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Jim Goebel
  • Real Estate Investor
  • Des Moines, IA
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How many have been burned when paying a Contractor 50% upfront?

Jim Goebel
  • Real Estate Investor
  • Des Moines, IA
Posted Feb 14 2018, 11:06

Just wondering ...

I had a recent bad experience with a plumber that somehow convinced me that the 50% upfront and 50% at end was on the up and up.

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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Investor
  • Austin, TX
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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Investor
  • Austin, TX
Replied Nov 24 2022, 07:59

Big red flag, if they can not survive without your down payment there is an issue. Never pay any money up front, unless you are buying your own material 

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Bruce Woodruff
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#4 All Forums Contributor
  • Contractor/Investor/Consultant
  • West Valley Phoenix
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Bruce Woodruff
Pro Member
#4 All Forums Contributor
  • Contractor/Investor/Consultant
  • West Valley Phoenix
Replied Nov 24 2022, 08:09
Quote from @Scott Mac:

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.

Sorry, but it already exists :-). Most lumberyards and supply houses can do an 'escrow type situation', and I've done it with banks as well. Before every draw, they send out an 'inspector' to look at everything and take pictures. Then a week or so later the Contractor gets a check (assuming everything is done).

This works pretty well, with a few exceptions.....1) the 'inspectors' (note quotes) know virtually nothing about construction so any discrepancies will throw a wrench into the process. And 2) the bank can sometimes drag it's feet in getting the checks out. So the Contractor will stop work until he receives payment. it works both ways and the Contractor is at risk here too, so they will not get ahead of payments.

All in all, what it does is slow things down - a lot - so people avoid doing it.

Better to just be a smart, responsible homeowner and pay the Contractor in a timely manner AFTER the work is complete and inspected.

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Matthew Paul#2 Contractors Contributor
  • Severna Park, MD
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Matthew Paul#2 Contractors Contributor
  • Severna Park, MD
Replied Nov 24 2022, 12:37

From all these stories of how contractors rip people off tells me that they are picking the wrong contractors . 

As far as paying for materials and asking for receipts , I think thats nuts . I am a contractor and the customer has no reason to know what materials cost me , you are paying for a finished product , not a materials plus labor . ( People forget profit ) . 

Not paying a deposit at all ?    Good luck with that , work starts way before a hammer is swung , Permits pulled , materials ordered , dumpsters ordered , subs contacted , etc . Here in Maryland its 1/3 at contract signing , 1/3 when we start on site , and 1/3 upon completion .  Now if the customer needs credit we can provide that at an extra charge . There is no reason a contractor should front his money for a customers project . 

Now if you dont research your contractor or if you are playing GC , your subs , you get what you get . With the internet , its all at your finger tips . I do a court search on every customer , are being sued , do they have judgements against them , do they actually own the property , do they sue everyone ? 

I will say that we dont do work for " investors "  , flippers or landlords . There is NO MONEY in it , NONE .  All the other contractors I know are the same . We have more than enough well paying work either doing residential or commercial builds . 

The guys doing the actual work are not contractors , they are employees . The Contractor is the business owner who oversees the project . 

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Jeremy H.
  • Rental Property Investor
  • Lafayette, LA
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Jeremy H.
  • Rental Property Investor
  • Lafayette, LA
Replied Nov 24 2022, 13:06
Quote from @Chris Seveney:

@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


 This 100%. There's absolutely no way I'm paying for labor upfront. If they buy the materials and provide the receipt, cool, I can reimburse for that. I have learned to hold out a good portion until the job is done...learned this the heard way. Holding out ensures the contractor comes back and finishes the job otherwise they don't get paid. That gives me the freedom (and money left) to get someone else in there and get the job finished. 

There's a couple guys I'd pay upfront (but they never have asked) these are guys I've used for work and developed a working friendship/relationship with. 

I also do not pay for estimates anymore. Did this a couple times and got screwed. If you attempt to charge for an estimate...next. Not going to play that game. 

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Mike Reynolds
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  • construction
  • Nacogdoches, TX
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Mike Reynolds
Pro Member
  • construction
  • Nacogdoches, TX
Replied Nov 24 2022, 14:03

Depends on the contract. If it's a bank loan and the owner and contractor have to sign the checks then no, we never asked for a draw. If it's a cash job, then yes, we did. Once the material arrived, you cut a check for an earlier agreed upon amount. No check and the materials go back to the lumber yard. No, you dont get a receipt. That is my receipt for my taxes. 

Cash jobs can go every way wrong on either side of the ball. Neither scenario is good for either side. I would never ask for 50 percent though. That's just crazy in my mind. 

That is what contracts are for. Does anyone use contracts here or do you get them from Staples in a pad? You pay for what you get, and you get what you pay for. 

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Peter Tverdov#4 Managing Your Property Contributor
  • Real Estate Broker
  • New Brunswick, NJ
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Peter Tverdov#4 Managing Your Property Contributor
  • Real Estate Broker
  • New Brunswick, NJ
Replied Nov 25 2022, 17:37

Having created a construction business this thread makes me laugh. This forum is mainly DIY landlords who nickel and dime to death. 

When we do construction jobs we require 25% once the contract is signed and then another 25% the day we start. If you don't like it, don't hire us. We do that to put you on our schedule and because we buy material in addition to providing labor. Our work is booked out several months...for investors. Imagine if we start advertising to non-investors? Forget it, we'll be booked out 12 months.

In the situation when we bid a blue print job on a cost plus basis we are still requiring a deposit up front because we have to pay our subs so they can buy their materials and hold our spots in line to make sure the job is timely.

If you guys are hiring some clowns then that is the problem, not because they're asking for a percentage to start the work.

I really wish people would treat people in the trades better, your portfolio's are nothing without skilled labor. 

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Barry Ruby
  • Developer
  • Boulder, CO
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Barry Ruby
  • Developer
  • Boulder, CO
Replied Nov 25 2022, 21:24

@Jerryll Noorden me too Jerry’s. Some Yahoo sang me a song of woe and I bought it. I was able to get even with him payments wise. Threw his *** off the job (which was my private residence). He threatened to take a hammer to the job and wound up having a sheriff standby to see him off the property.

Never again

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Bruce Woodruff
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#4 All Forums Contributor
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  • West Valley Phoenix
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Bruce Woodruff
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#4 All Forums Contributor
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Replied Nov 26 2022, 07:10
Quote from @Peter Tverdov:

Having created a construction business this thread makes me laugh. This forum is mainly DIY landlords who nickel and dime to death. 

True. I would never work for an investor unless I knew them well. The few times I did, it was all about the price. You're just wasting your time giving an estimate because they want everything for cost. If they were even semi-knowledgable or kinda nice, it would be better, but no. To all you young Contractors out there - never work for flippers or investors.

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Eric Gerakos
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Eric Gerakos
  • Investor
  • Costa Mesa, CA
Replied Nov 26 2022, 07:13

I haven’t because I don’t.

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Luka Milicevic
  • Real Estate Agent
  • Nashville, TN
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Luka Milicevic
  • Real Estate Agent
  • Nashville, TN
Replied Nov 26 2022, 19:01

I have never been burned as I have never paid up front. 

I have at times purchased materials up front but never pre paid for work. 

  • Real Estate Agent Tennessee (#358883)

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