Do you incentivize GCs? If so, how?

[Kathryn Stevens]

I know flippers sometimes write penalty phrases into contracts ("must complete by XXX or pay $/week/month"). Do you ever pay your GCs extra when they get it done on time or early? Or, are they being paid to do that already? Have you every paid a GC an incentive for a house selling at a certain price point?

[Account Closed]

@Kathryn Stevens Initially I did neither - and quickly learned my lesson! Now, we write up simple contracts that have several milestone payments (most GC's ask for only 2 or 3 but we push for 4 or 5) as well as a early completion bonus and daily penalty if the completion date is not met. Here is a break down of all three:

First disbursement is for demo so it's relatively small given it's mainly for labor. All other disbursements are project based (i.e. painting, kitchen remodel, bathroom remodels, etc). Final disbursement is withheld until everything is completed to satisfaction.

Early completion bonus is arbitrary. We ask the contractor how long it will take them to finish the job. We then give them an additional 14 calendar days. If they complete the job 14 calendar days before the date they gave us (28 total calendar days from contracted completion date) we will kick in a $1k to $3k bonus depending on size of job. 

Since all of our properties are buy and hold rentals, we take the fair market rent lost as well as the estimated cost of utilities for the month and break it into a daily penalty fee. For us, it's typically in the $45 to $60 range. This is withheld from the final payment. 

Hope this helps!

EDIT: Our GC's likely do not operate at the professional level of Matthew Paul (above). We've had issues with our GC being late as well as performing poor quality of work on our initial deals. Reigning him in with a contract that we both agree on has been the best thing for us.