Paying GC's an Advance

[Rich V.]

Hey all - Looking to start off 2017 with my first BRRR property.

This will be my first rehab. How do you typically go about paying general contractors advances for the project? Putting the money in escrow would be optimal, but I know that isn't always the way it works out.

I've heard countless stories of GC's getting advances and disappearing, using the money to pay debts, finish their last project, etc. Again, first-time rehabber here, so this will be my first experience with using a GC for an investment property. Eager to hear how you all manage this risk, since time the timeline of the project is imperative for a project like this.

Any input/experiences you can provide would be awesome. Thanks!

[Todd Fox]

Richard Vetter NEVER EVER PAY IN ADVANCE!!! I always personally pay for all materials. I get a material lost from the contract and will have everything delivered or ready for them to pick up from Home Depot. I put materials on my credit card and get 1.5% cash back, which is a nice bonus. I pay the contractor based on the work they do. You should have them break down each trade and milestone, such as demo, rough electric, rough in plumbing, flirting, painting, etc.

If a contractor tells you they don't have enough money in their personal account to float payroll for a week, that's A HUGE red flag and you should find someone else.