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Contractors asking for money upfront?
I am a local contractor in the Houston area and im starting to run into a very bothersome problem. I sometimes sub out certain trades to do work for me and they always ask for money upfront. I dont ask for money upfront and I dont give money upfront to anyone. I have done some work for several investor on BP and I was wondering if you guys are running into this problem. I feel that you shouldnt have to give any contractor money to do work for you unless you have a greed to from the very begining. Its already a cut throat market here in Texas with so many illegal contractors and yet they have the gull to ask for money for materials! I had a plumber and a gutter guy ask me for this and I refused to pay because if you cant buy materials you most likely will cut whatever corner possible to get the job done. What are some of your thoughts?
very leary of giving any money upfront, it is too easy to get burned. I think that most contractors should be able to cover the cost of materials and then get paid for work completed at scheduled intervals. However, it seems it this biz. that a lot of contractors can't even afford the materials cost upfront so we either buy the materials and they get paid for work completed, reimburse them right away when they deliver the materials to site or some will go with them to buy the materials. if anyone has another effective way of doing this would love to know.
Unless there is a really large materials cost, we don't pay up front... And don't use contractors who 'need' this. If materials are several hundred to a few thousand, we might make a payment toward materials to a contractor we already know.
Interesting, a sub asking a GC for upfront payment. I can believe it, though. There are all kinds out there. People will try you just to see how far they can get. Yet you nip it in the bud and they will put the word out about you not being about their foolishness. They may word it in a more vulgar way but those that aren't on the up and up (usually have others in their circle that aren't on the up and up too)will know not to try that with you....
Kudos,
Mary
No contractors licenses in Texas right? I imagine that can be pretty crazy.
I don't think asking for a small up front deposit is anything too much to ask but not more than 25%. Thing is I have heard just as many horror stories of GC's not paying up (or paying very slowly) as I have subs not doing what they have promised so there's room for blame on either side.
Yes, Texas is what they call a right to work state, so any person with a truck and tools can be a contractor. Plumbers and Electricians And HVAC people are the only ones required to have a license. I carry a $1mil GL insurance, commercial insurance on my vehicles, and I do good work. It gets to be frustrating when I get beat out by the other guy that doesnt do as good of work and is asking for money upfront and doesnt come fully insured.
A real contractor should never ask for money up front from a customer.What are they doing working and living job to job.If your company can't come up with the cash flow to start and finish the job,I won't do business with that contractor
I almost got burned once and will never give money up front again. The guy did 2 jobs for me before no problem but after I gave him money for the 3rd I think he found a bigger job and I literally had to hunt him down to get my money back.
I caution people on buying materials also. I had a guy meet me at home depot to buy the materials. This was after almost being burned by the first guy so I was cautious about him. I purchased the materials and he was going to load them in his truck to take to my house. I sat across the parking lot, watched him push the materials to his truck, wait a few minutes(guess he thought I left) then push everything right back to the returns line to try and return. He was shocked when I walked up behind him.
Thats freaking scandalous!
Out here in Phoenix it is pretty standard and from what I gather it is due to many GC's folding and their subs not getting paid during the bad years. Since then subs have been much more demanding of a deposit. I personally don't mind paying it as long as it's someone trusted and the percentage is below 25%. Would never give it to a stranger though.
Here in Texas it is a cut-throat business, but everyone is looking for a good deal. Just because someone is a license does not mean they can do the work better than someone not license.
Joe Gore
I'm a contractor (40+ years). I work on referral only, so my clients know who I am and my track record. But they still like to see my work, so I recently started a little web site so they can see recent jobs - it really helps build trust...and that's the most critical thing I'm not hearing here.
I work hard for my clients, including several investors, and they receive tremendous value. But I would no more buy their materials for them than I would co-sign on their mortgage. I'm not a financier. Why should my hard earned cash be working for their investment?
My contracts are clear and fair. They don't have to pay for labor until stated percentages of the work are complete. But anything could happen to them or to the job and I could be out the materials cost as well as have the job shut down for reasons beyond my control. A lot of contractors want to see funds for large jobs put into escrow. What if a sub earns his money and the owner runs into some tragedy. The sub and I are both out.
If you are working with contractors who you don't know and trust, you're setting up for bigger problems than just deposit money...and you are loosing the benefit of having a strong professional on your team.
Ask other investors, suppliers, lenders or realtors for the names of people they know and trust who have experience in your type of project. And then spend some time (walking through a job for example). Have some meaningful, pertinent questions, and then decide if you want to work with them. If you can't trust your contractor, you shouldn't be fixing homes.
Good Luck!
Maybe so Joe Gore, but if they can't show me insurance and a bond I'm putting my project, my finances, future tenants and everyone else involved at potential risk. If you want to have a long happy history at investing you really need to qualify your people and eliminate risks.
All the best!
#2 Contractors Contributor
- Severna Park, MD
I too am a contractor (since 1981), and its 1/3 down , the second third as a certain point , and the final payment when completed . I dont finance customers work .
In contracting not getting a deposit , is like renting a house without first month and security deposit up front . I wont rent a house a house without money up front , I wont start a job without money upfront .
Like @Account Closed said, out here its kind of a shady game. If you don't know their clientele say hello no; 'cause you/re gonna need your product rain, sleet, hail, snow!
I agree with Matthew. For a regular every day customer, 1/3 upon signing contract, 1/3 when we start, and 1/3 on completion. It's the customer's remodeling project, they should pay for it. We do have 1 big real estate company and we do a lot of their commercial work. I don't worry too much about payment terms with them because we have done work for them before and will continue to do so. So this week I may be starting a roof for them without a deposit, but I'm getting paid for the roof I finished a week ago. it all works out in the long run.
With subs, they NEVER get paid for labor up front. We purchased/order all of the materials. If they need nails, caulk, etc, they can go to one of my suppliers where I have an account, or to HD and the cashier calls and I give my credit card over the phone. There is really no reason they should need money for work they haven't done yet.
We never pay money upfront unless we use a reputable licensed/insured & bonded company that was referred to us and a contract has been signed by both parties. Only then, we pay as they complete specific milestones and ask for a lien waiver from contractors at the end of project in exchange for their final payment.
Myself and a few other investors I know have been burned by paying contractors upfront, so I will not do it any longer. My only exception is for larger projects where there is a lot of materials involved, then I will pay a deposit towards materials costs. Even with my most trusted contractor, he does not expect money up front for any of my projects except for materials on larger jobs.
I also try and pay everyone weekly for the work that has been done, and that keep everyone pretty happy.
I had a $50,000 window job last year and even after the work was done I withheld 5% until my contractor and I had a chance to inspect the job and have any issues resolved.
#2 Contractors Contributor
- Severna Park, MD
I have seen the same thing in reverse , I and other contractors I know have been burned by builders , investors , or homeowners who dont pay , go bankrupt , or want to change the rules after the job starts . I NEVER outlay any of my funds for a customers project , strict payment schedules , written scope of work , changes in writing . Depending on the size of the job we will file a lien against the property after the contract is signed , and release it upon full payment .
The base word of contractor is CONTRACT , a binding document , any contractor or customer that doesnt have one is a looking for problems
Depends, but I would never pay more than a 1/3 upfront. I only use referrals for electrical, hvac, plumbing...Remember, someone can do great on one project and completely fall thru the cracks on another...It's good to keep 2-3 reliable in the works. It will change from year to year, but I believe it's the nature of the business..
I think the investor should go with the GC and pay for all the materials and the investor pay for the labor once the work is done and if the investor cannot pay for the materials to start the job, the GC needs to run because the investor could be shady or trying to pull a fast one.
Joe Gore
I've just had contractors come to my home to do work here in North San Diego county. I've not been asked for deposits on smaller jobs, but it's fairly standard that contractors ask for a deposit or materials fee before work begins on the larger jobs. I have a couple of local guys I use for plumbing and electrical that have worked out well, other contractors I've hired were vetted via Angie's List, I had one weird no-show (no cost) through Craig's List. I have yet to be burned, but I grew up in the trades, and seem to have a pretty good read/rapport on the guys.