Paying your contractors for work on investment properties

Property Management Blog

Having good and honest contractors is like a blessing from the god for any real estate investor. It is a big relief if as an investor you know that there is someone who will take care of repairs and maintenance and will undertake the job at any time when it is required. While it is important to find honest and reliable contractor, there is another important issue and that is the payment you make to him.

Never make the mistake of paying full payment in advance

Whatever you do, make sure that you do not commit the mistake of paying full money in advance to your contractors. You will find yourself at the mercy of the contractor once you pay all the money before the completion of the assignment. If you find a contractor asking for full payment in advance, it is better to stay away from such a contractor. In fact, experienced contractors pay very little money upfront, only as much as it is necessary to set the ball rolling. The ideal situation for you as an investor is where you pay nothing up front and make full payment after the completion of the work. However, it does not happen this way. After all, contractors need money to buy materials and to pay to their workers.

Release payment in tranches according to a schedule

It is a different ball game if you are working with contractor whom you have known for a very long time. But if it is a new contractor for you, it is better to hand over only 10-20% of the money quoted by them for the full job. It is natural for you to develop confidence on the skills and quality of work provided by the contractor. You also develop a positive relationship with him and believe that your work will be done quickly and smoothly. As you gain confidence, you can start to give more money upfront. However, you cannot trust anyone blindly, even if he happens to be your brother. Make sure that you will never give more than 33% of the total cost of the project upfront if you want to be successful and also wish to maintain a good relationship with your contractors.

If you are thinking how and when you pay the remainder of the money, it depends upon the nature of work and the size of the job. If a lot of labor is involved with the work, you will find yourself paying the remainder in installments. Usually, investors hand over 25% of the quote on regular intervals that are decided by both parties at the time of singing the agreement.  You can also set benchmarks for the task to make sure it goes on smoothly at the required speed. But no matter what happens, do not release the last 25% before the completion of the job. This is because you will not be able to ask for minor fixes as the contractor already has full payment. He will keep on promising that he will carry out those fixes but even he knows that you cannot do a thing if he does not undertake them.

Sign a contract with the contractor

The best thing to avoid disputes regarding payments, it is a good idea to draw up a contract and get it signed by your contractor. Make payments according to the schedule mentioned in this contract. If they have completed the job up to a level, it is your responsibility to release the payment as per the contract. Be transparent but also firm so as to not make a payment through emotional blackmailing. If you are paying money before a level has been completed, do it only in exceptional circumstances like when the contractor is really needy.

If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty. 

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