Rental Property Investor · Round Rock, TX · Member since 2019 · 246 posts · 159 votes
Just got my first deal. Now we are ready to renovate. Is it customary to pay contractors anything up front? Most bids came in asking for 50% up front and 50% upon completion.
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
7y
I wouldn't give a contractor 50% upfront and 50% upon completion especially if I've never worked with them. It's common for contractors to ask for some money upfront typically to cover the cost of materials. Then moving forwards payments should be on a draw schedule as they complete and sign off on stages of the rehab. It's important to have this documented and agreed upon (via contract) before you give them any money or they begin any work.
Albrightsville, PA · Member since 2018 · 118 posts · 79 votes
7y
@James Canoy You can try not giving a contractor money, you can give them 100% in full, if you get the wrong guy you can get screwed. My suggestion is to get references and check out other jobs they've done. I have a guy right now that doesn't ask for money and he never shows up. I'd rather give a good contractor a deposit so that I put demands on him if needed.
Baltimore, MD · Member since 2018 · 169 posts · 82 votes
7y
@Robert Tinker
Nothing up front ever. Ever. Want a signed contract? Fine. Ill even give you a couple hundred to show im real, and to make my contract valid. I buy everything so you don’t have to lay out anything, definitely. You want to be paid frequently to avoid doing too much without money? Fine. Im easy to find, so is my house. You, mr contractor, can disappear with my money and never be heard from again.....then you wont do the job??? Fine, plenty of other people want work they will get paid for. Good luck.
It's a document you have the contractors sign stating they have been paid in full and they have paid all employees and vendors in full and therefore waive their right to file a mechanics lien. Banks always require this as do most GC's before they pay the subs.
Wow some of you guys are brutal! Just know, that we contractors don’t always know and trust you guys the same as you may not know and trust us. I’ve ended up working for free before. It sucks. And then there’s the guys that pay you when they feel like it.
I’ve had to put a lien on a house before. Turns out they hired me to fix it up so they could try and sell before foreclosure, and then they filed bankruptcy. So yeah, I lost money there. Just remember, At least where I live, it’s illegal for a contractor to stiff a homeowner, but not illegal for a homeowner to stiff a contractor.
My main plumber/HVAC guy is owed tens of thousands of dollars by homeowners and investors. That would put me out of business, so yeah, I want $ up front, whether it’s for materials or labor, or to put food on the table to feed my kids. My truck, my tools, my insurance, my expertise cost $.
Great point. Ive been there many times as the GC. The bottom line is the contractor needs to vet and check references on the Investor including proof of funds and the Investor needs to vet the contractor including financial ability to perform. If both parties are experiened and professional these are easy things to mitigate. It is a very tough business.
Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
7y
@Joe Splitrock It would be nice if that worked, but at least in Minnesota you will never get anyone to work for you with that approach. Too much work available from people willing to share the risk (as others mentioned) and too many difficult or unreasonable homeowners who decide during the process to change things up.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
Greta thread and great points everyone.
The bottom line is you are hopefully building a long term mutually beneficial relationship. Bothe parties need to vet each other thoroughly, check references including past clients, current clients, vendors, current job sites and verify financials. Investors should be able to show proof of funds and the contractor needs to show financial ability to perform.
Investors should not try to take advantage of the contractors. You want them to be profitable so they will return to do more work and the project flows smoothly. If you know they are too low don't let them work and lose money. That benefits no one. Contractors should not try to take advantage of the investor and over charge. Make sure to be thorough in your estimate and get in and get out so everyone make money and move on to the next deal.
If both parties are experienced and professional these are easy things to mitigate. Put everything in writing, do not make changes without a written agreed upon price and both parties do what you say you will do.
The bottom line is you are hopefully building a long term mutually beneficial relationship. Bothe parties need to vet each other thoroughly, check references including past clients, current clients, vendors, current job sites and verify financials. Investors should be able to show proof of funds and the contractor needs to show financial ability to perform.
Investors should not try to take advantage of the contractors. You want them to be profitable so they will return to do more work and the project flows smoothly. If you know they are too low don't let them work and lose money. That benefits no one. Contractors should not try to take advantage of the investor and over charge. Make sure to be thorough in your estimate and get in and get out so everyone make money and move on to the next deal.
If both parties are experienced and professional these are easy things to mitigate. Put everything in writing, do not make changes without a written agreed upon price and both parties do what you say you will do.
I agree. Great post. I’m all about long term relationships with happy people.
My issue right now is that I’m a newb so I got to know a contractor who flips. I would go to his projects and flips and scut myself out for crap work. Like demo and dumpster filling with **** covered ...everything. We’re casual friends after this. I had him do my basement to see how he functions. So I went with him and my first “flip” and while the work is getting done it’s been a year. It’s almost done now but a year for a flip of me paying holding costs is no way to build a business. Also, he’s apparently belligerent with his subs.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
This individual is definitely not a pro. Basement remodel should only take 90 days max if it’s a significant project. When I state that a contractor do you have to go deep and make sure they are qualified for the type of work they are doing including time frames etc.
Rental Property Investor · Washougal, WA · Member since 2015 · 82 posts · 18 votes
7y
Pay for weekly progress. If contractor completes scope of work, pay them for work complete.
You dont pay, they tear out what they completed and bulldoze your home. Sounds fair to me.
Rental Property Investor · Kalamazoo, MI · Member since 2018 · 117 posts · 235 votes
7y
@Robert Tinker
Based on this thread, I’d say a few things. Contractors want to make money without getting cheated and investors want to make money without getting cheated. There are cheaters on both sides, and you have to be careful on both sides. Any contractor in here saying they demand 50% doesn’t understand that investors have been cheated. Any investor saying they don’t pay a dime until they see finished work doesn’t understand that contractors have been cheated. We don’t live in a world of black and whites. You have to be willing to do your due diligence and find people you can trust. Ultimately, work with contractors that you can give 100% of funding up front and trust they’ll do their work. Work with investors where you don’t have to ask for a cent until the work is completed because you trust them.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@James Canoy
James, long term is the key. Good relationships are key for investors. I have two main clients with 35 properties combined. The tenants call me directly. I do what needs to be done, and send my clients the bill, and they pay, almost never any questions asked. This is 10+ years with these guys. They trust me, they know I will get the issues resolved, and all they have to do is write a check, if I need subs, I take care of that also. When I do flips for these guys, I send them bills every 2 weeks or so, and they pay in a few days. I am very lucky to have these guys. As for newbies, I’m Always Leary. Often times they don’t know what they are getting into, and don’t “budget” for this or that. I’ve been in the game 16 years, gut feeling plays a lot. I’m not working for free anymore, if I get a bad feeling I pass. Start with a new contractor on a smaller job and see how it goes. Could be 1 day of work. See if he does a good job, cleans up after himself, etc then pay him when he wants to get paid.
I’ve already had a cop take 6 months to pay me for a bathroom, I’m done playing games.
Rental Property Investor · Tacoma, WA · Member since 2016 · 26 posts · 26 votes
7y
We pay for materials up front, then usually a disbursement halfway through the job, and then at the end once we're satisfied. After four big projects, we have a strong relationship with our subs built on trust. If we need to bring someone new in for some reason, it's usually a reference from my regular and his name is now attached to him. Like the mob ;) Bottom line, once you find contractors you work well with, take care of them and they'll take care of you.
Rental Property Investor · Bennington, VT · Member since 2017 · 79 posts · 60 votes
7y
I'm used to paying 1/3 or 1/2 up front but for smaller jobs, I do most work myself and hire for specific tasks. Under no circumstances do I pay out the last of the money with less than 100% completion. I'm new at this so it doesn't surprise me that contractors want something up front to protect themselves. Well except for the plumber, we've got more of a track record now so he just works and sends me a bill when he remembers a few weeks later. I prefer to supply material when it's not something too specialized. For example the electrical renovation I'm having done right now, it's easier for my electrician to just order the exact type of four gang meter socket they want from the supply house on their account than me try to handle it.
Investor · Raleigh, NC · Member since 2015 · 189 posts · 102 votes
7y
Definitely never pay anything up front. Maybe if it's a bigger job like a roof, you could give them a small portion (10%) once they show up at your house with ALL materials and begin working... to show em you have money. But I would try not even to ever do that.
Rental Property Investor · East Northport, NY · Member since 2017 · 9 posts · 6 votes
7y
@Shawn Ward
Hello family! I'm Aunt Dora's nephew. I didn't know you were apart of bigger pockets. Any advice for me? I'm just starting to branch out into multifamily units. I'm looking for a good area to cash flow? New York is not landlord friendly.
Rental Property Investor · Westport, CT · Member since 2018 · 5 posts · 4 votes
7y
@Robert Tinker
I have to agree with one of the above comments. I’m a builder in Fairfield county CT and wouldn’t work for someone only giving a deposit for materials. You figure as soon as you start the job on the first day you’d already be putting work out for no payment if the deposit is only for materials. Depending on job size, 1/3 is usually to start and then either as billed or 2/3 3/3.
Specialist · Los Angeles, CA · Member since 2019 · 7 posts · 5 votes
7y
@Mike Crissy you can buy the material at cheaper locations, like a drywall distribution centers or even lumber yards. They also have plumbers center. Material is usually cheaper at these locations and knowing which ones carry what, it will save you a good chunk. Your contractor should know where to buy their materials besides Home Depot.