Win or Learn: The Inevitability of an Expensive Misfire
Nearly three years ago, we purchased our sixth property in Oklahoma. We had been working with InvestOKC for two years and bought all of our investments through the owner/agent. InvestOKC was dabbling into the construction side as the owner started his real estate career flipping homes for his grandfather. Our past success with this team gave us confidence to try out this service, which streamlined our purchasing and renovation process.
We contracted with InvestOKC through a cost plus model. This was our first time using this process. A cost plus contract means that the price of the renovation is not fixed, but based on actuals. The contractor receives a flat or fixed fee for his or her services. Costs associated with the project such as electrical, plumbing or drywall work are budgeted in an estimate, but if a price exceeds the budget, the owner is ultimately responsible to pay for the overage. Conversely, if the price for work is less than the budget, the owner realizes those savings.
Risks and Red Flags
InvestOKC sent us a contract and we reviewed it. The first thing we noticed was that there was no schedule or completion date. We discussed it several times with the team, but they would not include a timeline. This was our first red flag. However, understanding that they would not receive complete payments until the job was done, we trusted the InvestOKC to complete the work in a timely way. Usually, our projects took about four months. We wanted to help InvestOKC grow and succeed so we knew letting the team do the project and signing the contract was a calculated risk.
The work began in September 2021. We were in the process of completing our move to our permanent home in Florida and adjusting to life with a new baby. It was not a time of good focus. We relied heavily on past experiences and our trust in InvestOKC. We knew we could get the project completed as we had done similar renovations with three of our five investments. In many ways, we held our noses and jumped into the deep end of the pool with this arrangement. You either succeed or learn, right?
Hello, can you hear me now?
InvestOKC set up construction process through an app and it would be how they would communicate with us. We were excited to have real time updates and one place to see photos and progress. It got off to a bumpy start, but we tried to be patient with the newness and growth InvestOKC was experiencing.
After demolition of most of the interior, our contractor found the subfloor had rotted and a lot of it needed replacement. A pipe also needed to be repaired and rerouted. Wood paneling in one of the bedrooms was either going to be painted or removed, meaning additional drywall work. We waited for updates and did not receive any information in “real time.” Then we emailed. Then we called. Then we scheduled a call to meet with the team. We were reassured things were progressing, but heard no updates on when the project would be done. Later, when communication continued to lag, we asked our property manager for help getting in contact with them and she checked on the project from time to time to let us know what was actually happening.
Our friends were also investors in OKC and we contacted them to find out if they were having the same issues. Unfortunately, the problems were similar and we knew we’d have to take action soon. We wanted to get renters in so the property could start earning cash.
At this point, several months had gone by. With our new baby, we didn’t do the best job staying on top of the project. However, it had to be about three or four months of little to no communication. Feeling frustrated and even betrayed, we reached out to a lawyer to discuss the process of terminating our contact with InvestOKC. Our property manager helped us change the locks, our lawyer sent notice and we gave InvestOKC a time limit to pick up their equipment and unused materials. We determined final payment and terminated our contract.
Fortunately, we were able to complete the project with the help of a few handymen, thanks to our property manager. She was able to assess the work left and put her network of vendors in action to complete the remainder of the unfinished construction. With the additional work required, the lawyer fees and the unfinished planned work, we wound up spending about 25 percent more than we expected.
The whole situation was a nightmare. If it had worked out, it could have been a great thing. We had worked with investOKC since 2019 and our entire investor experience had been under its wing.
The misfire of trust despite the red flags was expensive. However, it’s not one we’ll likely make again. As our business construction manager, I felt I failed because I did not see this coming. I felt I didn’t do enough and that I wasn’t pulling my weight in our partnership. It happens sometimes both in life and work—you just aren’t in your top form. I had my son six months before, started a new job within three months and was still adjusting to living in a new state. Even if I didn’t have all this change on my plate, mistakes happen. It’s inevitable.
With our contractor for future projects uncertain, our growing family and life in Florida, we took a step back from investing to regroup and determine our next move.