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Why You Should Never Pay Your Contractor Up Front

by Ken Corsini on March 7, 2012 · 47 comments

  
reputable contractors

I preach all of the time about the need to vet contractors carefully before using them on an investment property (or any property for that matter). There are simply too many fly-by-night contractors out there who will you tell you what you want to hear to get the job, but will ultimately burn you in the end. In fact, one of the reasons I really like the turn-key model is that it insulates an investor from ever dealing with contractors. (A turn-key property is purchased with the repairs already completed with no need to manage a rehab or worry about the funds needed for repairs –see article on this topic)

With that said, I’ll be the first person to admit when I make a blunder … and I will openly admit that I recently made a mistake that cost me some money.  While we have great long-term relationships with the daily contractors in our investment business, I needed a specialty contractor to do some work at my personal house and I simply didn’t take the time to perform the necessary due diligence on this particular contractor. While this gentleman appeared to be very knowledgeable and professional, he was also less expensive than other more reputable contractors in this trade. Like many investors do on investment properties, I was more interested in using the less expensive contractor in hopes of saving a few bucks – mistake number 1.

After having met with this contractor 3 times and agreeing to pricing, I committed the job to him. Knowing that he was the kind of contractor that worked out of the back of his truck, it did not surprise me that he wanted me to pay for the materials up front. Against my better judgment, I cut him a check for the materials with the understanding that the work would commence a few days later – mistake number 2.  Suffice it to say, it has been almost a month and this contractor is nowhere to be found.

I am not proud of the egg on my face from this experience, but I really think it’s worth sharing and reiterating the importance of working with reputable contractors – even when it costs a little more. In fact, this experience has led me to create a personal principle that I believe is worth passing on to other investors:

Never work with a contractor who needs payment before work has started (including materials).

If a contractor doesn’t have the means to float material costs and some amount of labor before receiving a draw, they simply aren’t worth the risk of doing business. I don’t care if it’s your friend, your cousin or even your pastor – a contractor who doesn’t have the cashflow to begin a project is one small crisis away from walking away with your money.

The great thing about a forum like BiggerPockets is the opportunity to learn from others experiences and mistakes. Having been in this business full-time for seven years, I have made my share of mistakes along the way.  While I have learned from others, I am hopeful that I can also steer others clear of potential pitfalls. Unfortunately, working with bad contractors just happens to be one of those areas that new investors are especially susceptible to.  To those investors I simply want to reiterate the benefits of paying a little more for a reputable contractor rather than compromising quality and honesty.

Photo: US Army Corps of Engineers

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{ 47 comments… read them below or add one }

James A. Browning MRE March 7, 2012 at 10:11 am

On another note, whenever you work with a Contractor, Tradesman, make sure that each person performing work for you is Bonded, Insured, and has a good reputation. If the contractor is working with you in the REO arena, do NOT hire a relative!!!

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Kevin Yeats March 7, 2012 at 12:09 pm

With so many camera phones, it makes sense to take a picture of the contractor and a picture of the truck/license plate right at the start. If the contractor objects, that is reason enough NOT to hire him/her.

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Dave January 27, 2014 at 9:02 pm

Not only do I hire relatives, I pay them more for their efforts. Please post the names of your relatives so the rest of the world can avoid that pitfall. Thank you

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Sharon Vornholt March 7, 2012 at 1:56 pm

Great article Ken. This is a lesson many folks learned the hard way.

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Dennis March 7, 2012 at 11:48 pm

Great article. I like your new rule & I am going to use it.

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Mark Updegraff March 11, 2012 at 4:15 pm

I don’t agree with the friend part. I have many friends who contract from me and can’t afford the materials. Let’s face it, rehabs are expensive and orders usually start at $2500. I wish my friends could afford it, that would mean they making good money from me and maybe even learning a thing or two. Some people just will never be able to save. Before they get the money, they’ve already spent it. You hope they are bright enough to listen to advice, but ultimately they decide how to spend it. It’s like the “How to buy a Lambo” thread on BP. Anyway, I maintain good relationships with contractors and trust them. Find people you can trust.

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Greg March 11, 2012 at 5:18 pm

Ken,
Is there a good way for buy and hold investors to find reputable turn-key companies in specific locations? Is there a way for turn-key companies to be vetted and reviewed by other buy and hold investors? Thanks.

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Jere March 11, 2012 at 5:24 pm

As a contractor I agree how about checking up on a contractor. But I disagree about not paying up front. I’ve heard too many stories of quality contractors who did a great job, and didn’t get paid. That’s why I ask for a third up front, that way most of the materials are covered in case the customer doesn’t put up the rest. Trust has to go both ways.

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Ken Corsini March 12, 2012 at 11:13 am

Jere – I agree that Trust has to go both ways. However, Contractors have the benefit of filing a lien against the property if a homeowner doesn’t pay. Conversely, if the contractor disappears with the homeowner’s money it’s much more difficult to track them down.

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Ron February 8, 2014 at 8:39 am

Sure, we can file a lien, but that doesn’t mean the homeowner won’t cry broke and pay $10 a month. Unfortunately, I have been burnt by fronting a job and I vowed never to do it again! I trusted the homeowner to pay because they paid on time regularly at first, but they kept making changes that added up so when money got tight, things went downhill from there.

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Dave January 27, 2014 at 6:56 pm

Jere, DITTO! Some owners are out of country and state, everyone of them without exception, has bungled the job, by not paying in due time…..People you can Trust, is the key. I’ve seen and worked for Dishonest contractors, that never asked for $$$$$ up front, only to take the first draw and leave the homeowner and Me” high and dry. They say never work for family or friends. Friends and family don’t burn you. If thats your experience, my apologys. The last time I was burned by a con-tractor, his brother also a contractor came by the job to let me know his brother skipped town. I was owed a substantial amount of $$$$, and left the job. By the way their roof was completely off and I was sick over their dilemma and mine. I have NEVER burned a homeowner, but I have been burned, won in court, and learned, if your not paying me for materials up front, then I’m not working on your property. I just pushed a job away, because the homeowner that resides in Canada, refused to pay for paint upfront. Warning bells went off, and I told him to Take Care. In the end, I offer References to anyone that wants them. These are References of Prior Work done for homeowners. While the con tractor that is dishonest is real. There are those of us that are willing to spend many extra hours and days, going the extra miles, to provide Excellent service and quality of workmanship above and beyond what the homeowner expected. Beware if the homeowners that refuse to provide upfront material costs. Those are the ones that have a High likelihood of never paying you …..after 25 years, this is highly likely. No pay upfront. I’m only out my gas and time. Seeya

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tim March 11, 2012 at 9:57 pm

Let’s think about this realistically–why on earth would any one in their right mind put up the material costs for YOUR job, ever???!! It is YOUR material and therfore be paid by YOU! How could you expect someone else to loan you the money for your job for free? What is to stop you from saying “see ya later” after the contractor has bought everything and done half the work?

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Ken Corsini March 12, 2012 at 11:09 am

Tim, there are plenty of reputable contractors that will begin work without receiving money for labor or materials up front. However, to your point – if you’re going to pay for materials up front, at least pay for them directly (ie. Home Depot) rather than cutting a check to your contractor .

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tara June 4, 2014 at 7:37 am

Thank you! I’m trying to google how to deal with damn self righteous homeowners as a contractor and just keep coming up with crap about the homeowners getting screwed. Well contractors get screwed by homeowners that don’t have a friggin clue how the hell construction works! Omg I’m so sorry you’re not the only damn client on the roster here and while you don’t actually know what you really want done in your house, I as an honest not out to screw you guy tell you DO NOT start randomly tearing your house apart and essentially your ‘special’ son, and marriage and think about this, here’s a # of good guy to PLAN your remodel properly with you, you say damn good idea, we’ll take a break. Two days later you call l&I, then say you want you deposit back because I didn’t show up? WTF? No more lowballing myself for heartstrings, no more ignorant homeowners. I’ve got a whole family to feed.

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Daniel March 12, 2012 at 2:35 pm

As a contractor I don’t agree. Evidently you did not completely vet the contractor. Did you check three references?
Being bonded in Tomball, TX does not mean a thing. I pay $100 to city hall and I’m bonded. It means nothing when someone goes after it.
If you cannot trust me with a downpayment on the job, after you check my references, then how can you trust me in your house? It’s people who do not vet the contractors properly and get stung that let these contractors get by with it. You cannot expect me to put up materials when I have been stung by a homeowner who did not want to pay. Do you know how much it cost to put a lien on a property, plus the cost of my time to do it. Not worth it on small jobs, so 40% up front covers materials, then I’m only out my time when screwed.

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Ken Corsini March 12, 2012 at 7:59 pm

Daniel, I’m a licensed contractor myself so I completely get where you are coming from. As a contractor, of course I want to get as much up front as I can to protect myself and my time. However, I’m also a full time real estate investor who deals with subcontractors on a daily basis. When I put on that hat, I’m going to protect my interests as the property owner …. and as such, I choose to do business with contractors that can float the first part of a project on their own nickel.

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Suki December 19, 2013 at 9:31 am

It seems VERY hypocritical to say as a contractor you expect as much upfront payment as possible, yet as an investor you’ll give hired contractors nothing upfront.

Can you please clarify for us all whichwhich method you adhere to and stand by?

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Dave January 27, 2014 at 9:09 pm

Touche suki. I would steer clear of his ethics.

Aaron March 12, 2012 at 7:00 pm

I agree with you Ken a 100%! There is a lot of good contractors out there that want your business and will do things the right way and act like a true professional. Never give money up front as the contractor could disappear, go bankrupt , start a new business and keep repeating that method to other people. Not a risk anyone should take as there is not enough protection for customers. The contractor can lien the property if the customer doesn’t pay. Use all the right contracts including the scope of work and payment schedule that you and the contractor agree upon. If they want materials up front go get them yourself and have the contractor use them. That way if the contractor bails out you still have the materials. In this business when you don’t do the right things to protect yourself and your investment you will get burned and it will cost you!

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Ziv Magen March 12, 2012 at 11:37 pm

Can’t really agree with that one. In some field you just have to charge in advance.
We, for instance, are proxies and buyers’ agents, and if we don’t charge in advance, we’re often screwed over – people use our services to find the properties they want, then proceed directly to the seller, regardless of any contract preventing them from doing so, simply because they’re overseas and they think wouldn’t be worth our while (which is true, but once you collect a few of those it becomes very easy and worthwhile to pursue, so don’t get any ideas ;)).

We’re happy to work for months for our small, measley fee, but that fee is payable in advance, for our own protection – and not due to lack of funds.

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Daniel March 13, 2012 at 12:50 am

At the same time Ken when I do a lot of work for an investor, (which I will be soon myself) I don’t mind a small amount of materials up front. I spent several years working for a Home Vestors franchise. But for the individual home owner it’s a different story.

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Elli Davis March 13, 2012 at 8:50 am

A well written and informative article but in my opinion, the best thing before hiring ANY contractor is to do a good background – via internet, people who already hired him etc. Even a contractor, who isn’t asking for your money before he starts his work can be very unreliable and your whole rehab can drag for weeks, even for months.

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tara June 4, 2014 at 7:48 am

I’m thinking background checks is a damn good idea on both parties. Contractors should definitely do checks on clients, especially if they seem to be slumlords, or ” good people” with some sad sob story. See how many lawsuits they have filed against other contractors. I think I want to meet this special kid, I’m starting to think he doesn’t exist.

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Veronica July 31, 2012 at 11:05 am

I understand that this is your opinion but you should not be posting things like this and offering it as advice. Just because you had a bad experience does not mean that you need to bash every hardworking contractor. This same article is some how posted on Yahoo!Home and has offended quite a few people; mostly people who are in this job field that are honest and hardworking but obviously don’t have the funds to pay hundreds or thousands of dollars worth of material. My dad is one of them. He has done so many jobs where he paid out of pocket for materials and ended up getting screwed in the end and never getting paid. It’s the ONLY reason why he asks for material costs up front and brings the homeowner every receipt so that they know all the money went to materials. You should think about the little guy working hard to keep his family under a roof but is now losing business because of your misleading advice. Just saying.

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Joshua Dorkin July 31, 2012 at 11:26 am

Veronica – I believe it works both ways . . . the investor who gets screwed by a shady contractor is in the same position as the honest contractor who gets screwed by the shady homeowner. Though the contractor can slap a lien on the property whereas the property owner’s only way to deal with it is via the courts (and review sites).

I’m sure Ken will chime in with his thoughts as well.

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Veronica July 31, 2012 at 11:41 am

Joshua- I get what you’re saying. I understand that it works both ways but instead of Ken saying “don’t pay contractors upfront”, how about saying something along the lines of how to look for specific licenses and how to do quick background checks of the contractor online through reviewer websites and what not.

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Ken Corsini July 31, 2012 at 11:41 am

Veronica – you obviously feel strongly on this topic and I understand where you are coming from as well – I’m actually a licensed contractor myself. As a contractor, of course I would prefer to get paid up front as a means to protect myself. But to Josh’s point, it works both ways ….. As an investor hiring a contractor, I don’t have the benefit of placing a lien on property … I would have to track the contractor down and deal with the court system.

To your comment on materials – I would agree that it is reasonable to ask the homeowner/investor to pay for some amount of materials up front. However, I would suggest that the payment for materials be made directly from the homeowner to the store. …. and that all materials remain on location.

I’m sorry you think my advice is misleading …. I realize there are plenty of good, honest, hard-working contractors that can be trusted with payments. The problem is – most people still need to protect their interests from the handful of contractors who can’t be trusted.

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Veronica July 31, 2012 at 12:03 pm

Ken- Thank you for your response. I’m happy you see my point of view and I can tell that you understand where my feelings about this are coming from. I also absolutely agree with your suggestion about the homeowner buying the materials. I think it should be added to the blog because the only thing I found misleading was “never pay upfront”. In my opinion, words like that can do damage to the small town contractors working check to check, job to job trying to keep bills paid and family members happy with little or no money left in between to pay for someone’s home improvement materials.

Devon Stone July 31, 2012 at 12:48 pm

Ken, I saw your article on Yahoo, but decided to respond here..

I understand you are a licensed contractor, but do you market and sell your services to the public? When you’ve sold your services as a contractor to the public long enough, you see the other side of the equation.

The biggest mistake you made was choosing your contractor based on price. He probably wasn’t just the lowest price contractor for you – he’s probably been the lowest price contractor on every job he bids. That means he’s not as financially stable as those who charge a fair price for their work. Money changing hands means commitment. Believe it or not, there are people who are willing to sign a contract to pay and allow work to start when they don’t have the money or the intent to ever pay the bill.

And you put too much faith on lien rights. Holding a lien against a property only means that you can collect when the property is sold, refinanced, or if you take it into foreclosure. If you need to lien a property, you’re probably already second or third in line, reducing your odds of collecting at all. And trying to collect on that lien might cost more than the lien is worth – a contractor stands a better chance of collecting those funds in court, just like a homeowner can do against the contractor. It’s smart for a contractor to get lien rights – but a lien on someone’s property won’t feed your family when the homeowner decides not to pay you.

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chris dinardi August 27, 2012 at 9:59 pm

You guys, both contractors and home owners seem to over complicate the situation. As a contractor I personally will always charge a 10% start payment. I will give in my contract a payment schedule of when and how much progress payment are to be made. On the norm I will charge for a rough compilation payment (60%) only after the inspector saying every thing is completed and ready to proceed to the finish stage. Any decent contractor should have credit with whole sale houses and other stores to front cost for materials. If the owner has a problem making a payment at rough compilation I will issue a stop work order. This is to protect both contractor and owner, to make sure I don’t get in to deep into personal cost for the job and that the contractor is being paid only for what has been accomplished. After finish stage, and only after the inspector has signed off on every thing then I will issue the final billing. Which of course should be paid in a timely manner or risk incurring interest penalties. If that doesn’t work then yes I would file a lean on the house, but even that doesn’t guaranty a payment only that the house can’t be sold or further improved on. If you were to ask me to start work with a 0 down payment a alarm would go off in my head saying you may not have the finances to pay me. Its all about putting together a payment schedule in your contract that works for both of you. If you want zero to start work, i would just walk. I need a good faith payment from a client and i dont think 10% is out of order.

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Brad September 2, 2012 at 4:20 pm

I know this is kind of an older posting, but I just came across it. It’s an interesting discussion.

As a contractor and a person who owns a professional contracting company, I can see both sides of this equation. The homeowner or investor doesn’t want to be left holding the bag for a shady fly-by-night contractor. But then the contractor does not want to be left holding the bag for an insolvent homeowner. I personally handle this a couple different ways.

First, on smaller jobs, I’m willing to take a level of risk going in however, I do not offer 0% down financing on anything. I’m a contractor, not a credit union. I charge a minimum of 10% down. It enures that the homeowner or investor has some skin in the game. If you don’t like that, then you are free to pay by credit card with me and allow those policies to shoulder some of your risk. Either way there’s money changing hands, one for protection and two to secure your scheduled slot.

On larger jobs, I break them into phases. Each may be interrelated and dependent, but each are billed separate. It helps to spread the risk again. If you want $80k in rehab work, it may be broken into 5 or 6 different phases. Instead of dealing with $80k, now we are dealing with several $4k to $8k jobs that can each flow into the next phase.

Finally, if you are calling my company to do a larger job, no work gets done until we have verified finances. You may have $100k in work to be done, but before I block off time from my crew’s schedule, I want to see that you have the appropriate level of funds to ensure completion and possible contingencies that may pop up. Depending on the size of the job, you may also be asked to be bonded to cover costs incurred in the event of default. It doesn’t happen often, but it does from time to time.

It sounds tough to deal with, but after being in this business long enough, policies arise to solve problems previously encountered. I’m not trying to be a bad guy or looking to pull one over on you. Business is business. As an investor, you have certain time and expense numbers to hit to make your profit. As a contractor, I have people and wages, insurance, licenses, marketing, legal, and accounting. We both have expenses. I run a top notch operation and provide a high level of service and consultation to my clients beyond just swinging a hammer. I treat all of my clients with professionalism and respect and only ask they do the same for my company.

It’s a tricky balancing act for both of us. There are too many contractors that have no idea what a balance sheet is and won’t be there by the end of the project, much less next year or the year after. Likewise, there are too many investors who watched an episode of Flip this House and want “pop” and “open concept” and whole room additions on a burned out 100 year old farm house for $30 grand. As an investor, consider yourself lucky if you can find a partner in a professional, stable contractor that can understand your motivations and work with you. As a contractor, I thank my lucky stars when I meet up with a knowledgeable and organized investor that understands the business. But until we meet up, be on your guard, but understand when a contractor gives push-back on financing your risk.

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Dave January 27, 2014 at 8:58 pm

Well said.

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Sharon February 27, 2013 at 3:13 pm

Hi.
Ok I found your site when researching this. My parents always told me to never pay upfront for contract work of any kind. But this is my neighbor who has done work with me before. (and I know where he lives… I can see his house and truck out my window. this is a 4k job and he is asking a bit more then 1k upfront. I just wrote him back (email) that the best I’d feel comfortable with is paying when the job is half way complete.

I found the other side first – that is an article with tips for contracters asking for money up front… I just replyed there and I pointed them to here as a referece. This is the sitE: http://thefreelancepinoy.com/getting-paid/9-tips-upfront-payments#comment-16527

My comment is awaiting moderation so I don’t know if it will be posted. As I started out with “Hi. I’m on the opposite of this transaction. I’m looking to have my driveway done and was shocked when the person (who did a little project for me before) asked for a portion up front. I just wrote him and told them all the advice I have ever heard – mainly from my parents who I respect highly – is to NEVER EVER Pay ANYTHING up front for landscaping/contracting/home improvement.” it may not get posted…. (as I may have insulted them.) I admit I was shocked at the article becaues I thought “everyone and his brother” KNEW you were never to pay up front for contracting.
so is there a happy medium? If you have a contract that specifies a full refund if not satisfied or if the person doesn’t complete the work in the time specified – does that fly? Or do you have to take them to small claimes? and if you do – can you sue for lawyer fees as well?(which is why I think most people don’t bother to try to get money back if it’s like <1000 because they would pay way more in lawyer fees…)

Thank you for your time.
– Sharon

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Dave January 27, 2014 at 8:53 pm

I realize much time has went by. But the issue is the same. I know I would be livid if I was stuck with a con-tractor, that was dishonest. I have most always been referred for the job. Often times after I meet them, The keys and alarm codes are offered. & I begin the job. There have been times where the check for payment in full, was left for me, as they informed me, they were leaving town. The houses were full of Beautiful and expensive antiques and art. I did the job. Cashed the check and when they returned from their trip, called to thank me for a beautiful job. But then again, Who knows, maybe they were hoping I would steal so they could file a fraudulent homeowners claim. Lmao. P.s. they heard I love coffee and natural fruit ice cream bars, and packed a refrigerator freezer full of Starbucks and fruit bars. Then again I’ve had homeowners that didn’t offer water when it was 115F. They all receieved a great job, so they said. But in the end, condolences to those of you that were burned. As I have had car mechanics, provide substandard work and there wasn’t much I could do. Local references are your best bet. But I still wouldn’t expect work on my home to be done without a deposit.

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Deryl June 7, 2013 at 9:22 pm

I would think there should be some third party involved since both parties don’t trust each other. Similar to buying/selling property, an escrow account should be held and money given out when necessary. Thoughts?

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Bill September 11, 2013 at 4:42 am

Totally disagree. I have been a painting contractor for 20+ years and will not step on the site unless materials are paid for and at least half up front is paid so I don’t get burned by customers.
Why is it ok for me to put up my money for your improvement? Nonsense. You’re an investor and want to hold on to as much of your money as possible for as long as possible.
When a customer says to me I want you to pay for materials on this 10k repaint and take no money until the job is done…..click.

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Dave January 27, 2014 at 8:26 pm

Jere, DITTO! Some owners are out of country and state, everyone of them without exception, has bungled the job, by not paying in due time…..People you can Trust, is the key. I’ve seen and worked for Dishonest contractors, that never asked for $$$$$ up front, only to take the first draw and leave the homeowner and Me” high and dry. They say never work for family or friends. Friends and family don’t burn you. If thats your experience, my apologys. The last time I was burned by a con-tractor, his brother also a contractor came by the job to let me know his brother skipped town. I was owed a substantial amount of $$$$, and left the job. By the way their roof was completely off and I was sick over their dilemma and mine. I have NEVER burned a homeowner, but I have been burned, won in court, and learned, if your not paying me for materials up front, then I’m not working on your property. I just pushed a job away, because the homeowner that resides in Canada, refused to pay for paint upfront. Warning bells went off, and I told him to Take Care. In the end, I offer References to anyone that wants them. These are References of Prior Work done for homeowners. While the con tractor that is dishonest is real. There are those of us that are willing to spend many extra hours and days, going the extra miles, to provide Excellent service and quality of workmanship above and beyond what the homeowner expected. Beware if the homeowners that refuse to provide upfront material costs. Those are the ones that have a High likelihood of never paying you …..after 25 years, this is highly likely. No pay upfront. I’m only out my gas and time. Seeya

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JC September 22, 2013 at 2:06 pm

We had a friend paint some exterior rooms, and he did a very good job. We even tipped him. Then we needed the exterior of our house painted, and my husband hired him again, but his mistake was that he paid the guy UP FRONT. The guy was lonely, going through all kinds of problems and issues, and my husband felt sorry for him. When I found out I he was paid up front, my instinct told me there would be problems; if you pay someone up front, the impetus for finishing just vanishes at some point. My husband didn’t know it at the time. But that is exactly what happened, and my husband had this lesson to learn, I guess. Because many sunny days have come and gone – and he’s not here. Now it’s raining, and that’s his excuse. His work isn’t as good as it used to be either.

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Dave January 27, 2014 at 8:30 pm

It may be time for you to re-evaluate the word friend. Because I wouldn’t do that to a so called enemy.

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Luis V. October 31, 2013 at 2:38 pm

Is it a good idea for a homeowner to agree to a flat fee for the project under the assumption that the homeowner will purchase all the construction materials?
In other words, I don’t want to be giving out checks for material that will be marked up by the contractor.
Thanks!

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s waldon February 26, 2014 at 7:18 pm

Its okay to pay for materials ahead of time, and if you don’t trust the person you want to hire for a job go to the store with them and buy the materials with them. THE ROAD GOES TWO WAYS !! Don’t expect a person to do work at your house and you pay them later! When I was contracting I required 1/3 down which covered parts. No matter how established or wealthy a contractor or tradesman is, they don’t want to take you to court to get paid. And yes they don’t care that you made a couple extra dollars by not getting a reputable contractor. Reputable Contractors and Tradesman with gladly give you there home address and home phone number. A contractor that approaches anyone with only a truck, cell phone and tools, is someone you may not want to do business with. As a retired building contractor and electrician I know it cost much money to get and maintain these licenses and there are many honest tradesman that will do a wonderful job at half the price of a licensed Contractor.
Do your your due diligence when hiring anyone to do work at your home, then don’t complain when you don’t have as much money left in your pocket because everyone thinks contracting is easy, but always have an excuse why they don’t do it themselves.

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Paul July 9, 2014 at 3:32 pm

I’ve been burned by many homeowners and would never start a job without a payment for the materials. Shure most people pay the whole amount at the end but what about the ones who don’t? No deposit, no work! I think your an idiot and should stop writing articles you know nothing about. It’s people like you who make it hard for good contractors to make a living. Idiot

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Ken Corsini July 9, 2014 at 7:40 pm

I’ve enjoyed the lively discussion from this blog for the past 2 years – I think it’s good to have open debate about these kinds of topics. I don’t, however, appreciate being called an “idiot” (… especially from someone who doesn’t know how to spell the word “sure”) I think most people would agree that personal attacks in an open, educational forum like this only serve to make YOU look like the “idiot.”

In regards to your mention of paying materials up front … I’ve already commented on that in this discussion: (I am re-posting below)

Veronica – you obviously feel strongly on this topic and I understand where you are coming from as well – I’m actually a licensed contractor myself. As a contractor, of course I would prefer to get paid up front as a means to protect myself. But to Josh’s point, it works both ways ….. As an investor hiring a contractor, I don’t have the benefit of placing a lien on property … I would have to track the contractor down and deal with the court system.

To your comment on materials – I would agree that it is reasonable to ask the homeowner/investor to pay for some amount of materials up front. However, I would suggest that the payment for materials be made directly from the homeowner to the store. …. and that all materials remain on location.

I’m sorry you think my advice is misleading …. I realize there are plenty of good, honest, hard-working contractors that can be trusted with payments. The problem is – most people still need to protect their interests from the handful of contractors who can’t be trusted.

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Suki July 10, 2014 at 10:08 am

Come now. With all due respect I heartily disagree. I find it equally petty and mean-spirited to mock people’s spelling as it is to name-call. This is a just blog, not a press syndicate, and you’re a contractor/investor, not an editor. This forum isn’t about the grammatical errors of posters (yourself included in no small measure).

So let’s stop this ugliness and instead address the actual subject, a very valid point. You’ve never really addressed my comment either, or others here on the hypocrisy of your claim to demand as much payment upfront as possible in your “Contractor” hat. Yet this article is “Investor” hat only by insisting on no upfront payment to contractors. Surely you don’t find it reasonable to advise investors to conduct business in a way you yourself as a contractor do not find reasonable?

We earnestly want to know how / why you do it. Why should we consider only one of your two very contradictory viewpoints to be sound advice? And how can we reasonably be expected to completely ignore your other view?

A contractor’s lien against an owner / investor is no more likely to be settled favorably than an investor’s lawsuit against a contractor. So not only is it impossible for us as readers to reconcile this contradictory advice. It also gives the unsavory impression that you feel only investors are justified in minimizing risk, yet despite having both financial and sweat equity in the game laborers should be expected to take larger personal / financial risks. It truly is hard to grasp why this is fair or valid.

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Ken Corsini July 10, 2014 at 10:56 am

Suki – I appreciate and welcome the comments … and agree that we should steer clear of “ugliness.”

At a basic level, the comments on this thread either come from contractors, who are upset at my opinion …. or homeowners/investors who tend to agree. – And why wouldn’t they? Both parties have interests they are trying to protect. If this website catered to the education of contractors (rather than real estate investors), the article would have been written by a contractor and titled “Why You Should Never Start a Job Without Collecting Money First.” …. but it isn’t. This website is specifically centered around real estate investing and as such, written for the benefit and from the viewpoint of investors.

The bottom line is there isn’t a right or wrong answer … it’s only opinion. I understand why a contractor wants to protect their interests and collect as much money up front as possible. I however, as an investor, also want to protect my interest and it is from this standpoint that I have expressed my OPINION in this blog.

That said, I think there is some good common ground that has been explored in the above comments.
1.) Homeowner pays for materials directly and materials stay on site.
2.) Money held in escrow and released by independent third party.
3.) Frequent draws throughout the project so that the contractor is not stretched thin.

Suki – I think at this point everyone understands each side of the argument. Perhaps going forward we can try to facilitate more areas of common ground between investors and contractors.

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Suki July 11, 2014 at 4:26 pm

Ken, thank you for finally clearly addressing the contradictions in your two varied Investor / Contractor viewpoints. As an owner / investor I already well understood your audience and article’s bent. Yet that in mind, the bias against contractors still caused me (and apparently several others) quite some confusion and discomfort — especially when your Investor opinion appears to completely oppose your Contractor opinion.

I agree with the spirit of mutually respectful investor/contractor common ground being a better way forward. The three such points you cited that arose out of this discussion are excellent. Since they are not covered in your original blog post, I am relieved to hear you find them sound. It simply did not sit well with me as an owner/investor that your article seemed to advocate demanding contractors front all your materials costs out of their own pockets before you ever pay them a cent. This suggestion to pay materials yourself and leave them onsite is, in my opinion, a far more realistic and respectable way to handle this issue. Also, both the escrow and draw ideas that other readers suggested seem to address financial risk in a more fair and equitable way.

I’d add to this the point mentioned repeatedly in both the article and discussions — always vet the people you work with carefully. This is a much better stance than operating from a place of automatic mistrust of all contractors.

I say this because select edited portions of your article were posted up anonymously in our building, out of anger after an owner/investor was “burned” by a contractor. From this, everyone here made wild assumptions that one should never pay a contractor anything, not for labor nor materials, EVER, until all work is done to your satisfaction. However, context is everything. In this case the owners/investors had hired the cheapest contractor without proper reference checks and paid upfront in full. Yet they did not divulge to the contractor vital structural issues they were well aware of for over 2 years (e.g. asbestos, lack of engineering permits, etc.) that critically affected the requested renovations. The contractor was completely unqualified for the scope of work the owners/investors demanded. However when safety inspectors denied permits and stopped the work, the owner/investor felt cheated because their payment in full was already made for work that is not permitted for reasons beyond the contractor’s control.

As such, I feel advocating investor due diligence would be a stronger lesson in this blog than the idea of expecting contractors to behave as criminals and/or treating them as such. I am of the opinion that owner/investor responsibility is a far better message to convey, and the points on vetting contractors, materials, escrow and draws all speak admirably to it.

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Sophie July 31, 2014 at 10:44 am

This forum is interesting, and I need advice, maybe from both sides! I am a homeowner, and agreed to a time and materials job with a licensed contractor. I told him my budget was $50K, and I planned for the unexpected and agreed we could go to $60K). We got the first invoice, and I trustingly paid $25K. He said he needed it to buy materials and pay his subs. When I got the next invoice for $20K, I paid it, but noticed that the job was not half done (it’s across the state so I haven’t been there much to check progress). So I start looking more carefully at the bills, and he has charged me roughly DOUBLE RETAIL for all materials. Ex: A bag of grout for $29, that is 13.98 at Home Depot (exact same brand, color and size bag). $21 charge for a 3 x 5 piece of DuraRock that is $9.97 at HD. The “time” charges were itemized by the day, and I was charged 173 hours, at $40/hr, for tile work that totaled about 500 sq ft. When I added the cost of the materials (what he charged me, not his cost, as he hasn’t provided those invoices yet), I have paid over $24/sq ft for the tile job, and they haven’t grouted yet! It’s basic porcelain tile. I was charged $45/hour for another sub ( not the contractor) to “supervise” 2 other guys to trim stairs — there are only 8 stairs (multi-level condo), and I was charged for 5 hours for his “supervision”, plus about $76/hr more for the guys that actually did the work. ??? So by now I have paid him $45K, and the other day when I went to check progress, he handed me a bill for another $7000, and the job is not half done. What to do?? (I haven’t paid the most recent bill, and he has been reluctant to provide me his original invoices — what he actually paid for materials. I have asked for them.)

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