How many have been burned when paying a Contractor 50% upfront?
Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes
How many have been burned when paying a Contractor 50% upfront?
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Ryan MurdockPro Member
Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votesUpfront $$ is the kiss of death. I will maybe pay materials upfront (or better yet, buy them myself) but will never pay labor of any amount in advance. I've been burned too many times.
35 Replies
- 8yRyan MurdockPro MemberRental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
Upfront $$ is the kiss of death. I will maybe pay materials upfront (or better yet, buy them myself) but will never pay labor of any amount in advance. I've been burned too many times.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
Materials only and even that is only done with contractors I'm familiar with. That's a little easier for me because I'm in a fairly small community but you should still be able to find a way to verify they are reputable like confirming their license with the city/county, checking references, etc.
The DIY Landlord Book4.7248 Reviews - Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes8y
I may pay for materials upfront but not advance money. Do you go to work and expect to get future money when you show up? Probably not.
I stay ahead of the money, meaning if they complete 25% of the work, they would be eligible for a 20 to 25% draw. There is a high incidence of contractors starting a bunch of jobs, then effectively disappearing. One reason is that they may like work booked in advance for at least several weeks, but that is at your expense as they may be absent from your jobsite for a week. Or they are thieves and take your money. Or they have a personal problem...I heard every excuse in the book. By doing this system, if they pull a Houdini on you halfway through the job, they are replaced quickly and you are not out of money. A lot of folks fork over their money, then they have no money to pay a new contractor when the original one doesn't show. Then the jobsite is shut down. Possibly permanently.
Sometimes contractors gripe about this system and I just move on to the next one. They are not taking me for a ride.
Yes, I do know that good contractors want to protect themselves by getting advance money. However, I can provide references of my contractors and subs that I pay if the job is completed and not screwed up. Or I can provide a credit report to show that I pay.
Another point. When a contractor does work for local, state, and federal governments, they often have to front material and labor costs. Then they wait for their money. And wait. And wait.. and if the entity finds issue, they may get a reduced payment. Or they may not get paid for YEARS. Point is they don't show up and demand 50% from the governmental entity-not going to happen.
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
@Jim Goebel Never pay anything up front! Except maybe materials as everyone else said.
- Contractor · Greenfield, MA · Member since 2017 · 107 posts · 99 votes8yIt goes both ways. plenty of "Investors " are shady too. I don't know you, why should I trust you? That being said, on small jobs I don't take a deposit unless I get a vibe but I'm not gonna go broke if I lose a grand. I am gonna tell everyone I know about a deadbeat and everyone knows everyone in the trades. a contractor who can't front a few hundred in materials or have accounts at the lumber yard probably isn't someone I want to deal with anyway. On big jobs you need a little skin in the game so to speak so a deposit isn't crazy and it puts you on the schedule. Contrary to popular belief on BP no one is waiting around for your call and if they are, maybe there's a reason. These days guys are busy and don't really need your job, this will change but for now everyone is flush. I would say that 50% is ridiculous no matter what. there's also work that happens before a hammer is even picked up that homeowners never see. At the end of the day we all gotta trust to some extent but anyone who is asking 50% up front is probably out to take your money.
- Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes8y
I have only had a couple Contractors ask for deposits. My floor guy did (no materials, so it was fronting money for the work to get on the schedule, however the money was given when he moved his equipment on site), my "contractor" who I hired for doors, windows and siding I paid the material costs plus a bit extra up front. He was/is a friend so that one I felt more comfortable with. My go to plumber, electrician, drywall, demo/labor, tile and a few others never asked for anything up front. It helps being on site more or less daily and always being able to and willing to pay them as soon as they have the work done.
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes8y
I always ask for a materials list and buy them myself. They get paid in stages or when the work is done. I never leave a job to be finished with only a few hundred dollars on the table. I have leverage if they're waiting on a 2,000 - 2,500 payday, good luck ever getting them out for $400.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Keep this in mind: any contractor that needs any money up front to get started is either so small that they can't afford to front any materials, is looking to cover last week's job with this week's money, wants to rob you outright, or doesn't want the job and is hoping you'll pass. While none want to, a contractor that hasn't been paid can always put a lien on your property. This is their protection from not being paid. You, on the other hand, will have to rely on the courts to recover your funds.
Of all the contractors I work with, the only one I have provided any upfront money is my HVAC guy, because I know he works on a shoestring, he's done a bunch of systems for me at my homes, charges me a good rate and is honest. It's still possible that one day he takes my deposit and disappears into the sunset, and if that's the case I hope he has a good life on the $2k or whatever it worked out to on the HVAC system.
Skyline Properties - Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes8y
If a contractor can't manage his business in order to get paid after he has completed the job, then he isn't worth his salt.
They will give you the song and dance about needing you to have skin in the game so they don't lose out....this is just silly as they have the BEST position to be sitting in with the ability to file a mechanics lien on the property. You have virtually NO recourse to get your money back from a contractor that takes the 50% and runs, or delays your job so long, that it costs you even more.
If you must pay anything at all, offer to pay for materials DIRECTLY to the provider, and have them delivered to YOU so that you hold them and/or can inventory what is there in case they order extras for their other jobs (yes, contractors do this).
We did just that with a roofer recently. I paid for all of the roofing materials and had them delivered to the property. The roofer completed the roof, and I paid him immediately after for his labor. I kept the extra materials.
- Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes8y
Me me me me MEEEEEE
Been burned. I had a silly dream where we could trust people because everyone is honest.
Pffffft!
- 8yGreg ParkerBusiness MemberRealtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 663 posts · 536 votes
The only reputable subs that I have ever given money up front is custom cabinet builders. It makes sense, if they are building you a $20,000 kitchen, you give them $10,000 up front so they aren't left holding the bag if you drop dead. But, I always get a contract and receipt.
MGM Property Pros LLC - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Greg Parker:
The only reputable subs that I have ever given money up front is custom cabinet builders. It makes sense, if they are building you a $20,000 kitchen, you give them $10,000 up front so they aren't left holding the bag if you drop dead. But, I always get a contract and receipt.
I could see that - any kind of custom off-site work, there's a certain amount of deposit that makes sense.
Skyline Properties - Contractor · Greenfield, MA · Member since 2017 · 107 posts · 99 votes8y
so.... a Contractor CONTRACTS!
Contracts are negotiable. It is common practice here in Ma. to get a deposit, and to get paid on a schedule of work done. It is no song and dance @Cara Lonsdale.
So many people want something for nothing here, Im not talking to the OP, or anyone else here per se, but how many times do people tell someone here to "just take a contractor" to a bunch of properties they don't, and probably wont own to "give an estimate" for repair costs. As if anyone would do that for a stranger based on their word that they will hire you if they get the property. Guess what? I already know you are either too broke to buy, or too cheap to pay what an actual tradesperson gets paid. I'm all for doing a favor for someone and I do it when I know they are actually in the game because everything is about connections. I'll do it for someone just because I like them too. I won't ever do it for someone who feels somehow superior because they call themselves an Investor. The folks here who do real business don't have any issue with a deposit, it may be different in other parts of the world but not here. The way I see it, if a person doesn't have a few hundred bucks or even $10,000 to show someone they mean it... they don't mean it. Meanwhile I've got a solid month booked for you? Get real. I'm not gonna be turning down work only to have you say one week before a job starts "oh I can't do it right now" or "my great uncle earl is doing it" A lien isn't squat if I never even got started because you don't mean it and I missed out on actual customers.
To the OP: I'm sorry that happened. There are people who will steal your money. Do your research and talk to people about whoever you hire. Small jobs don't usually need deposits and never 50%.
I'm not trying to rant but I really do get tired of hearing all of the trash talk around here about contractors. Seriously, Do your homework, don't go for the cheapest guy who promises rainbows and unicorns for $20 and you will be fine.
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes8y
Originally posted by @Alfred Edmonds:
so.... a Contractor CONTRACTS!
Contracts are negotiable. It is common practice here in Ma. to get a deposit, and to get paid on a schedule of work done. It is no song and dance @Cara Lonsdale.
So many people want something for nothing here, Im not talking to the OP, or anyone else here per se, but how many times do people tell someone here to "just take a contractor" to a bunch of properties they don't, and probably wont own to "give an estimate" for repair costs. As if anyone would do that for a stranger based on their word that they will hire you if they get the property. Guess what? I already know you are either too broke to buy, or too cheap to pay what an actual tradesperson gets paid. I'm all for doing a favor for someone and I do it when I know they are actually in the game because everything is about connections. I'll do it for someone just because I like them too. I won't ever do it for someone who feels somehow superior because they call themselves an Investor. The folks here who do real business don't have any issue with a deposit, it may be different in other parts of the world but not here. The way I see it, if a person doesn't have a few hundred bucks or even $10,000 to show someone they mean it... they don't mean it. Meanwhile I've got a solid month booked for you? Get real. I'm not gonna be turning down work only to have you say one week before a job starts "oh I can't do it right now" or "my great uncle earl is doing it" A lien isn't squat if I never even got started because you don't mean it and I missed out on actual customers.
To the OP: I'm sorry that happened. There are people who will steal your money. Do your research and talk to people about whoever you hire. Small jobs don't usually need deposits and never 50%.
I'm not trying to rant but I really do get tired of hearing all of the trash talk around here about contractors. Seriously, Do your homework, don't go for the cheapest guy who promises rainbows and unicorns for $20 and you will be fine.
I absolutely agree with you regarding investors who "use" contractors to be their home inspectors or budget estimators. I think that if you are having a contractor go to properties to evaluate and give estimates for work needing completion, they should get paid for their time. Whether it is a flat fee, or applicable to the final work that you have the contractor do, there should absolutely be a compensation there for the contractor's time and efforts. This still falls in line with what I said about paying a contractor AFTER the work is completed because you would be paying him AFTER he walked the properties to give you an evaluation.
However, I maintain that paying labor upfront is just foolish....for anything! How do you think an employer would react if their employees came to them and said, "This pay period, I am going to need half upfront (for hours I haven't worked yet), and then I'll take the remainder when I've worked all my hours." My guess is the employee(s) wouldn't have a job long. IN FACT, usually paychecks are leveraged so that even when paid, the employee has already started in on the next period. So, they are always owed.
So, I understand your position, and can appreciate your thoughts. However, I don't think I am bashing contractors to hold an expectation that they be paid their labor when the job is complete.
And the "song and dance" I was referring to was when a contractor tells you they need YOU to have skin in the game. They sit with all the leverage because they can apply a mechanic's lien to the property. So, there really is NO risk to the contractor to accept nothing upfront.
And as a personal side note....I feel your pain. Realtors take alot of bashing on BP too. But I consider them opportunities to open dialogue about what the issue really is. Are all Realtors (or contractors) at the top of their game, NO! However, there ARE really good ones out there, and as one of those good ones (smile), I would like to help BPers with questions and situations that a Realtor provides a good resource for, and hopefully turn around the bad connotation that people on BP have about Realtors (and contractors too).
- Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes8y
So some actual numbers here on my current project:
$1150 basically 'stolen' by the plumber with no follow up communication (he was the 50% culprit)
My framer and mason, got paid ahead $600 and then disappeared although I still feel fine about the value trade-off on that one.
I'd guess a total of about $2,000 to date in tools walking off the job-site. Most recent was someone cut the large gauge wire coils draped in basement. Luckily the completed rough electrical work, nothing else appeared touched. This was a full house remodel, completely down to the studs.
Project budget going in was $52,000 - I'm on pace to be closer to $65,000 and that's with me doing a lot of the work.
Of that, it looks like close to $4,000-5,000 will be attributable to disreputable contractors.
Oddly enough many of these folks have the gall to reach out later and ask for more work. (The framer and mason did)
- Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes8y
One other note:
I tend to be extremely aggressive in negotiations (I'm a capitalist). So, my intuition tells me that what happens as a result is that people feel slighted or want to 'pay themselves' to make up for the fact that they bit off more than they bargained for - so they walk off with tools.
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes8y
Originally posted by @Jim Goebel:
One other note:
I tend to be extremely aggressive in negotiations (I'm a capitalist). So, my intuition tells me that what happens as a result is that people feel slighted or want to 'pay themselves' to make up for the fact that they bit off more than they bargained for - so they walk off with tools.
I can relate! In the past, I have been VERY frugal when it comes to budgeting and bidding out work that needs to be done. But what I found is that by doing that, I actually end up paying more in the mistakes that need to be corrected, the surplus in materials that the budget worker went through trying to do what an efficient worker would've done, and tools/materials that walk off. PLUS, if there is ever a sub-standard result, the worker always points to the discount payment as if that justifies it. In the end, in many cases, you DO get what you pay for. I still want a deal, but now I start negotiations by telling the worker that I want a price that is fair for both of us.
- Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes8y
I understand what you're saying but disagree with the use of 'you get what you pay for'
I can't stand that saying!
I have gotten great value out of low priced labor on many occasions and I have gotten little/no value by many a high priced (and google advertised/reviewed) contractor before.
Can we just officially 'debunk' that saying?
I think we're veering off topic a little but I guess perhaps this is related.
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes8y
Originally posted by @Jim Goebel:
I understand what you're saying but disagree with the use of 'you get what you pay for'
I can't stand that saying!
I have gotten great value out of low priced labor on many occasions and I have gotten little/no value by many a high priced (and google advertised/reviewed) contractor before.
Can we just officially 'debunk' that saying?
I think we're veering off topic a little but I guess perhaps this is related.
I get what you're saying. I guess I was referring more to the lower end of bids when using that saying. Maybe a better phrase would be if it's too good to be true.... I once had a painter quote $400 to paint the inside of a 1,056 sq ft home with vaulted ceilings. That was HIS number, not mine, so I jumped all over it. I learned very quickly, that anyone can put paint on the walls, but painting a straight line (wall to baseboards, wall to ceiling, etc) was NOT his strong suit. My $400 paint labor turned into a $750 paint job after I had to pay someone to sure up the lines. I would've been able to find plenty of painters willing to paint the unit for $600-$650 and that would've been a great price too (and still under what big time contractors charge), but the $400 was just too tempting. Lesson learned.
I agree with you absolutely, you can still find value and quality.
BTW, the first painter wanted me to pay 50% up front (plus, I was already buying all the paint and supplies), so I had no real leverage over him when he did a poor job. (see, back on topic!) :)
- Columbus, GA · Member since 2018 · 12 posts · 3 votes8yI can’t say for every state, but a little insight to the legal system in Georgia ( and probably throughout the US). If a contractor does work for you and request payment at anytime, he has the right to remove material used from the job and pay for NO damages that may occur during that process. Until payment is received, the material is legally his property and he can remove it. It’s wise to pay money upfront to cya. IMHO.
- Member since 2021 · 72 posts · 49 votes3y
My experience was relaying on my property management- they oversaw the money and the draws. I hated it and felt the PM and contractors were in it together to rip me off. The contractor was never in contact with me. Everything was done on word documents from the PM and when I asked to negotiate, it was declined. The budget was double what I planned. The job was basic and that’s when I realized - this PM is not a good fit, so I got a new one. Next time WILL be different. I did everything wrong because I was new, nervous, wanted to get it done and rented but it never feels good being ripped off by your PM and contractors.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Jim Goebel
I never pay upfront. Only time is if they buy materials and can provide receipt. Otherwise you will get screwed more often than not
7e investments53 Reviews - 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Materials only!
Of course, the scarcity of workers the last 2 years has made this difficult sometimes to stick to. Contractors are all ego currently. Next year, many will be begging for work.
Logical Property Management4.9451 Reviews - Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes3y
99% of the time it’s a bad idea
- Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes3y
This getting "smoked" by contractors seems like enough of a problem across the USA, and enough of a worry to perhaps support a business to fix it.
We have Escrow to handle money and contracts between ourselves, and the lien release laws are different everywhere.
Maybe someone could become rich with an app that handles the contractor draw process, roping the contractor into buying only supplies for Job A with Job A money, and getting lien releases ready for signature to be paid the draws.
If that could be done for $10 to $15 a draw, it seems like someone could make a lot of money.
Just a phone app. Easy to set up.
Because sometime the contractor takes your initial down and pays workers on another job with it, because he runs his business with no cash in the till, so to speak vs buying the supplies for your job as he stated, or pulls other cash merry go rounds, because he does not keep enough working capital on hand to properly cover his operating expenses.
And sometimes some people get burned.
I don't know of any nationwide app that does such a thing.
Contractor burns the app company--he's off the app forever--on a public list, and the app company refunds your losses.
Just my 2 Cents
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