How to Pay a Contractor Long Distance

14 Replies

Hi BP, I recently went through a fairly large renovation project on a duplex meant to be a buy and hold property.   The rehab occurred as a long distance property in Michigan where I live in Hawaii.  My property manager agreed to act as a Project Manager and coordinate all the Contractors through the rehab process for a fee.  The problem I had during this process was keeping the Project Manger funded since she was paying the contractors and suppliers.  To avoid added processing fees, we decided to use Paypal as a payment method and send funds back and forth.  The issue I have with this is that I would need to send funds via Paypal early so that the funds could clear and she could pay the contractors in a timely manner.  I also ran into issues with Paypal where they viewed random transactions as security threats and prevented me from sending any money for a 24-48 hour period.  

Does anyone know of a different way I can fund future rehabs?  Or am I just approaching this all wrong?  Thanks!

Wow talk about hard question!!! I have never rehabbed a house from a long distance but I own rentals from a far. If I was in your shoes I would create an account only the PM could access. I would put half the money for the next mile stone in that account. This way everyone knows they will get paid and you won't lose everything. you will only have 5-10 percent to lose if someone did try to take the money in run. That my friend is the risk you are taking by rehabbing from a far. As for long distance rentals my  property manager knows not to contact me unless a repair cost over $2000 or it is an emergency. 

@Brock Carroll - I love Venmo!  My previous property manager was using it to send over rent payments from the tenants and it worked great.  I didn't realize they had a limit, but must be why the PM suggested we go with Paypal instead since we had to send around $25k over a period of several weeks.  Thanks for the input!

@Vinay H.   & @Josue Velney - thanks for the responses!  My PM did suggest this initially, but I guess I was just too nervous to pull the trigger.  Now that we did one deal together, I may have more trust to pursue this route.  I do like the idea of putting in only a portion of the funding up front and can add to it as the project moves along.  Thanks again for the great feedback.  

I think that if you have a relationship with your property manager, you would need to fund distributions in blocks.  The property manager would then deploy from that chunk of money to the appropriate sub contractors, etc.  I am old fashioned with certain aspects of business.  I collect rents digitally, but pay subs or individuals via check as I usually see them on site.  If you didn't mail checks in chunks to your PM, you could always utilize Venmo.  I personally like the paper trail of a cleared check though. 

Originally posted by @Chivas Miho :

Hi BP, I recently went through a fairly large renovation project on a duplex meant to be a buy and hold property.   The rehab occurred as a long distance property in Michigan where I live in Hawaii.  My property manager agreed to act as a Project Manager and coordinate all the Contractors through the rehab process for a fee.  The problem I had during this process was keeping the Project Manger funded since she was paying the contractors and suppliers.  To avoid added processing fees, we decided to use Paypal as a payment method and send funds back and forth.  The issue I have with this is that I would need to send funds via Paypal early so that the funds could clear and she could pay the contractors in a timely manner.  I also ran into issues with Paypal where they viewed random transactions as security threats and prevented me from sending any money for a 24-48 hour period.  

Does anyone know of a different way I can fund future rehabs?  Or am I just approaching this all wrong?  Thanks!

@chivas

and the rest of the board...

I am in a similar situation and will need to pay a GC that I do not know that well (other than a few face to face meetings) who has agreed in principle to work on a rehab for a project I have a few hours away.  

He wants 50% of total project costs up front.  I have told him that is a no-go, but let him know I am happy to doll out funds for supplies an around a 1/10th of total initially just to get things going ... that or I could meet with his electrician and plumbing sub face to face and pay them for their work   

Usually I use guys I know for these jobs.  This project is different ... any feedback appreciated 

Hi @Chris M. - that's a wise decision not to pay their asking 50% up front cost.  What I have done on the last renovation was, my Property Manager (acting as Project Manager to manage the Contractor) had placed materials in a cart on Home Depot or Menards for me to pay the bill direct so I could monitor what was being purchased and they would pick up materials at the store.  That could limit your exposure on materials like you mentioned.  

For the labor, I think the 1/10th idea to get them started is good.  If you are able to physically see the progress of the project, I would recommend paying them based on % complete.  My strategy was to pay them weekly based upon a schedule of scope of work items that they provide to me.  This way, they plan it out and you're just paying based on their own schedule if they complete what they said they would.  I would also hold back a 10% retention figure in case they complete the work but need to finish up punchlist items.  This is meant to incentivize them to return to provide proper workmanship, but you should put this in the contract and be upfront about holding this back before they do any work.

Hope that helps!

@Chivas Miho   Break the project up into phases.  Pay per phase.  Keep phases small enough so that contractor is not funding the project with large sums of his own money.  Sure, the goal is completion, but you don't want the contractor to have large amounts of his  own money into the project at any one given time.  You basically don't want him to have to work other jobs to make ends meet, or even worse - work other jobs to fund what he is doing on yours.  You want to keep him working with no stoppages.

Other thing is find someone in that local market that can verify work.  Both you and contractor should have list of the phases.  Phase one nears completion, have your contact verify work.  Then, pay the contractor.  Phase 2 begins.  Repeat.  AND  of course you're holding something like 10% for the back end final payment. 

Most contractors don't manage money well, so you have to try to set your systems up to help the project be manageable for them.   

It also helps to be able to wire the funds directly to them.  You don't want to have them stopping and waiting on funds. 

I do it much like that, but with a few twists, but the guys I work with are guys I work with repeatedly, so we have more of an expectation and trust level. They've proven themselves. 

Hope that helps.