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How do you pay contractors you work with?

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Jim Francis

Real Estate Investor from Alabama

Dec 09 '07, 02:51 AM


I usually try to pay half up front and upon completion, I'll pay the remaining 50%. What methods of paying contractors do the rest of you use?


Edited Jun 26 2010, 04:21


Rebecka Melson

Real Estate Consultant from OK

Dec 13 '07, 12:54 AM


1/2 up front? Sounds like a good way to get ripped off to me. I usually pay based on percentage of completion with weekly draws. " If" I pay anything up front it is only about 10% of the contract. I have worked with most of my contractors for years and some of them are independents and need money up front to buy supplies, but I only do that with contractors I have experience with.

I won't issue any payment until I have a signed contract, W-9 and insurance certificate on file. I also require lien releases for each payment, they don't get their next draw until I have the lien release for the prior payment. They don't get final payment until all permits and final inspections are in, and I've approved the work. They must submit invoices for payment.


Edited Jun 26 2010, 04:22


Account Closed

Real Estate Investor from Fort Wayne, IN

Dec 17 '07, 07:56 PM


I agree with Rebecka, paying up front is a good way to get ripped off. Ask me how I know... :oops:


Edited Jun 26 2010, 04:23


Ken Lambert

Real Estate Investor from New Hampshire

Jan 02 '08, 07:36 AM


Hi- If you have worked with someone before, then people may work for nothing upfront. But if you're trying a new contractor, it's human nature and expected that they'll want and require some good faith money up front, or after their first day of work onsite.
Never pay more than 30% or 33% upfront, and that is ONLY if they have to pay for a lot of stock out of their pockets. In Mass it's actually a law that you cannot accept more than 33% of the contract as a deposit if you're a home improvement contractor.
Good call with the required W-9 and the insurance certificates before they start any physical work. And for the liens, that can get cumbersome, but at least get a FINAL lien release when the job is done and you have paid them 100%, so there are no surprises later on.
-Ken


Edited Jun 26 2010, 04:27


Account Closed

Real Estate Investor from Fort Wayne, IN

Jan 02 '08, 07:40 AM


I completely disagree. Good faith money is a good way to get ripped off. Again, ask me how I know. Another thing, a good contractor won't ask for money up front!!


Edited Jun 26 2010, 04:27


Frank Adams

Loveland, CO

Jan 02 '08, 09:40 PM


New customer or not, NE VER, NEVER, NEVER give any money up front! If they say it's to buy " supplies" or such then they're not substantial enough to have trade accounts. The only exception might be if you're ordering in some " unusual" /not normally stocked at the supplier items.

The right answer was from yourvirtual assistant, tax forms, proof of insurance FROM THE INSURANCE CARRIER, not from the insured.

Or, you could do what I do, on the rare occassion I hire anything done: go to HD, or wherever your local spot for finding braceros is and pick them up, pay them cash at the end of the day, and tell them that if they get hurt you'll just bury them in a cornfield! JUST KIDDING.

all cash


Edited Jun 26 2010, 04:27


Minna Reid

Real Estate Broker from Southington, Connecticut

Jan 16 '08, 07:09 AM


I gotta disagree. As a contractor I always ask for half up front unless the job is over 5 k or so. Then I break it down more. But its not worth my time to schedule it it in, or take on the risk of having to chase the customer for my money. I need to get something upfront.
Unless its a small job like under 1k, or its a customer I've done business with before. Then I'll just wait til the end.
I do also always have a fully collectable written contract.


Edited Jun 26 2010, 04:32


Eric Foster

Real Estate Investor from Portland, Oregon

Jan 16 '08, 07:41 AM


ZERO up front...

Draws each week, based on what is completed...

I buy supplies and materials...

Let me clarify the " I buy supplies and materials" ... I show up at Home Depot after the contractor has been there for 2-3 hours... Spend 15 minutes checking out and write a check, then I’m gone... They load and haul to the job site.

I can’t help... I wear slacks and nice shiny shoes...


Edited Jun 26 2010, 04:32


Account Closed

Real Estate Investor from Fort Wayne, IN

Jan 16 '08, 05:46 PM


Hey Minna... how many times have you been turned down when you asked for money up front?


Edited Jun 26 2010, 04:32


P NW

OR

Jan 19 '08, 05:03 AM


Nothing up front. They get paid for the work after the work is done.

For smaller contractors, I buy materials and have them delivered to the job site.

For larger jobs, (like building a house) the contractor gets draws, but even then, I always worry that as soon as they get paid for the third they just finished, I will never see them again.


Edited Jun 26 2010, 04:33


Ken Spurgin

Contractor from

Jan 26 '08, 05:02 AM


You know its too bad that contractors have gotton such a bad rap ! Ive been a contractor for 20 plus years ---

How do I know YOUR good for the money ?

I may start a job, get thru a huge chunk because you said you wanted to pay me in draws, now you may pay me a draw or two, and all things may be fine, then when we get to the end of the project you may say " Oh jeez Im sorry I dont have enough money to pay you !"

Now I can lien your property all day long ---
BUT that still dosent get me my money - TODAY ! If I have to wait for you to sell a house before you can pay me.... Where does it say the contractor is the thief ???? Some of you better look in the mirror !
Luckly for me when investors have BURNED me... I have allready paid all my expences, labor, supplies up front so its ME that takes the hit !!

I WONT lift a hammer until you either give me 1/2 upfront or what I have been doing lately is have the investor deposit ALL the funds into a bank account with both my name and the investors name on the account----He cant pull it with out my signature and visa-versa

And honestly as far as letting the investor buy the materials -- HA -- All the average investor sees is the " pretty" side of things not the working end of things, and becides sometimes you have no idea " whats behind that wall" so 9 out of 10 times the investor dosent buy the right items, enough items or whats really needed to put the project together.

I'll be more than happy to go to the Home Depot and get everything ordered, shopped, picked up and I may even deliver it ( usually have Home Depot deliver it...more money out of your pocket !) as long as the investor understands if the home gets broken in to its NOT going to be my responsibilty all of his materials and supplys just walked out the door !! Oh yeah...Im gonna charge you by the hour to shop, if thats how you want it done.

And again have any of you investors ever tried to do a rehab when all your materials are in your way and you have to move them 100 times ? (probally gonna cost you more money, and take more time)

Minna keep collecting your 1/2 upfront ! I know I will !
You investors have to be real ! Whats my recourse ??? Lien your house ??? What if you decide to hold for a few years ??

HOW DO I KNOW YOU HAVE THE MONEY TO PAY ME ?

Not all contractors are bad -- Maybe your just trying to save to much money and not doing YOUR homework !!!! You GET WHAT YOU PAY FOR !


Edited Jun 26 2010, 04:35


Adam Logan

Contractor from spring hill, FL

Feb 05 '08, 08:26 AM


A-M-E-N!!! Do your due diligence on who you hire and no one would have been ever ripped off their down payment. I get nothing down, order my hazardous chemicals they choose, and then they never let me do the job, I eat hundreds in materials I cant return!! They die before the scheduled day, same thing. Not to mention, not so much investors, but homeowners are so damn indecisive they take up a slot on my shcedule for 2 weeks and cancel the day before when I COULDA been working making money elsewhere, quite often. Those that I ask for a dp NEVER end up pulling that crap. But investors I do not request anything down, they usually become a client with repeat biz relationship and discounted, flat rate, prices. I get a call to to a counter, I dont need to measure cuz I have a price wheter it is 4 feet or 40, it evens out in the end and they LOVE it.

Originally posted by "askingfullprice":
You know its too bad that contractors have gotton such a bad rap ! Ive been a contractor for 20 plus years ---

How do I know YOUR good for the money ?

I may start a job, get thru a huge chunk because you said you wanted to pay me in draws, now you may pay me a draw or two, and all things may be fine, then when we get to the end of the project you may say " Oh jeez Im sorry I dont have enough money to pay you !"

Now I can lien your property all day long ---
BUT that still dosent get me my money - TODAY ! If I have to wait for you to sell a house before you can pay me.... Where does it say the contractor is the thief ???? Some of you better look in the mirror !
Luckly for me when investors have BURNED me... I have allready paid all my expences, labor, supplies up front so its ME that takes the hit !!

I WONT lift a hammer until you either give me 1/2 upfront or what I have been doing lately is have the investor deposit ALL the funds into a bank account with both my name and the investors name on the account----He cant pull it with out my signature and visa-versa

And honestly as far as letting the investor buy the materials -- HA -- All the average investor sees is the " pretty" side of things not the working end of things, and becides sometimes you have no idea " whats behind that wall" so 9 out of 10 times the investor dosent buy the right items, enough items or whats really needed to put the project together.

I'll be more than happy to go to the Home Depot and get everything ordered, shopped, picked up and I may even deliver it ( usually have Home Depot deliver it...more money out of your pocket !) as long as the investor understands if the home gets broken in to its NOT going to be my responsibilty all of his materials and supplys just walked out the door !! Oh yeah...Im gonna charge you by the hour to shop, if thats how you want it done.

And again have any of you investors ever tried to do a rehab when all your materials are in your way and you have to move them 100 times ? (probally gonna cost you more money, and take more time)

Minna keep collecting your 1/2 upfront ! I know I will !
You investors have to be real ! Whats my recourse ??? Lien your house ??? What if you decide to hold for a few years ??

HOW DO I KNOW YOU HAVE THE MONEY TO PAY ME ?

Not all contractors are bad -- Maybe your just trying to save to much money and not doing YOUR homework !!!! You GET WHAT YOU PAY FOR !


Edited Jun 26 2010, 04:39


Jenny F.

Real Estate Investor from Baroda, Michigan

Feb 05 '08, 09:40 AM


Understand that contractors take risks too. Being a contractor and an investor myself I can easily see both sides. :woohoo:

We are not all bad. some of us have moral values and wouldnt be able to sleep at night if we left a family high and dry and skipped town with their money. Some of us believe that what comes around, goes around.

When i intially consult with a client I tell them to get at least three estimates and interview each contractor. Get references! talk to the inspectors! Check out the state website to see if they have any complaints against their license. Have them request from their insurance company a proof of insurance to be faxed to you from them. If you dont like the price but like the reputation, talk to them. You would be surprised how much negotiation can save you.

I charge upfront: Materials and 1/3 labor down. I would be happy to let a client pay weekly (through completion) if they were nervous about the situation. I ask for proof of funds up to the amount of the contract. If the client wants to be the one to purchase the materials on their own (with MY list), i am happy to go get the materials and bring them to the project site. the project is completed in 3rd's after that and they know in advance what each phase of the project is and what they will be left with if they dont pay. (though I have never had that happen).

I even price comp for the client to find them the lowest possible price on the materials that they need.

Contractor's spend a LOT of time with prospective clients and these are hours that are non productive to the contractor. They can never be taken back and earned upon. For every hour spent with a potential client i have to pay several guys to go to the jobs i have landed. Then i spend the rest of my day getting materials and making sure my employees are performing per job specs and getting things done the right way the first time. That doesnt even include that materials changes or change orders from clients...." hey, while your in the kitchen installing my tile....could you move that wall out of the way and have my washer and dryer hooked up somewhere else?"

12- 18 hour days are not uncommon.

I have good credit. I have spent all of my adult life building that credit but I should not be expected to carry credit balances on my credit for materials that do not belong to me or my business. I need to use this credit to grow my business and branch into new markets (such as investing).


Edited Jun 26 2010, 04:39


Danny Kay

Developer from Smyrna, GA

Feb 24 '08, 09:13 PM


No money upfront, GC's invoice the client every 2-4 weeks approximately. These are on large retail refurbs ($2m+)

On smaller scale SFR refurbs I have done, I pay each sub upon completion. No reason for you to pay up front, especially 50% :shock:


Edited Jun 26 2010, 04:45


Christian Malesic

Real Estate Investor from Harrisburg, Pennsylvania

Feb 27 '08, 05:35 PM


Originally posted by "BlueStarHomes":
Another thing, a good contractor won't ask for money up front!!

With all due respect, I have no idea how you are defining 'good'. I offer this:

I am one of the top rated instructors for the National Association of Home
Builders (NAHB), which is the largest building industry related association in the world. We train that ALL contractors should get 50% up front (unless, as Minna explained, the job is significant in size although our definition of significant is much higher than hers).

As to a a follow-up question by another poster. It is incredibly rare that we are turned down for a deposit. We also have a signed 5 page contract for jobs over $2,500 and a signed 1 page mini-contract we calla proposal for all smaller jobs. When we are turned down, usually it is from scummy landlord-types that are shady and never bathe. :D

Seriously though, in over 10 years of operation, we have had to sue only once. The case continues as he has appealed our winning the first round after over 2 years of legal battle. He was a flipper. Here is a direct quote, " I already sold that house, why should I pay any of the trades?"

Wouldn't you collect 50% up front if you were in our business?


Edited Jun 26 2010, 04:46


Jay Hirsch

Mar 05 '08, 08:41 AM


I'm a Solar Installer (Electrical Contractor) in California. Here there is a law that a contractor can only collect $1000 or 10% which ever is lower as a deposit. No other money can be collected before work has been done.

This is very difficult/impossible for Solar Installers (and any other trade where material costs are huge and need to be made before work starts). If I even do a few jobs where I have to front the cost of all the equipment and the clients are slow to pay it could cause me a lot of trouble.

Does anyone here have any suggestions or thoughts? I know some of you are looking at this from the clients point of view, and I understand that since I've done property rehabbing myself, but it's really difficult and risky for a contractor to float a lot of money.

One thing I'm thinking is that if I get a resellers license I can possibly treat the sale of materials as separate from the installation contract.


Edited Jun 26 2010, 04:49


Christian Malesic

Real Estate Investor from Harrisburg, Pennsylvania

Mar 05 '08, 05:58 PM


Microbet:

I'm a Solar Installer (Electrical Contractor) in California. Here there is a law that a contractor can only collect $1000 or 10% which ever is lower as a deposit. No other money can be collected before work has been done.

Does anyone here have any suggestions or thoughts?

Leave California :wink:

It is just the strangest state. So unlike the other 49. Stay away from the left coast - liberalism run wild.


Edited Jun 26 2010, 04:49


Chad Blankenbaker Donor

General Contractor from Winnetka, IL

Mar 11 '08, 09:45 AM


Micro-

Wow that sucks! The state is really setting contractors up to get burned big time on this one. Isn't there anyway to get progress payments on bigger jobs. That just doesn't sound right to me. I would insist on setting up some kind of escrow account for smaller jobs and I'm guessing you could work out normal progress payments with a title company on the bigger jobs.

Glad I'm not in CA and hope this is one of those CA trends that stays in CA.


Edited Jun 26 2010, 04:50


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