Are You Paying Contractors Up Front or by Milestones?

Question

One mistake that can put a flip in a bad position fast is releasing too much rehab money before the work is completed.

I think it’s important to structure contractor payments around clearly defined stages of the project instead of putting a large amount of capital out upfront.

That can help you:

• Keep better control of your rehab budget
• Make sure progress is being made before more money is released
• Preserve capital for materials and unexpected expenses
• Avoid having too much money tied up with one contractor
• Keep the project moving without draining your available cash

And if you’re using financing or business credit to help fund the rehab, cash-flow management becomes even more important. The goal isn’t just having access to capital, it’s using that capital strategically.

How do you structure contractor payments on your flips, upfront, weekly, or based on completed milestones?

Alan F. · Answer

The 1st thing is to have a thorough understanding of how contractors licensing/governance & law works in the area your operating in. Sometimes its state, sometimes at the municipal level. Some entities spell out payments, some suggest escrow accounts etc. They all very WIDELY. If you find yourself knowing more about the legal requirements contractors should be doing, you may want to find a different contractor.

There a lots of sample contracts on the internet & TONS of resources to protect consumers. Do your own due diligence on every business you engage with.

Bottom line though, down payments should be low, with benchmark payments made on time via a legal written contract.

Nicholas Floyd · Answer

@Alan F.

Alan, I agree. The legal side and proper due diligence definitely come first. I also like the point about keeping the upfront payment low and tying the rest to clearly defined milestones in a written contract. That gives both sides expectations while helping protect the investor if the project doesn’t move as planned.

Divin Kanyama · Answer

@Nicholas Floyd From experience owning properties and managing renovation work, milestone-based payments have been the most practical approach. They keep the contractor’s compensation tied to visible progress while protecting the project’s cash flow. A reasonable deposit may be necessary for mobilization or specially ordered materials, but I avoid releasing a large unrestricted amount upfront. The scope, timeline, material purchases, and payment schedule should be clearly documented before work begins.

I prefer draws tied to completed phases—such as demolition, rough plumbing and electrical, drywall, finishes, and the final punch list—rather than payments based only on the passage of time. Before releasing each draw, I verify the work, review invoices, and obtain any appropriate lien releases. I also hold a modest amount until the final walkthrough and remaining corrections are complete. Paying contractors promptly for verified work helps maintain a good relationship, but the key lesson from owning properties is never to let payments get ahead of the job. Weekly payments can still work, provided they are supported by measurable progress.

Are You Paying Contractors Up Front or by Milestones?

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