Should I provide a deposit to a contractor for out-of-state work?

[Brady Lamprecht]

Here is a fairly basic question I've got concerning out-of-state investing and I'm looking to get people's opinion concerning hiring a contractor to work on a project with me.

I recently read @David Greene's book on titled "Long-distance Real Estate Investing" and I'm starting to take action on what he suggested.  I found an REO property that is ~100k undervalued that was recently foreclosed on in early December.  An agent in the area I'm researching referred me to a contractor who apparently has a good name (has been working for 30+ years with his ageing father) and from talking with him on the phone, seems to be okay with working within my requirements as an investor.

That being said, there is obviously no trust between us yet and he is hesitant to spend any time on this project without some type of deposit from me beforehand.  I completely understand where he's coming from.

At this point in the game, I'm just looking to get a very basic idea of what needs to be fixed, repaired, and taken into consideration for coming up with an ARV to know whether to move forward of not. He suggested a $500 deposit from me which would then be applied to the work should I decide to proceed.

That sounds reasonable to me but I'm also considering offering him that amount split between two payments as I really have no idea if I can make the numbers work or not and would prefer to not sink too many costs into something that might not work at all.

Suggestions on how to proceed?

[Don Petrasek]

@Brady Lamprecht you didn't mention what area of the country you're in, but here in Cleveland good contractors (and even some of the bad ones) have twice as much work as they can handle and are booked out 2-3 months....based on what I've seen on BP, this is the case in many areas.  So a contractor asking for a deposit to cover their time is very reasonable....$500 is not excessive when you consider that it would probably cost you $300-$350 to get a home inspector in to do the same thing & that amount wouldn't be credited to the project.

No I don't pay a deposit or extra cost for every estimate I get, but I've got established relationships with people who know that I follow thru with work & quick payment + don't call them until I have something locked down (after I own the property).......I see a number of posts on BP where new investors are expecting contractors to evaluate properties for them before they purchase- for free- that's not realistic.  

Haven't read the book you mentioned, so not sure if it covers this but what a lot of long distance investors forget to consider is the extra cost that comes with managing a project that you can't personally get to (or at least get to often).  You need to pay people to look out for your interests and establish contractor relationships where that will happen as well.  Seems like you are on track with that....but don't get caught up over a few hundred dollars on a property that undervalued, you may be tripping over dollars to get to pennies as they say. 

Good luck with your project.