contractor best practices

[Maria Diaz]

Hello, I am trying to vet general contractors. What is the legal maximum allowed amount for a down payment (%) on rehab projects? How do I avoid a mechanics lien on a future property? How do I make sure the subs are paid by the gc? Are lien waivers common in Indy? Any recommendation for GC's or construction companies? Thank you!

[Shafi Noss]

@Dalton Foote I think this is the key point. 

Large projects happen slower. When I have done new construction between $500k-$1M in cost the contractor asked for 5% upfront, to be reimbursed at the draw that completes framing, and this was fairly standard in its market. 

I also have ownership in a general contracting company in Wisconsin that does single family restoration where a $50k flip job can be done in a few weeks. Here customers happily pay 20-50% up front.

One piece of that is that the 'profit' on each draw is not distributed but used to purchase the next round of materials so the project goes quickly. Without this speed the project is much less economical for the contractor and the client. But what that means is that contractor profit is still 80% backloaded even with the deposit and draw 'profit' (it is getting used for the next round of materials). 

Without the deposit the contractor may have funded 50% of the materials by the time they request the first draw, so the cash exposure is very high. I think each combination of job speed, size, margin, judicial vs. nonjudicial foreclosure, transparency level, etc. each turn the dial up or down on the appropriate deposit size.