paying contractors - how far out?

Question

I am working on a gut rehab and the contractor estimates structural and framing will take a month. Then plumbing and electrical can start. However all the permits need to be submitted to the city together. I just spoke to the electrician and he said I have to sign the contract which states that I pay 1/2 on contract execution - which is $10k. That feels like alot of money and all I need right now is him to pull the permit and work wont start until a month later. I have been told not to pay contractors to far in advance as they can disappear.

I was thinking telling him I can pay 1/4 on contract execution and then the rest when he starts the job.

How have those with experience handled this?

Eliott Elias · Answer

Never pay a contractor 50% upfront. Keep looking.

Kit Ming Vierra · Answer

Are you fronting the rehab money yourself? Or are you using a loan from a lender? If it's with a lender, there will be a draw schedule and you don't pay until your contract complete part of the project, submit proof of finished project, and your lender will send people to come inspect it before your contractor get paid.

If you are using your own money for this rehab project, I will suggest you do something similar. Your contractor will need to complete work, show you proof, and you have a other contractor to come check the work to verify that itls complete before you pay them.

Never pay contract upfront. Contractors that require partial payment upfront can be awesome contractors too, but they are just not investor friendly contractor. So just like Elliott said, keep looking.