How Much Upfront Money Should I Give a Contractor Before He Starts Working?

Q:  Gerald, I hired a contractor to renovate our kitchen and bathroom.  The first 2 guys I spoke with wanted half of the money upfront.  How much upfront money should I give a contractor before he starts working? Robbie, Passaic, NJ

A:  That’s a great question, Robbie and as a full time real estate investor myself, it’s an issue that I deal with all the time.  So, how much money should you give a real estate contractor before he starts working?  The answer is as little money as possible.  If you’ve been burned by contractors in past like most of us investors have who’ve been in the business for a while, you’ll understand why.

As investors, we ideally would like to keep a contractor’s work ahead of our payments–this way, we limit the ability of the contractor to take off with our money without completing the work we paid them to do.  In fairness, the contractor also wants to make sure that he or she gets paid for the work that they do–so it requires some give and take.

As a rule, I like to make small payments to contractors as they complete mutually agreed upon milestones.  I also only work with contractors who have trade lines, which are credit lines that allow them to buy their own supplies and materials for the work they are going to do.

At the end of the day, in my view, the person who is paying the money should have the final say, so what should you do if the contractor wants more money than you feel comfortable paying upfront?  The answer is move on to the next contractor.

Thanks for your question, Robbie, good luck.

For more real estate tips and information, visit my blog at geraldlucas.com.