All Forum Posts by: Benjamin Sulka

Never pay anything substantial up front. As a veteran Contractor, I would never ask this of a customer. Nor, as @Ryan Normand said, does a Contractor want to fall behind and get stuck upside down...

I used to structure a project so that the payment was always commensurate with the amount of work completed..... I.E. Framing - 1/3 in advance is fair to allow the GC to pay for materials and have payroll money for a week or so, then another 1/3 when the framing is mostly complete, but not until framing is complete (and passed inspection) would it be fair to pay in full for that trade.

Short answer is yes, it is ill advised to pay a contractor 100% up front. I can't think of any situation where I would request that from a customer.

On the flip side, most contractors, including myself, will require some sort of deposit before buying materials and starting work. We don't want to invest thousands of dollars into labor and un-returnable materials only to discover the customer is broke. This also filters out serious customers from those who are just window shopping. 

The amount of the deposit (AKA first draw) depends on the contractor and the size of the project, and how many materials need to be purchased up front. I try to keep mine in the 10%-35% range, but again it varies. Anything much higher than 50% is generally a red flag to me, though.

Your best defense mechanisms are 1) Pick a contractor who is reputable, licensed, and comes with good references. Don't just blindly go with the cheapest bid. 2) Before paying any money, make sure you have a contract in writing that includes a detailed SoW and draw schedule. This protects both the customer and the contractor.

Hello Benjamin, 

Unfortunately this is a common problem I have seen with many contractors. Thats why when you find the right one try to keep them if you can. I personally have not gone through this but know many people that have gotten ripped off by contractors like your friend. I believe that contractors should get paid but in a form of a deposit maybe half or 20% then pay the rest once the job is complete. Preferably not pay at all until they are done. Which makes more sense to me just like many services we pay for we always pay after. I think construction is the only service we pay in advance. Another option is making a deal with the contractor that you will pay for all the supplies and pay them for their labor afterwards. Taking the contractor to small claims court might cost more time and money. This is a tough situation and more than likely your friend probably lost all his money. I hope that is not the case. For future jobs I would suggest avoiding paying the full amount before hand. @Albert Bui @Matthew Kwan any suggestions on this scenario since you guys have hire contractors before. how would you handle this?

Not related to any investments, I had this happen on my current personal residence.  

First, never pay 100% up-front.  If they are asking for it all up front something is going on behind the scene.

My contractor ask for the money for supplies and 1/3 of his labor - ok fair.  Several $k paid supplies (bathtub).  He did the entire demo and started the frame out.  Once down to studs and with most of the plumbing out told me the company he was buying the tub from lost the order (I was nagging him for weeks).  Finally I told him to give me the money back and I'd buy the tub.  Finally comes clean he spent it on his bills.  Not my problem.  Told him to pay or I'd take him to court; told me to F' off.  

Filed in small claims court ($6k limit here), tried to settle w/ him but still a big F off.  Explained the situation to the court (you can do it yourself); his defense was that I was difficult to work with and yelled at him.  Court found he had stolen the money and ruled against him for more than my original claim and took it to the limit of their jurisdiction.  Ultimately, he didn't want a lien against his assets so he agreed to pay it off in installments (which he did).

Make sure your friend keeps documentation of everything.  It will be relevant in court.  Small claims (if the limit covers it) is relatively easy to navigate.  I went to the courthouse, filled out the paperwork, paid the notice of service fees and everything was set.  If it's in excess of SC liability limit, hire an attorney.

Work with an agent who knows investment properties in the area. They will have access to the MLS.

Call an agent would be the best/easiest. Can also use current rents and desired cap then plug them into gross cap or net cap formula to get somewhat of an idea.

@Benjamin Sulka

An investor friendly agent should be able to pull closed comps from their MLS to help justify prices for you. It helps to have your comps when you're getting ready to send an offer

@Benjamin Sulka
Work with an investor-friendly agent who is knowledgeable about multi-family and most likely owns them as well. They can give you sales comps and provide you with their opinion on the property.