PM found GC to do work, wants cash up front......?

26 Replies

Hi everyone, 

Here I am posting another question regarding my first investment. 

I closed on a house that needs a bit of work done. The PM that I hired has many vendors considering they manage over 750 properties. They have assigned a GC and I received an estimate for $5870 they want the full amount up front.

Questions: 

1. Is it normal to pay the full amount up front before starting the project if the PM found the GC? 

2. Regarding the estimate of $5870 I know this is just an estimate, but how likely is this number going to increase/decrease? This is a first for me dealing with contractors OOS. 

I can provide the quote in private messages if necessary. 

Thank you! 

@Jason Martinez grats on your property. If you trust the PM I wouldn't be to worried about the GC. On the estimate I would get a line by line estimate so you can see exactly where your money is going. It may seem obnoxious but its for your safety and knowledge. You want to know where your money is going down to the dollar. I personally wouldn't pay up front. I would set up draws depending on how long the work would take. Its just my opinion but at the end of the day you need to build relationships with the PM and GC so you may have to give a little. Maybe present 50% and 60% on the end of the contract, yes I said 60% if he can get the work done prior to your dead line. Hope this helps you a little bit.

Everything is negotiable. You can offer to pay part of the money upfront and remainder upon completion. Otherwise ask for NET30 or NET45 payment terms (pay 30-45 days after invoicing). Assuming this is a reputable PM & contractor, overage should not be more than 0-10% if at all. It is advisable to budget for it. Hope that helps & congratulations.

@Jason Martinez I am a reasonable person and would not pay a contractor everything up front no matter what. Regarding your second question it would be extremely rare for a quote to go down and quite normal for the amount to increase if provided. I'd be inclined to not consider either of them-not PM nor contractor.


@Anthony W.

Thank you for your reply. I do have a line by line estimate which is great. I read about giving bonuses and penalties if the work is done on time versus late. I asked about installments/draws, but the money I send is straight to the PM portal then it gets disbursed to the GC. 

@Amit Saini

Thank you. I did calculate all the expenses and the repairs are on point. I guess I want to know everything I can...haha. 

@Jason Martinez ... Would your employer Pay you before getting your job completed? If you pay a contractor upfront, what is the incentive to return?

We don’t EVER pay them upfront !!

We will pay them for work completed on a pre-determined schedule that everyone agrees to in advance. The final 10% is paid upon successful permits being approved.

Put everything is writing.

@Jason Martinez Who are you paying the money upfront to? The PM or the GC? If it is the PM maybe they just want to have the money to be able to disburse as work gets completed and not have to wait for you to send money, etc..? Just ask for clarification on why they need the whole amount upfront and they should be able to explain.

I would not give the cost of the total project directly to the GC under any circumstances if you do not have any experience working with them. Pay them in milestones as they get work completed.

Never pay a contractor up front and only start work if you have a quote not an estimate.

A quote is a solid price for the scope of work, extra stuff can still be added but only if it is needed and not in the original scope of work.

A estimate is a joke and you can be guaranteed the price will go up.

I would also make sure you have a contract that suites you and not the pm or GC.

@Jason Martinez there’s also likely a hefty markup from what the contractor fees paid vs what you pay and the PM pocketing the difference.

Was the estimate you received from the PM or from the contractor?

You’ll find out very quickly how expensive stuff is when doing it long distance vs either yourself or hiring your own people. It’s usually 33 percent the cost in some situations in my experience

@Robert Schumacher , @Michael Noto

Thank you for your advice. 

I have contacted the PM and they wanted the $$ in the portal and they will disburse 50% up front to the GC for materials and 50% after completion. The PM will be taking pictures/videos during the repairs. Glad I have clarification. 

@Caleb Heimsoth  

The estimate was from the contractor. 

I am sure things are marked up and I am paying for convenience. I wanted to get the work done ASAP considering we are at the tail end of the hot renting season. I would like to get a tenant in before fall/winter. 

Originally posted by @Jason Martinez :

@Robert Schumacher , @Michael Noto

Thank you for your advice. 

I have contacted the PM and they wanted the $$ in the portal and they will disburse 50% up front to the GC for materials and 50% after completion. The PM will be taking pictures/videos during the repairs. Glad I have clarification. 

@Caleb Heimsoth 

The estimate was from the contractor. 

I am sure things are marked up and I am paying for convenience. I wanted to get the work done ASAP considering we are at the tail end of the hot renting season. I would like to get a tenant in before fall/winter. 



What market is this in?

 

@Jason Martinez

How long will the project take? I am a contractor and only ask for 1/3 down (unless there is special order items). Personally, I would not pay the PM all up front. I’d be comfortable giving the PM 1/2 up front and balance when the project is complete.

And @Michael J. In 16 years I’ve never had a customer have a problem with an “estimate”, whether it be an investor or homeowner. Not all of us are thieves. Estimates can go both ways.. and there are certain things that you can’t put an exact price tag on.

No way bro, he is probably a lying scam artist scum bag like many guys I do business with. I trust nobody in this game. Make him sign an agreement contract with you and give him the bare minimum to get started. Maybe materials only. NEVER PAY FULL IN ADVANCE

@Jason Martinez

I am a GC and there are laws in California on how much a GC is allowed to ask for and that is 10% or 1k whichever is less. I dont like asking customers for money upfront and usually collect once the job begins. Now if they need to order cabinets and items that have to be ordered that is a different story.

It sounds like your PM wants the money, so he can pay the contractor in installments.  If that's the case, tell him you want a walk through video after all the work is done and before the final installment is paid.

Another option I’ve tried is to separate materials from labor. If you are asking for a job that is 90% material cost and 10% labor I can see why they may want coverage upfront, as Jesse mentioned above.

If you get the quote itemized and also distinguish between labor and materials this will help you see things from the contractors standpoint - you may need to cover some of the material costs upfront (alternatively you can buy the materials yourself). Remember if the materials cost is very high then you are effectively asking the contractor to front your costs to buy materials so there needs to be some balance here.

Either way no harm in asking for better terms worst that can happen is that they say no and you stay in the same place.

Also your PM could act as the “money handler” for you if you trust them though that would be unofficial. And you can ask them to pay at your instruction.

@Jason Martinez this is common in a lot of markets especially with PMs who coordinate the work. I’ve done it this way too and had no problems but at some point it’s just a leap of faith. They’ll either do it and have no problem or they won’t. It worked out for me but I won’t do it that way anymore.

I’ve got a job right now that’s about the same cost as yours and I did 20 percent down. Most I’d pay up front is probably 33 percent. The contractor actually started before the scheduled day and before I could meet him to pay him. But we have a previous relationship, so we both know what to expect.

This is the downside to long distance investing. You just can’t foresee this until you’re already in it. If you live in CA I recommend buying within a few hours drive instead of halfway across the country

Originally posted by @Matt M. :

@Jason Martinez

How long will the project take? I am a contractor and only ask for 1/3 down (unless there is special order items). Personally, I would not pay the PM all up front. I’d be comfortable giving the PM 1/2 up front and balance when the project is complete.

And @Michael J. In 16 years I’ve never had a customer have a problem with an “estimate”, whether it be an investor or homeowner. Not all of us are thieves. Estimates can go both ways.. and there are certain things that you can’t put an exact price tag on.

2 weeks. Okay thank you! It's always nice getting advice from a contractor. There aren't enough on here it seems. 


 

@Javier D. , @Brendan F. Nagle , @Angelo Mart , @Jesse Reynoso , @Theresa Harris , @Apollo Otika , @Caleb Heimsoth

Thank you all for your continued advice regarding this matter. I think I understand the gist of it and to not ever pay fully up front to either the PM or contractor, rather a percentage. 

The PM has explained they will be walking the property during the repairs to make sure it all gets completed and done right. Videos and pictures will be provided. I feel the PM would not ruin their reputation and provide a contractor that wouldn't do the work correctly or unethically. 

@Jason Martinez I would send half, and final payment when PM sends you pictures of completed job. There is no reason you need to pay it all upfront. Tell PM you will send final payment next business day, so they have it in a few days. Not unreasonable considering you aren’t local it seems. 

@Jason Martinez NEVER pay a “GC” up front. It’s illegal in CA and other states to be payed upfront for projects over $1k. What incentive does he have if payed up front? Offer progress payments such as, when work begins, completion of certain phases or projects, and upon completion.

@Jason Martinez concerning a Pm not ruining their reputation, from what I understand, they GENERALLY, do not have a good wrap. I’ve heard and experienced they can be tough to find, and often operate shady deals with their list of repairs and contractors.

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