Total rehabs - Do you give money upfront to contractors?

Question

And how much?

Alex Deacon · Answer

@Chris Purcell Until you build a relationship with and trust a contractor I would not give anything significant to them to get started. if you want what you can do is agree to buy the materials so then all the contractor needs to cover is his labor. This way they dont need any money up front and at the end of each week you can pay them for what they have accomplished.

Arianne L. · Answer

Account Closed Partial lien waiver for anything that is not the final payment then final lien waiver for the final payment

I believe I mentioned credit cards for the subs - granite, hvac, etc. Not uncommon for those people to take credit cards.

Christopher B. · Answer

It's crazy to hear people saying it's normal to pay a contractor 25%-50% upfront. In what other industries do people get paid before they perform the work? It's not normal.

Only carpenters and GC's have asked me for money up front. I understand, materials can be expensive and they don't want to get not paid plus pay for your materials. If you don't have a working relationship with them then pay for these materials directly so they don't have that argument. If they still want money walk away.

For example, a current rehab had $60k of foundation repairs plus 2 additions, $14k in electrical and mechanical systems, $6k roof, etc. I didn't pay a dime to these subs until the work was performed.

I've been burned by long-time subs as well. Plumber of 4yrs walked off my job site day one, cost me 3 weeks delay. Employee of painter of 3yrs didn't paint a deck right, paid in full wouldn't comeback and fix. Don't pay upfront, and make how you pay your subs standard practice for all of them. This is fair to everyone and let's you maintain control.

A long rant but I know better and have even made these same mistakes myself lately. Next time you pay someone $6k and find yourself spending 4-5hrs tieing up their loose ends you'll remember why you pay people after the work is 100% complete.

Doug W. · Answer

I have done numerous different scenarios.

With the guys I have known for a long time -- especially the guys who I now would consider friends -- I will pay them 25%-50% up front without any hesitation.

For new contractors and subs I prefer to not pay more than 25% up front. When their work is dependent on city/county inspections I ask that draws are contingent on passing inspections.

It's really all over the place though. For a $130,000 rehab the GC asked for $13k up front. I did a new build that cost $650,000 (not including land) and the GC only asked for $8k up front.

Ultimately you need to be comfortable paying the contractor(s) and you need to also be cognizant of his/her situation. Come up with an agreement that you both are comfortable with.

Dylan B. · Answer

Definitely never pay full 100% up front.  Like others have mentioned 25-50% is required by some, not all in order to begin the work.  My personal preference is to pay them after the work is completed to my satisfaction.

Christopher B. · Answer

I'm pretty familiar with large projects, my latest project has a $160k rehab budget. I didn't say anything about never paying them draws at predefined milestones, that is standard. They complete work and they get paid, they're final payment is remitted when they pass inspection and/or all punchlist items are completed. It's the same for subs. We put an all new hvac system into this house, 2 units, ducts, returns, etc. The cost of that is $8,000, my hvac guy installed the duct, returns, etc, passed the rough-in inspection and billed me for 50%. When they bring the units, hook everything up, get it running, and pass their final they'll bill me for the other 50%. Roofer gets paid when the roof is on, electrician gets about 75% at rough-in, etc.

Chris Purcell · Answer

@Christopher B.

I'm talking about 6-8 week total rehab jobs.  There's no way a GC is going to float the materials and paying his guys until the job is 100% done

Sidney S. · Answer

In first project we entered with our current GC, we gave them money upfront to purchase materials and get started. The amount we give upfront is determined by the phase of the project we are in. We felt it to be completely reasonable for a contractor to anticipate payment to get going so we've never veered away from that path. Admittedly, it would be more convenient to work with a contractor that doesn't require a deposit since we often work with hard money lenders who don't always supply draws to the contractor upfront.

@Robert Ablorh Would you happen to have any recommendations in the Chicagoland area?

Robert Ablorh · Answer

We don't giving any upfront money any more, we informed every contractor before they come out for estimates, there is a lot of them out there who will work without deposit.

Arianne L. · Answer

@Chris Purcell It depends. If I'm working with a General Contractor who is well recommended and I have verified references - I'd be comfortable with 25% upfront. I know some who ask for 50%. I've been burned by a GC who asked for 50% upfront though. So be very very careful. Definitely call references and ask to see past projects.

If working with established businesses - granite subs, roofers, HVAC subs, etc. Where you can verify their business and references - 50% is the norm. Have them sign a lien waiver upfront. If you want extra protection use a credit card to pay.

If working with subs I work with for the first time (carpenters, flooring subs, painters, etc.) - I never give money upfront. I've been burned on that too...  I opt to buy the materials - that way they can't say "I need the money for materials" then disappear with the money. My general rule is to never pay unless work is complete. I'd rather deal with buying materials for the start of the project.

Total rehabs - Do you give money upfront to contractors?

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