Jean Sullivan wrote:
I am looking for advise as I recently received bids on a fix for rental on a home we purchased in November. After getting several bids which were close, I chose one of the real estate club sponsors that sponsors multiple clubs. I was surprised when I received the work contract that they expected about half the payment upfront prior to any work completed. Our company policy does not allow payment upfront. I was really looking for more established companies used to working with investors. To me it is a red flag if a company can’t perform work without payment upfront. I am wanting to understand what others think. I am not new to real estate investing and have NEVER had a company ask for money upfront unless it covered materials already purchased, never labor prior to performing work.
For context, we've always been our own General Contrator on our rehabs, and we haven't done much GC work for others. If I were to hire a GC, I'd start by asking other experienced investors for references. I'd have to be really impressed with the reputation of a GC to pay them half up front. With the understanding that GCs have a different business model than subcontractors, other than materials, we've never paid a subcontractor anything up front. The subcontractors that we've worked with a lot don't even ask us to pay for materials up front even when they're fairly expensive. We know they're going to to a good job, and they know we're going to pay them. Good relationships like that are extremely valuable.
One exception to my reluctance to paying half up front is foundation work. We've had foundation work done on multiple houses, and we've used various reputable foundatin repair companies over the years. As I recall, virtually all of them required 50% payment up front. We paid it and would do so again when using a foundation repair company we trust.
Another thing to keep in mind is that active, experienced GCs who do a lot of jobs for a lot of people value their own good reputations very much and will typically go the extra mile to make their customers happy. That knowledge, along with some strong success stories from investors you know and trust, might give you some comfort on this.
