When to or when not to pay contractors
Fort Wayne, IN · Member since 2015 · 32 posts · 9 votes
When should you pay a contractor? Should you pay them in increments, with a deposit in the beginning, again midway through the project and lastly once the project is complete? Or is there a better way to protect both parties?
When hiring a contracting company the majority require a minimum of 1/3 deposit
Not only is this not smart, it is not even legal in most states. I never did this and no Contractors I knew would do this. You give some unscrupulous Contrs 1/3 up front and they'll just take off. On a $600k project, you're really going to write someone you don't know a check for $200k....?
Give no money up front. Your Contr should give you a payment schedule detailed in the contract. The fairest and safest way to do it is have the Contr submit an invoice at the beginning of each phase of work, i.e. framing or electrical, and ask you for small amount to help them pay for materials so they aren't financing your project. Then when that phase is complete - and inspected - you will get an invoice for the balance due on that phase.
So as each phase is complete, satisfactory and inspected, it is paid in full. Everybody is happy and the money is where it should be....nobody is shorted or holding back money.
If you need info on how to do this or the documents used, just PM me.
You got it Matt! I got it to the point where the only thing a Homeowner could buy were the appliances (maybe) and their furnishings. Everything else went through me. I sent them to places like Ferguson's or Pirch so they could talk to a rep and pick out exactly what they wanted, then they paid me, and I paid the supplier and arranged for delivery. I knew the suppliers and their reps so delivery was nice and smooth.
If homeowners knew how much easier and (in the long run) cheaper it was to just find a good contractor and let them handle everything, they would all do it in a second.
I have 2 tiers of contractors.
Tier 1: Full service small deposit no more than 15-20%. They buy and upcharge for all materials. They charge for any changes to the plan. They have a yelp. Shirts with logos on them that all match.
Tier 2: Contractor who uses his vendors and relationships and I pay direct. This saves a lot of money though is stressful because you have to front out the money for the project. 70% of most projects is materials so it really is risky. These guys are slower, sourcing material takes time and they are less organized in general.
EST Price per square foot diff Tier 1 $400 a square foot vs. Tier 2 $175 a square foot for new construction.
One thing i've found is either way they bring in subs and it can be an imperfect situation. With recent inflation I am currently buying and holding materials for projects in the next 6 months. For example i'm doing a roof on one property + a ground up new construction right now. I bought all sheet metal 1 month ago it was $74 a sheet and now its $98 a sheet. I have 150 sheets. So buying before and holding the material worked in my favour. I did the same thing for structural plywood drywall which have also recently gone up.
I'm not a contractor, just an investor adapting to inflation. Good luck with your project.