Contractor Question - San Antonio, TX

Starting Out
6yFollow

Contractor Question - San Antonio, TX

Adam Talbot
Real Estate Consultant · San Antonio, TX · Member since 2018 · 3 posts · 1 vote

Hey all,

Quick question about general contractors. I have heard from several seminars, meet ups, mentors, etc. that one of the biggest mistakes new investors make is that they pay contractors money up front and end up getting ripped off (the contractor never does anything and just takes their money and runs). Many experienced investors have told me to never do this and to only pay upon completion of all or a certain percentage of the project as agreed upon with the contractor at the beginning of the project.  

I went into my first large rehab project with this approach, met and walked the house with 10+ different general contractors, and they all told me that that payment arrangement would never work for them and that it would be impossible to find a GC here in San Antonio that would be willing to do that. After weeks of contacting and interviewing GCs, we ultimately had to hire subcontractors and act as the GC ourselves in order to pay upon completion.

Is this one of those things where theory is just not the same as reality? Is it just specific to this market (San Antonio)? Or did I just not persevere long enough to find the right GC?

I am just wondering how I should approach future projects and if it is even reasonable to expect GCs to take on the risk of completing a percentage of the work without receiving any money up front and trusting that I, the investor, will pay them upon completion. 

Any thoughts/advice would be greatly appreciated!!

Thanks in advance.

1Reply
17 views

4 Replies

Jump to latestLatest
  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    6y

    @Adam Talbot -  San Antonio will be similar to DFW I imagine, and I think you landed on the reality in the long run:  when working with subs directly, you can and should definitely pay after the job.  Perhaps you pay for materials, but pay them for their labor afterwards, once you are satisfied with the work.

    But if you are hiring a GC for a $50k rehab, then you can expect to pay in several tranches, say 6 x $8k with $2k upon final punch list completion, or something along those lines.  So not the entire amount up front, your main risk will be that first installment. Then you should pay each following installment after agreed milestones - and make sure the work is getting done.  The key here is to seriously vet that GC before you give them the 1st installment.

    0Reply
  • Seth Elliott
    Helotes, TX · Member since 2015 · 18 posts · 3 votes
    6y

    Well first, it would probably help to look at things from their perspective also. Just as you are worried about the risk of a GC walking away with your money, they have to worry about the same. I’m sure they have been shaft in the past as well. So a little good faith money up front by the investor could show that you are serious and trustworthy to pay later.  With that being said, for a large job you can expect them to want a certain percentage up front.  There are certain subs(pool, foundation etc.) that require money up front from them also.  It can often be substantial. For a smaller job, you probably shouldn't pay until after all work is completed and satisfactory.  Just make sure you get a detailed pay schedule, and that the GC meets your milestones fully before you release any checks.  You should probably push for a net 30 pay schedule with your GC's. That means that you send a check 30 days after you receive the invoice and that they don't send the invoice until the work subject of that particular invoice is completed when they send it.  This will give you time to check the work to make sure everything is completed and for them get anything fixed that is not up to par.  Out of curiosity, what terms were the GC's asking for?

    0Reply
  • Adam Talbot
    OP
    Real Estate Consultant · San Antonio, TX · Member since 2018 · 3 posts · 1 vote
    6y

    Thanks @Seth Elliott and @Andy Webb for sharing your experience. @Seth Elliott

    @Seth Elliott- To answer your question, the majority of the GCs wanted payment for ~30% of the total project up front. Some wanted a little more and some a little less, but that was the average. From there, they all had slightly different payment schedules that they preferred, but the consistent theme was that they wanted to be paid each tranche in advance for the work that they would complete rather than being paid upon completion. 

    0Reply
  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    6y

    I would say 30% is high, though it would depend on the scope of work and total dollar amount.  But as with anything else, you can probably negotiate the payment schedule to some degree.  Just get everything in writing.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free