Contractor advice Needed fo flip in Texas

[Stacee Evans]

I'm in the middle of purchasing my first flip and I'm getting a little nervous and would like to make sure I'm doing this right.  I live in California and the house is in Texas.  This is a major renovation (close to 100k) and the contractor I'm leaning towards has excellent referrals. They all said he stayed in budget, did good work and finished in the time frame he estimated.  He sent me the contract and I have some concerns and would like some advice.  He's asking for 30% down, the next payments when 30% of the job, the next 30% of the job and then the last 10% at completion.  Is it reasonable to negotiate a lower down payment with payments more often and instead of a percentage of the job complete, list what work is done?  I would also like to put in a penalty if the work is late and a bonus if it is finished early. Is there a standard amount for this? He put in the contract that the project may go over due to circumstances beyond his control like permit delays, weather or illness. That sounds like he is really covering himself in case it goes over.  I've read how investors have lost money by the renovation taking longer than estimated.  He is investor friendly, seems to do great work, but there is no where for me to check him out as a company because in Texas, a contractor does not have to be licensed and his company isn't listed anywhere.   I have a lawyer in California, but not in Texas. I'll probably ask him to look at the contract for me but I'm not sure if I should find a lawyer in Texas to make sure everything is written correctly.   I have reached out to many other contractors to get more than one bid, and no one has given me an actual bid, but a few have ball parked it and said it's either too big of a job, or they can't get close to the price I want to pay.  I would appreciate any input. 

[Andrew Taylor]

Now that all the attorneys have spoken, allow me to speak from the contractor side. Will this flip require any materials? Sheetrock, insulation, paint? Interior trim, doors, cabinets, plumbing fixtures? Light fixtures? Appliances?

These are all things that have to be ordered in advance and, generally speaking, paid for in advance. That's why your guy wants a percentage in advance. Now, is it 30%? Who knows. Ask him to account for that money.

Just like investors believe they should never be "ahead" of the contractor in payments, contractors believe they should never be "ahead" of the client in work completed.

If I was your contractor, I'd list the items that need to be purchased up front and I'd ask for that money in advance (or have you order them yourself). Then I'd structure draws so they're due when work STARTS (i.e. when sheetrock starts, payment for sheetrock phase is due). That avoids the "you were short two pieces of drywall so I'm denying this draw" conflict that always seems to come up.

Finally, I'd want the final draw (retainage) to be 5%. That's five grand on your job, which is more than enough to pay for typical punch list items (paint touch up, adjusting hardware, etc.). Too many clients want to use the huge final draw as a lever to get additional work done. Be reasonable with it. Withholding ten percent of the contract for one percent of the work isn't reasonable.