Contractor payment, materials & labor questions

14 Replies

Hi, all--I'm in the closing process of my first rehab (a HUD deal), and meanwhile I'm in the process of interviewing contractors.

For the most cost-effectiveness & efficiency, does one usually purchase materials needed & either have the contractor pick them up or delivered to the site?  And does the contractor give info on how much or size of a certain item(s), based on measurements taken beforehand? 

Also, I've noticed that many contractors (at least in my area) don't take credit cards (which I'd rather use as some form of protection in case something goes left)--even the ones seemingly well-established.  Is this a thing across the board? 

You can either purchase the material or have the contractor.  I would be careful if you let the contractor pay because he may put I percentage on top of material costs making your job costs more expensive then what the should be.  Home Depot or lowes will charge a delivery cost but may come out cheaper than what a contractor will charge but someone needs to be present when HD or Lowes delivers for liability.  I have never paid a contractor or been paid using a credit card most do checks.

This is what i do. 

I make a detailed list (scope of work) and have at least 3 contractor bid it out. For labor only. I purchase all the materials if it is a large job I have (hd lowes and menards bid on it tippaly i will save 25% on materials). Depending on the job and how long it will take most of my stuff take 2 weeks since i purchased all the materials I pay them 1/2 when there half way done and the rest on completion. If it is a bigger project I will brake the first payment into two or 3 but always keep a lot for the completion like a carrot in front of a horse. 

For your first rehab, it may make sense to buy your own materials (delivery optional), primarily so you can become familiar with the actual market costs of different types of materials. Your contractor may even be willing to go with you or make an itemized list.

Be upfront with your contractor about the fact you want to cut costs and most of the time they will try to help you or give some tips about saving some $. Most contractors will only accept cash or check for payment.   FYI:  You can save 5% on your material purchases with a Lowes Business Card.

@Vonetta Booker  


For the most cost-effectiveness & efficiency, does one usually purchase materials needed & either have the contractor pick them up or delivered to the site? And does the contractor give info on how much or size of a certain item(s), based on measurements taken beforehand?

Also, I've noticed that many contractors (at least in my area) don't take credit cards (which I'd rather use as some form of protection in case something goes left)--even the ones seemingly well-established. Is this a thing across the board?

Regarding credit cards, most contractors do not accept this payment because of the percentage they have to pay back of the use of the service.

When a customer asks me if they can provide the materials, I don't have a problem with it. It does make the job run quite different though. For example the last job I did the owner provided the vanity and faucet for the bathroom. They didn't get the right size faucet for the vanity they chose though. That was a bit of a hold up because they needed to decide on a different style. They also had to be the ones to run to the store, buy the new faucet, and return the old one. Thats all fine by me but IMHO its time wasted.

I do accept credit cards. I charge an extra 2.75% when I take them though. Thats what it costs me ( I use Square). Some customers are happy to get their miles and pay the extra percentage.

Thanks for the input,  Cole.  If it's more efficient to get the materials as the contractor,  do you work from a completed scope of work?

 Everyone's input is appreciated! I guess with the merchant fees, I can see why many shy away from credit cards.  But aside from checking references,  licensing,  etc.,  how do you protect yourself from a new contractor  from potentially running off with that first payment?( most contractors I've talked to want at least something down--I  guess they're afraid of thesame when working with a new client.)

@Vonetta Booker  I work from a mutually understood scope. Then I develop my material list from that.

If you could find a contractor through word of mouth, that would probably be best. Referrals (2-3 at least.... and actually contact them and ask them how smooth the project went, any change orders?, was everything easy to understand while working with the contractor, etc). After doing all that see what the contractor will accept as a down payment. Maybe they will accept a tiny percent of the job until they get started, then you can make progress payments as milestone are completed. Once the framing is done, then once the plumbing, electrical, and insulation is in, then after the rock and paint are done.... its a lot of steps but it should keep small chunks of money going out instead of a large percentage upfront. That should keep the contractor happy as well. Always hold some form of final payment until the work is 100% done and you are happy with the work.

Also make sure you are both on the same page about payments. Write out when the payments will be made, then contractor and owner read and sign it.

I would let the contractor purchase the material directly the majority of the time and save the headache.  On the surface it may seem like you would be saving money, but most contractors are going to make the same amount of money per project whether or not they buy the material.  If you buy materials direct, the markup they were going to make is going to get buried elsewhere in their bid.  As already described above, it can turn out to be more work for the contractor.

Paying for materials directly is another matter.  I don't pay upfront for any subcontracted work on my properties.  If a contractor is insisting on a payment of some sort to get the project started, I'll pay his supplier directly for the materials and get a receipt for the purchase.  The easiest way to make sure someone doesn't run away with your down payment is to not make one.  On the flip side, be fair and pay your contractors promptly when the work is completed.

Contractors are in business to make money , If they have to pick up materials you bought that takes time and their trucks , that will cost you money .  If you get the wrong materials or not enough and the contractor is waiting with nothing to do because you missed something he still has to pay his men , so you will pay .  I am a contractor , I will make the same on a job where the customer supplies materials as I do when I supply the materials . 

This is your first rehab , you will be treated as a basic homeowner by professional contractors dont expect discounts because you are an investor .  If you tempted to deal with the cheap , "by the hour" guys you will probably get taken.  The project will cost more than you expect , this is your first rodeo there is a learning curve sometimes its expensive  .  READ THE CONTRACT before you sign it , make sure it spells out exactly whats to be done , for how much and when it will be completed, etc  .  My contract is 4 pages BEFORE the job description , which can be 5 pages or more.  We get 1/3 down at the contract signing ( its your project , we use your money ).We get 1/3 down which basically covers labor , we get the next 1/3 when materials are delivered to the job , that 1/3 generally covers materials , the last 1/3 is paid upon completion . Change orders are paid within 5 days over and above the contract price . By law in MD you have 3 days to cancel that contract after signing .  Watch out for change orders , they are always expensive .

@Matthew Paul --I tacked on an extra 15% to my estimates in expectation of this.  ;-) But when you said "you will be treated as a basic homeowner by professional contractors dont expect discounts because you are an investor," are you meaning that's how they'll try to charge me because I'm a first time flipper (as opposed to having more deals under my belt)--or are their homeowner/investor rates the same always, in your experience?

Even though this is my first...they don't have to know that, lol.  I've been studying the game for over two years (got my license, evaluating vacant properties, talking to sellers, etc.) and gain tons of priceless info at BP--so when I meet with them, I do come with a knowledgeable presentation.  (Meanwhile, I come to you guys w/ the questions!) ;-)

@Vonetta Booker  Usually, it depends on the job. The bigger the job the more likely there may be a deposit and coordination needed for transportation of materials. Though, it really depends on your comfort level. Some pay contractors for materials and labor while others buy the materials themselves and just pay for labor. It's all a matter of preference. Hope this helps! 

Originally posted by @Vonetta Booker :

@Matthew Paul --I tacked on an extra 15% to my estimates in expectation of this.  ;-) But when you said "you will be treated as a basic homeowner by professional contractors dont expect discounts because you are an investor," are you meaning that's how they'll try to charge me because I'm a first time flipper (as opposed to having more deals under my belt)--or are their homeowner/investor rates the same always, in your experience?

Even though this is my first...they don't have to know that, lol.  I've been studying the game for over two years (got my license, evaluating vacant properties, talking to sellers, etc.) and gain tons of priceless info at BP--so when I meet with them, I do come with a knowledgeable presentation.  (Meanwhile, I come to you guys w/ the questions!) ;-)

To a contractor , its just work , 1 job , the fact that you are flipping it doesnt matter . It may even be better not to tell them you are flipping it , but going to live there .  Why ?  Some will base their pricing based on the fact you are attempting to make money on your deal , and so will they . Since this is your first go around , contractors will figure this out at the beginning , and will figure in the inexperience factor in their price .  

I would tell you to have a complete , detailed scope of work , from start to finish , present this to each contractor and get a bid .  Pick at least 4 different ones and put a due date on the bid . Plans are even better .

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