you are on the hook personally? For a promise of $10,000.

What if he decides not to pay you? If this isn't 100% kosher in your state, he has you over a barrel. You're not going to take it to a judge to decide. Consult your attorney and add his fee to whatever you decide this is worth.

The guy ends up not paying his bank (or subs) and they investigate. They end up thinking that this wasn't the ethical, or legal, way to finance this project. They're coming after you.

Assuming the best:

Everything works out perfectly, no one gets injured, all subs get paid on time and you just made $10,000 - $15,000 for doing little actual work.

Good luck with your decision. It isn't everyday that an opportunity like this comes up.

 

[Guest]

Does the owner have the necessary skills and experience to qualify for a bond?

Don't know anything about the guy. Did some work for his real estate agent about a year ago.

The agent who I had worked for called me on Saturday and informed me that they were set to close in a week and all the sudden the contractor tells them he is going out of business. So the agent gives me the guys number and as soon as I call him he tells me he already found somebody. Then he calls me today and says the other guy is not going to work. To me, that seems like a big red flag.

 

[Guest]

Assuming the worst:

If someone gets injured and the amount exceeds your policy, you are on the hook personally? For a promise of $10,000.

What if he decides not to pay you? If this isn't 100% kosher in your state, he has you over a barrel. You're not going to take it to a judge to decide. Consult your attorney and add his fee to whatever you decide this is worth.

The guy ends up not paying his bank (or subs) and they investigate. They end up thinking that this wasn't the ethical, or legal, way to finance this project. They're coming after you.


Good luck with your decision. It isn't everyday that an opportunity like this comes up.

Seems like a case of homeowner wanting to play contractor. Guys like this seem to have a tendency to underestimate actual cost. I not slammed with work right now but I'm not desperate either.

 

[Guest]

I had the same request from a homeowner earlier this year. I decided the risk far outweighed the benefits and turned it down.

 

[thanohano44]

Decline!!!! Advise him you cannot do that for him, but would be happy to do the work for a fair price that fits within his budget.

 

[Guest]

I'm sure you all are more knowledgable on these 203 loans but I just lost a job for a mold remediation since the home was being purchased by someone not intending to live in the home...ie investor. Bank told realtor that under no circumstances an investor qualifies--only owner occupied homes.

To bad since I was the low bidder and was awarded the work till the loan was pulled...realtor also lost the sale

 

[Guest]

The only time I ever did this in the past was for another company that had what we call a local license, they could only work in this county doing the scope this job needed. They were reciprocated in the next county for non-structural work . I am state licensed and they were contracted to work just barely over the into the next county and the owner was very ill, the son was trying to get the job done and needed me to step in and assume the liability. I made all the subs contract with me and release of liens went to me. Job went smoothly and everyone got paid. Don't think that I wasn't stopping by very often to see how things were going.
Thankfully all went well. I charged 7%. I gave a deal off the going rate of 10% because I knew the dad and he gave me a start running soffit and fascia when I was green. I subbed from him and he encouraged me to get my GC. He was around so long he was grandfathered in with his local and didn't see the need to go out of town...this was when work was good and the boom was still going on.
The dad passed about 3 months after this...
Good luck if you do but I would not suggest you do it unless you really knew the guy and felt like he was capable. Otherwise like Andy said..no control and all responsibilty.

 

[Guest]

I am pretty sure that the bank will issue you a 1099 for the total cost of job even though you only recieved 10% of that.