Investor · Chantilly, VA · Member since 2014 · 73 posts · 13 votes
I've got a property that requires a pretty major rehab (asbestos siding, and needs new electrical, plumbing, HVAC, walls ....). I have a general contractor that I think will do a good job. I wanted to do the work as cost plus. He is fine with that but wants 30% of his estimate up front. That could be $30K or more. It's not that I can't fund it that way, it just seems like I'm giving him an awfully big chunk of money without having anything to show for it.
I understand he needs funds for supplies, etc and that gives him a bucket to work from, but does he really need that much? I guess I'm worried that if I give him the funds, I have no way of holding him accountable for those funds. Yes, I can refuse to give him any more money, but that is still a lot of money to potentially lose if something goes wrong.
What are your thoughts on how much to give a GC up front?
Property Manager · Bixby, OK · Member since 2015 · 52 posts · 13 votes
11y
I may be biased because I work in primarily commercial work, but if a GC asks for money up front its an automatic decline. I am not opposed to draw at pre defined milestones but money up front is a red flag for me. If they dont have a 15 to 30 day line of credit for materials, its a good sign they're cash strapped. I know it seems hypocritical for investors seeking OPM to have this mentality, but it's an important consideration.
Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
11y
I once bought the supplies, took them to the job and the guy sold it ($4k or so) and I never saw him again. No idea of it went to HD or somewhere else, but I never saw the materials, or the scumbag again. I pay a lot more attention to character these days.
My handyman has my HD card with a $1k limit, I get emailed an itemized receipt when he uses it, many times that's the only way I know he ever went to HD. Cool with that.
Fronting jobs I just don't do. I buy all materials and pay for labor as it gets done.
Just tried to use a regular GC and she was adding in materials (guessing what we'd use) and I was backing out materials (guessing what she assumed we'd use). What a PIA. I'm gonna be more adamant on doing things my way from now on.
It's up to you how you want to run things, but you can't compare bids with materials until you know exactly what those materials are. At the end of the day, you're really just buying labor from contractors- a carpet bid is only as comparable as the carpet they're using. Redo bathrooms can be $500-$5000+ based on what you put in there, a 1'X1' tile can cost $.50-whatever, but laying 12"x12" of tile is pretty standard work and while retail is $5 sq/ft around here, I generally get it done for way(,way) less.
When you separate the labor and materials out, you can compare better and there's no reason for a $30k front.
Jacksonville, FL · Member since 2015 · 60 posts · 15 votes
10y
It's illegal in our state for a GC to ask for more than 10 percent up front. Paid by percentage of completion is standard. 50% up front? You are insane IMO, you must be dealing with someone who has no money to begin with, are you getting that good of a deal?
The more detailed the contract the better, there. But as others have said, due diligence is king...references, reputation, etc. Even with all that, I have personally seen a contractor perform as a top notch individual for many years only to come falling down on a deal, stealing all kinds of money from his last dealing, and that from an old "friend". He made off with $80k and built a frame house wrong so that the local authorities shut the job down and he flew.
Jacksonville, FL · Member since 2015 · 60 posts · 15 votes
10y
After fact checking myself, I appear to be wrong concerning the 10 percent law, there does not appear to be any law concerning it. I have thought that for years, guess you can't trust everything you hear.