When you're hiring a contractor, how do you handle payment. Will they want payment before? If so, it doesn't make much sense to pay until you're sure the work is complete, right?
It makes sense to me to pay half before and half at completion. Is that the way to do it? Also, who typically pays for materials, you or the contractor?
Loveland, CO · Member since 2008 · 1k+ posts · 123 votes
20y
NEVER, NEVER, NEVER, pay anyone, for anything, up front!
If they tell you; "I need the money to purchase the materials", YOU DON'T WANT TO HIRE THEM. Anyone who's working that thin isn't someone to hang your hopes on. If the materials are a lot you can go purchase them yourself.
If it's a long term job, intermediate payments may be appropriate, he has a payroll he has to meet too!
Just as important as payment is INSURANCE. Don't ask him to show you a copy of insurance coverage, have his AGENT fax you a copy of a CURRENT, IN FORCE binder!
Real Estate Agent · Richmond, VA · Member since 2018 · 12 posts · 5 votes
7y
A wholesaler once described to me that the way he does it can best be summed up as "Ahead on work, behind on pay". He divided the rehab into milestones (painting, plumbing ) and as each milestone was completed he would pay them a portion of what they were owed on the project, further incentivising them to complete the work. And he wouldn't pay them that portion until each phase was done completely, thereby incentivizing them to finish each phase promptly. Then when they finish, they get the last payment. Hope that helps.
A wholesaler once described to me that the way he does it can best be summed up as "Ahead on work, behind on pay". He divided the rehab into milestones (painting, plumbing ) and as each milestone was completed he would pay them a portion of what they were owed on the project, further incentivising them to complete the work. And he wouldn't pay them that portion until each phase was done completely, thereby incentivizing them to finish each phase promptly. Then when they finish, they get the last payment. Hope that helps.
This is the ideal way for all parties involved, at least when it's a new relationship. Both sides are equally covered. Once you get to know and trust each other then the exchanging money part is just another weekly chore to do.
I just send out invoices for each property I do for the Realtor/prop manager I am working with. A few days later, when we cross each others path, he gives me a check. No problems.
Rental Property Investor · Minneapolis, MN · Member since 2015 · 30 posts · 19 votes
7y
Typically they want some kind of deposit up front. I would recommend vetting your contractors well, or get referred to contractors from your network. It's not uncommon for contractors to take off with your initial payment for a bigger and better job. It's unfortunate, but in this market they can usually get away with this since there is more work to be done than there are contractors.
Rental Property Investor · Smyrna, GA · Member since 2018 · 974 posts · 645 votes
7y
This is very area dependent on what the practice is. I've seen 1/2 upfront, 1/2 at the end plus materials; 1/3, 1/3, 1/3; draws per the work completed over time, etc. This is really what you'd like and what the contractor can afford to float. I would have everything in writing and signed, that way if the worst case happens and the contractor leaves with 1/2, you have it in writing and can take it to court and put a lien on the contractor.