Electrician Wants 50% up front

61 Replies

Flipping my first house and first time dealing with sub-contractors.  The electrician that gave the best bid wants 50% up front.  I balked at that and he said he can do 25% up front.  He said he doesn't want to fund it himself and I told him that worries me if he can't fund a job this small.  He said it's not that he can't, but he doesn't want to.  I live 8 hours away from this job.  

I'm using a rehab loan with a local bank and they have a draw schedule, which I doubt includes up front payment.

What is the standard?

Quote is $6000.  I don't have an itemized quote.  I've been communicating via text with him.  He was referred to me by a friend who works for another house flipper.  He said that guy normally pays for materials himself.  I offered to do that, but being out of town I am kind of worried about paying for another job's materials also.

My father-in-law is our boots on the ground guy there.  He has our business credit card. I'm thinking I get him to buy the materials.  I'm just not a fan of paying anything up front.  I can kind of understand because about 90% of this city flooded and the insurance companies are writing 3rd party checks through the mortgage lenders, so contractors are having to wait a long time to get paid.  But I also don't want to get screwed.

50% up front is a contractor's way of getting some security but also being lazy in how they do it and putting all the risk on you. 

I would suggest flipping that a little and going back to the contractor and breaking up the effort. There should be some way to break up a 6k bill into smaller chunks. Installing a new panel? New service? 

Find some way to break up the 6k into say chunks of work around 2k apiece. Then front him half of each one of the smaller chunks. That way, the most you end up risking is 1k. And, for him, the most he risks losing at any given chunk is 1k as well.

i.e. Pay him 1k for first chunk up front. When he finishes first chunk, pay him the remaining 1k and then the 1k for the second chunk, etc.

Now you probably won't be able to get the chunks to come out exactly at 2k apiece. But  if you can break it into 3 roughly even parts or even 2, that still is going to help you minimize your risk of him walking off with a ton of money. At 2 chunks, that 3k per chunk so only 1,500 out of your pocket at any given time.

I don't know too many licensed electricians that are going to stiff someone over 1,500 and take off. There's plenty of work for licensed trade guys right now and they don't want the village to come after them. Plus, they should be submitting a bond with the permit and theoretically you would be able to go after the bond.

But quite honestly, I don't think I have ever heard of anyone getting money from the bond if a contractor took off. Not sure what the requirements for that actually are.

Is it $3000 worth of material? I have had Contractors ask for money up front, but only guys I have used and trust. I would say offer to pay him after the first week for materials on site and the weeks worth of labor, however, if you have to wait for the bank to send funds, this might not work for you.

You dont trust him and he doesnt trust you . How does the contractor know that you are good for the money especially when you arent a local ?  Why as a contractor should he finance your job ?  Copper wire , breaker panel , permits arent cheap materials are close to the 50% he wants . Supply houses do offer credit , net 10 days usually then there is a carry charge after that . Then you have labor , so he gets the rough in done and has all his money out and has to wait till you get a draw ?   Thats what he is avoiding . 

I am a contractor , no deposit , no work , no exception . My funds are working for me in my investments , not the customers . If I have 3 or 4 jobs running and I am fronting materials , I could have 10's of thousands of dollars out . Then waiting for my money , not.... Thats not a contractors business , thats what banks do . 

@Larry H. There is no way in hell you're getting 50% upfront if you work with me. 20-30% first payment when he finishes for rough, 30% after rough passes, and 40% when I am listing the house and you finish all the finish work. I have some leeway here and there with guys that I have multiple jobs with and if they start begging me because they can't afford to eat, then that's a different story but you never pay upfront, even with a contract, you pay for the work that is finished. 

If you live 8 hours away from this job, you have to make your own decision because I would never drive that far for a job, I would just have the guy send me pictures or facetime me and show me what he did and ask questions accordingly and then mail him the check or tell him to meet me somewhere. 

@Matthew Paul

I would agree with you that contractors shouldn't have to front for materials like that. But I would never give a contractor 3k up front that I didn't have an existing relationship with. I would either break up the job into smaller chunks of work so my upfront money is less (as I described above).

OR I would do what the other poster suggested and pay for materials myself and then front them the labor. If the contractor steals the materials that I paid for from my jobsite, they can be charged criminally so the chances of them doing that are much less likely. And then I'm only really risking half the labor.

Thats probably going to be about 50% or so of the job. So if labor on the job is 3k, then I'm only fronting 1,500. Much less incentive for someone to get squirrelly.

I would add that a licensed electrician is probably not going to stiff a homeowner over 3k. They're simply too busy these days and they're not risking a license. But a regular contractor (i.e. carpenter) might. 

The more you can do to limit your risk the better. That doesn't require the contractor to take on that risk either. It just might mean that he has to break his estimate down a little more so you can break the jobs and payments up more.

I would say that if a contractor isn't willing to do that, it would be a big red flag in my mind and I wouldn't use them. At that point, its 50-50 to whether their intent is to run off with the money or not.

@Matthew Paul how do you handle these situations in your contracting business? Would you bring the materials and receipt to the property and ask the investor to pay for that? Personally I would be willing to do that, assuming once I pay the money for the materials, they become mine.  Is this what you do, or do you simply ask for a percent up front and that covers materials.

Red flags I see as a contractor from the original post . 

First time flipping a house 

First time dealing with subs 

So first time playing General contractor 

Lives 8 hours away , not a local 

Went with the cheapest price 

Father in law at jobsite 

No experience , no background in construction 

From a contractors perspective  these jobs are nightmares . I would get 1/3 up front , 1/3 upon rough in , 1/3 upon final inspection . AND any delays  not caused by us billed as an extra .  ( I have done jobs like this in the past )   Electricians wont let you supply materials due to liability . Its their license on the line 

Originally posted by @Brian Pulaski :

@Matthew Paul how do you handle these situations in your contracting business? Would you bring the materials and receipt to the property and ask the investor to pay for that? Personally I would be willing to do that, assuming once I pay the money for the materials, they become mine.  Is this what you do, or do you simply ask for a percent up front and that covers materials.

I bid the job , not materials and labor . I never give the customer a copy of my invoice , its none of their business what I pay for materials . The customer is paying for a finished product .  I get a discount at the supply house and I base my bid off retail , the spread is part of my profit . My contract has a clause that all materials on the job are mine until paid in full .  I spent my early years working then chasing the money owed to me . Thats why we get 1/3 to sign the contract , 1/3 at the start of the job and balance upon completion .  If there isnt a check at the walk thru we file a lien the next morning .

Your best bet is to purchase the material yourself you can get a great deal on material if you plan on being a house flipper for the long term. Loyalty to the supply house will give you access to better prices than if he bought the material. He will be getting the better prices because he is using his contact for the long term. Real estate is all about relationships. If your loyal to one supply house over time you will great prices.

For new relationships. We usually give 25% up front purchase material ourselves and upon passing first rough electric inspection he gets 25 %. Upon passing final he gets the remainder.

Glad to see the contractor side of the coin. I had my list of subs back in my last location so I knew how they operated (only one ever asked for money up front, it was just a number, no receipt/invoice, none of the others ever asked for money to start) but being in a new location I love to see how other contractors work and their expectations.

I have had Contractors shocked when I had the check in hand at the walk thru during completion. They almost acted like I could pay them whenever!

Its a relationship , they take time to develop . Customers have just as many excuses as contractors . There are as many dead beat customers as there are dead beat contractors .  Just as many customers who cant manage their finances as there are contractors .

Heres why I get money up front , the customer must have skin in the game . And consideration is a part of the contract . I pay for my materials at the time of purchase . ( I get great pricing ) I pay my subs right away , my check book is always with me . I use my money to invest  not to finance someone else . 

Its all about the contract , both in buying a house and doing contracting work . Everything is spelled out in detail  25 pages plus from colors to model numbers timelines and change orders  . My contracts do that and they cover my A$$ .  The only misunderstandings occur is when the customer doesnt read the details of the agreement .  So when I hear " thats not what I expected " or  " I thought that was included "  I can refer back to the contract .     What the customer thinks or expects are too abstract , whats written in the agreement is what matters. 

If a customer can get a contractor to front materials and labor , more power to them .  From a business standpoint , that is a very poor business model for a contractor to follow , when you dont get paid you are not only out labor but materials also . 

It's good for both parties to want guarantees when starting a relationship (business or other wise). Just make sure it's in writing and based on mile stones you can quantify. Perhaps the following arrangement: (1st 25%) $ for supplies rest of 25% on first day of work (2nd 25%) proof that work is 50% complete [what ever that milestone is] (3rd 25%) proof that work is 75% complete [what ever that milestone is] (4th 25%) Proof that work is completed, permits completed and work area is clean.

On a project ,the first third gets spent rather quickly . Contractor will have office time  ordering  supplies , ordering custom parts , permits , permit revisions . Calling subs and getting a preliminary schedule going . Once the permits are received ( here , as short as a week or as long as 3 months )  The work gets scheduled and the subs get called and the material gets delivered .   Now the customer hasnt seen any work done , but by the time permits are issued I could have 50 hours already in the job and a good part of the deposit spent .  

Once physical work starts I get the second third , subs will need to be paid as they complete their part . To get the subs their quicker , the money needs to flow . When I call the subs get to my job because they will get their money quick . 

Things always need to be changed , so any change orders are signed and paid for at the time they are signed . This keeps things moving smoothly . 

We will generally split the last third into 2 payments , the last being after completion of any checklist items . 

I'm a licensed electrical contractor from NJ. I do rehab work, flips, new construction and service calls. Out of those 4 only one doesn't get a deposit for mobilization up front, the service calls. Once we both agree that I will be your contractor of choice for your project, I charge a percentage up front, i.e.- recent kitchen remodel for a GC I have a relationship with, total contract $4100, mobilization = $500, completion of rough work = $1200, completion of final work = $1200, completion of final inspection = $1200. Another case in point, new construction, GC/owner only wants to hire me for labor. No problem, 2200 square ft. house in northern Bergen County. I bid strictly against supplied prints, anything not on prints that is added by buyer or required by local code enforcement, gets billed as an extra. GC/Owner gives me phone number of their preferred supplier, I make up material lists and order accordingly, supply house delivers to job site directly and GC/Owner pays upon delivery. I do a job like that for $9000. $1500 up front, $1500 for rough, $1500 for rough inspection, $1500 for completion of service, $1500 for completion of work, $1500 upon passing final inspection. Just some options to help you along your way. Best of luck.

These are really interesting perspectives on a age old issue. As a newbie investor but a experienced commercial general contractor at the same time, I see both sides. I am all for GC's getting paid, but in the arena I have historically played in (Commercial General Contracting) we are required to float enormous amounts of money. I remember submitting a billing to a Owner for over $2-mil for a months work, and we got paid 45-days later. This is actually considered good. And our contracts with subcontractors are 'Pay When Paid' agreements so really, subs have to wait even longer.

I come from of a world of Owner's providing contracts to GC's for review and signature, not the other way around. Since they are hiring the GC, it would only make sense they define the terms.

The concept of a GC not having recourse if they don't get paid is deflated with a mechanics lien. Recourse exists.

If your contractor requires payment up front, I would do one of the following, or hire someone else if there is no pre-existing relationship and you are uncomfortable paying them:

1.) Post date the check to verify future work
2.) Put them on Time & Materials and make them provide backup
3.) Make them provide a Performance and Payment Bond and then pay them up front
4.) Put proof of funds in escrow if they are concerned you can't pay

I will not pay someone up front. Ever. Without receipts substantiating expenses, it's a no go for me. I don't care about their fee, spread, strategies, etc. But that is just the conditioning I have received and my risk tolerance.

Aaand, this is why we see a "Help, my contractor is 5 weeks overdue!" or "Help, my contractor did ****** work!" thread every single day on BP.

Good contractors are busy. Remodeling is at its highest volume in over a decade.

Really good contractors know not just the technical side, but how to run a business, which means we collect deposits up front. Why should I fund your job out of my own pocket and hope you pay me in a timely manner? (And do you know how often that client who was all looking over your shoulder every day suddenly disappears when it's time for payment?)

Good contractors don't let clients supply materials. We do this every day. You don't. We know to order transitions with flooring, to make sure shower trim also has a shower valve, that new texture requires primer before paint, and a host of other things that come up every day for us, but aren't an everyday thing for you. 

But to save money, or get someone to not require a deposit, or to get someone who'll tell them their timeline works (even if they know it doesn't) a lot of investors will pick the lowest bid, or the most compliant contractor, or the guy who makes the biggest promises. Then they regret it later.

Will a good contractor work with you on terms? Sure, after a relationship has been established. But a brand new investor working on his first project? That's the highest risk client we deal with, outside of trophy wives with excessive jewelry and lots of small dogs.

Good investors understand that the cheapest contractor isn't likely to do the best job, and that the contractor who always tells you what you want to hear isn't really the one who's going to deliver your project on time.

My company no longer does investor work, except for my own projects, so I'm not looking for business from anyone on here. Just being real. If you want your project to succeed, you need a good contractor, and good contractors have basic requirements for how they do business.

Best wishes.

I have subs that best describe @Tyler Resnick , I never pay anything if the sub bids with me. But we pay full retail, if you want subs to float your cost until the end, especially on a puny little job line that that the contractor can't float, id move on, but, you will have to pay retail. In the case of 1 man with truck and tools, yeah, they need the deposit because they don't have the funds to finance your job, nor the funds to chase their money, nor to put food on their table if they dedicate their time to your job and payment is slow. 6k is not even half in one of my credit card monthly bill. Now you have a choice, go for higher priced contractor that can float your cost who can wait for the bank draw to you and you to them (pay when paid), or risk 3k for cheap and unreliable. Totally your call.

Perhaps my line of thinking is way different than everyone elses?

I would tell him "alright, here's your 50%". he'd probably be surprised. he does a great job, and I pay him the rest of the 50% later. I am now officially one of his favorite customers. I tell him next time, can I just front you 35% instead of 50% because this relationship looks like its going good. I want to make sure the job gets done RIGHT. Who and how who gets paid is important too, but it's not like he's asking for the whole $6,000 upfront or something ridiculous.

Originally posted by @Larry H. :

Flipping my first house and first time dealing with sub-contractors.  The electrician that gave the best bid wants 50% up front.  I balked at that and he said he can do 25% up front.  He said he doesn't want to fund it himself and I told him that worries me if he can't fund a job this small.  He said it's not that he can't, but he doesn't want to.  I live 8 hours away from this job.  

I'm using a rehab loan with a local bank and they have a draw schedule, which I doubt includes up front payment.

What is the standard?

If you're talking FHA 203k, or Fannie Mae HomeReady, or anything that is a re-branded version of either of those (if your rate is below 5% and 30YF, good chance it's just a mortgage product rebrand), then the bid in front if you is NOT in fact the "best" bid, because this contractor is not Reno Financing Friendly, making the bid essentially toilet paper.

Most contractors are not reno financing friendly. 

Go have a Come to Jesus moment with your lender. Right now, you're wasting your time and that GC's time. 

I got an itemized quote for the first half of the job. It's basically $1500 for materials/permitting, and $1500 labor. Bank is not paying any draws until work is complete. I'm going to offer to pay $1500 up front for materials and permitting and he will get a draw from the bank for labor upon completion.