How or when to pay for contactors (disbursements)

Member since 2021 · 117 posts · 36 votes

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).

There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.

All 3 bidding contractors said the amount is too low and if they get the contract, they will put in supplemental claim later on. So i have picked a contractor but he wants the full amount of what the insurance gave me before the works start. Then he will put in the supplemental later. To me it doesn't sound right.

What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

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Jason Taken

Lender · Chicago, IL · Member since 2021 · 424 posts · 145 votes

11mo

Quote from @Dan Marl:

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).

There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.

What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

There will be some people that tell you not to pay a contractor until the work is done. It's typical, in insurance claims, for the contractor to get paid when work is complete and you sign over the insurance check.

Remember - contractors have protection against not being paid for work completed by filing mechanic's liens. You have zero protection for a contractor running off with cash before work is completed.

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Jason Taken
Lender · Chicago, IL · Member since 2021 · 424 posts · 145 votes
11mo
Quote from @Dan Marl:

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).
There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.
All 3 bidding contractors said the amount is too low and if they get the contract, they will put in supplemental claim later on. So i have picked a contractor but he wants the full amount of what the insurance gave me before the works start. Then he will put in the supplemental later. To me it doesn't sound right.
What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

There will be some people that tell you not to pay a contractor until the work is done. It's typical, in insurance claims, for the contractor to get paid when work is complete and you sign over the insurance check.
Remember - contractors have protection against not being paid for work completed by filing mechanic's liens. You have zero protection for a contractor running off with cash before work is completed.
4 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Thank you, Jason. People have also said the contractor and I can meet in the middle so we are both happy and protected.

How about I give them 10% upfront to pay for their supplies? Then break up the payment every 25% of completion done?
1 Reply
- Jason Taken
  Lender · Chicago, IL · Member since 2021 · 424 posts · 145 votes
  11mo
  Quote from @Dan Marl:
  
  Thank you, Jason. People have also said the contractor and I can meet in the middle so we are both happy and protected.
  
  How about I give them 10% upfront to pay for their supplies? Then break up the payment every 25% of completion done?
  
  Do some diligence on the contractor before giving anything upfront. If your gut is telling you something is off - you can trust your gut. In my own experience, where materials were needed, I bought them myself. But I'm overly cautious.
  2 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Good advice. Unfortunately, I live out of state so it's harder for me to buy supplies. The roof is getting replaced, so when the supply comes, should I pay the supplier from insurance money?
I say this because my parents got their roof replaced and the roofer didn't pay the supplier. So when the job was over, the supplier put a mechanic's lien on parent's house. The supplier took the easier route to get their money. Luckily, my parents won in court over this.
1 Reply
Elealeh Fulmaran
Specialist · Member since 2025 · 483 posts · 270 votes
11mo
Trust your gut here: don’t hand over the full insurance check upfront. Use a written contract with a detailed scope, timeline, and change-order process, then pay in draws tied to verified milestones and inspections. A common cadence is small deposit to mobilize, progress payments after visible completed phases, and hold 10% until final punch list is done and passed. If the contractor plans a supplemental claim, put that in writing with who handles it, documentation required, and that extras aren’t authorized without your signed change order. Also confirm they’re licensed, insured, and will lien‑waive with each draw.
2 Reply
Josh C.Pro Member
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
11mo
You may not get a good contractor by not offering upfront payment. 25-30% upfront is very common. We wouldn’t do any work without upfront money. But don’t pay it all up front. Also, don’t agree to work and then hope they get a supplemental later. Those aren’t guaranteed so make sure you are protected.
Good luck. If it’s a company with a public image and online, you have little risk of them just taking your money and running. Two guys and a truck with no website you should be more careful about that.
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Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Thank you so much Elealeh.
How would I perform the lien-waive with each draw? Do I make the contractor or the subcontractor/supplier sign the lien-wave?
0 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Hi Josh. How do I protect myself from the supplemental claim later?
0 Reply
Zeke Liston
Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes
11mo
Quote from @Dan Marl:

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).
There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.
All 3 bidding contractors said the amount is too low and if they get the contract, they will put in supplemental claim later on. So i have picked a contractor but he wants the full amount of what the insurance gave me before the works start. Then he will put in the supplemental later. To me it doesn't sound right.
What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

I’d recommend researching the contractor first. Check their website and read reviews from past clients. It’s worth taking the extra time to make sure they’re reliable. I usually pay a third upfront, a third halfway through, and the rest once the work’s done, but only after doing my due diligence.
1 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Thanks Zeke. I have research and picked my contractor. Hopefully I picked the right one...
0 Reply
Kyle Vogeler
Rental Property Investor · Emmaus, PA · Member since 2021 · 152 posts · 85 votes
11mo
Asking for all of the money up front is a huge red flag and I likely wouldn't work with that contractor. I would say that the average range I've seen is 10%-50%, with 50% being more common for smaller jobs.
0 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Hello Kyle. He has agreed to accept 30% upfront, then the rest when he is done with inspection passed and the lien waiver is signed.
0 Reply
Jennifer Thoennes
Member since 2025 · 8 posts · 4 votes
11mo
Hi There,
I’ve been in this industry for a long time and have worked on everything from insurance rebuilds after floods and fire losses to multimillion-dollar lake homes. Over the years, I’ve learned that the best results come when there’s true partnership between the contractor and client.

I see the relationship as exactly that — a partnership. I never want to be paid too far ahead, and I don’t want their labor to get too far ahead either. The goal is balance, fairness, and accountability on both sides.

I’d suggest setting up a progress billing schedule that clearly outlines deliverables for each payment milestone — for example:
- Systems Rough-In
- Drywall & Light Test
- Final Trim & Punch Out
That structure helps keep cash flow smooth and expectations aligned for everyone.

Let me know if I can be of anymore assistance.
Jennifer Thoennes
1 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
All good points, Jennifer!
0 Reply
Ronald RohdePro Member
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
11mo
Please also have a written agreement outlining the scope of work and progress payments, plus release of liens!
0 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Hi Ronald. Yes I have put that in the agreement and they have agreed. Thanks
1 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
11mo
Speaking as a long-time GC.......Do NOT pay any Contr 100% before they are done.
I would always pay according to how much work is done,,,i.e., when framing/rough electrical & plumbing are complete, then pay the guy for that work (only). And of course, give the Contr some up-front money to buy materials. Some newer Contrs will not have the financial where-with-all to carry a customer - although a veteran GC should have vendor accounts and cash reserves to get a job started and keep it running without bugging the customer for draws all the time....
And get lien releases from the Contractor for each phase you are paying for, i.e., plumbing is done, get a lien release signed by the plumber.
2 Reply
Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Bruce, so basically get the lien waiver from each subcontractors? Then get a lien waiver from the general contractor when all work has been completed?
0 Reply
Diego AlvaradoBusiness Member
Real Estate Agent · Flower Mound, TX · Member since 2016 · 297 posts · 139 votes
11mo
Hi @Dan Marl
You should have a lien waiver for the contractor. The subcontractor is a similar situation than your parents and why they won the case. The agreement is with you and the contractor you don't know how his company arrange all the repairs behind the scenes. It could be even multi layers.
One important things is that when you keep going around on how to get away from something is when the other party begin looking how to make sure he is safer too.
if you have such a concern it is recommended to reach out and real estate attorney that can help you be safer.
Another thing is that if you are out of state are you trusting your property manager to supervise the work? It is always important to have a person on the ground supervising the work that is not directly the contractor.
This is the main thing that will keep me awake. I have recently heard and story where after months the countries providing updates but work didn't have much progress. The investor decided to check with an agent and the agent went to the house and the house didn't have any progress for month. Those are the situations that you should avoid.
Regarding the upfront money, an small portion is fine, 30% seems to be too much. You are giving him his profit upfront on that, no incentive later on to complete the job.
[email protected]214-833-8911
Alvarado Realty Group520 Reviews
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Alan F.
Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
11mo
Go to the TDLR website and read/understand Texas contractor license laws and regulations. There are service requirement forms and a wealth of information. As investors we should throughly understand all laws and regulations. Whatever municipality your operating in very well may have specific requirements and regulations, do your due diligence. If you find yourself more informed than a prospective contractor that's a red flag.
2 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
11mo
No, just no. 100% up front is unreasonable and dangerous.
If it is a reputable firm with a website and great Google reviews, you can do the customary 50% down.
Very different with a guy and a truck: if they are new to me, I write the first small check when they show up on the job and start working. They are not well funded, so pay as you go is important to them. I have always kept it to Friday is payday - as long as they have been working all week.
1 Reply
- Bruce WoodruffPro Member
  Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
  11mo
  Quote from @Marcus Auerbach:
  
  No, just no. 100% up front is unreasonable and dangerous.
  If it is a reputable firm with a website and great Google reviews, you can do the customary 50% down.
  Very different with a guy and a truck: if they are new to me, I write the first small check when they show up on the job and start working. They are not well funded, so pay as you go is important to them. I have always kept it to Friday is payday - as long as they have been working all week.
  
  Agree, except that 50% is not customary (anywhere I've heard about), that is still way too much. In fact, in most states, Contractors are limited to receiving either 10% or $1000 as their down-payment, whichever is less.....
  2 Reply
- Marcus Auerbach
  Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
  11mo
  Quote from @Bruce Woodruff:
  
  Quote from @Marcus Auerbach:
  
  No, just no. 100% up front is unreasonable and dangerous.
  If it is a reputable firm with a website and great Google reviews, you can do the customary 50% down.
  Very different with a guy and a truck: if they are new to me, I write the first small check when they show up on the job and start working. They are not well funded, so pay as you go is important to them. I have always kept it to Friday is payday - as long as they have been working all week.
  
  Agree, except that 50% is not customary (anywhere I've heard about), that is still way too much. In fact, in most states, Contractors are limited to receiving either 10% or $1000 as their down-payment, whichever is less.....
  
  You are right, 50% is something I only see for quick 2-day jobs with a crew like a fence install or roof replacement. For a rehab job that takes 12 weeks it would be way too much.
  2 Reply
Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
11mo
Quote from @Dan Marl:

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).
There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.
All 3 bidding contractors said the amount is too low and if they get the contract, they will put in supplemental claim later on. So i have picked a contractor but he wants the full amount of what the insurance gave me before the works start. Then he will put in the supplemental later. To me it doesn't sound right.
What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

Hey Dan, yeah you’re right to be cautious—it’s not typical to hand over the full insurance check before any work starts. Most investors I know break payments into stages tied to progress, like an initial deposit to start (usually 25–33%), then additional draws as certain milestones are completed, and the final payment only after the work is fully done and inspected. The supplemental claim part is pretty common since contractors often find hidden damage once they start repairs, but you’ll want everything clearly documented and agreed upon in writing before they file anything additional. I’ve seen this come up a few times with properties here in Columbus, Ohio, where investors use the same staged payment setup to keep things fair and protect both sides. The market here’s been booming with a lot of rehab work happening due to the growth, but no matter the market, the key is making sure you don’t overpay upfront. Happy to connect and answer any questions you have!
[email protected]614-300-7535
Jimmy Lieu, Red 1 Realty4.9120 Reviews
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Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Thank you everyone for your advice!
0 Reply
Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
11mo
Quote from @Dan Marl:

Hello everyone. I have been a long term landlord but have never dealt with insurance companies or contactors (lucky me).
There was a natural disaster to my rental home in Texas and the insurance company came out with the adjuster and gave me the amount they think that will cover the damage.
All 3 bidding contractors said the amount is too low and if they get the contract, they will put in supplemental claim later on. So i have picked a contractor but he wants the full amount of what the insurance gave me before the works start. Then he will put in the supplemental later. To me it doesn't sound right.
What do you guys usually do? Give him half of the check first? Or break into 4? When should be the last check? Thank you

I would not give them all of the money upfront. I am working through an insurance claim right now and I did not pay them the entire amount
[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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Dan Marl
OP
Member since 2021 · 117 posts · 36 votes
11mo
Hello Bruce, I didn't know there were laws limiting the amount a contractor can get upfront.
1 Reply
- Alan F.
  Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
  11mo
  Quote from @Dan Marl:
  
  Hello Bruce, I didn't know there were laws limiting the amount a contractor can get upfront.
  Type Texas Department of Llicense Regulations down payment to contractors into your search engine. Pay particular attention to contracts over $5k. I'd highly suggest reading their website in its entirety. Its really best to understand how things work.
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