When you are brand new as a real estate investor, what percentage deposit up-front should you expect to hear from a qualified general contractor?
Van Sturgeon is an experienced entrepreneur of over 30-years who has successfully created several businesses in the real estate industry that cover land acquisition, development management, construction, and renovation.
Van personally owns over 1,000 properties across North America and is semi-retired from the day-to-day operations of his businesses.
He shares his passion for helping homeowners and real estate investors overcome their fears of house renovations/rehabbing, and he loves to be actively involved in helping people reach their goals.
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Jay Conner:
When you’re brand new as a real estate investor, what percentage deposit upfront should they expect to hear from qualified general contractors, say for their first deal or two?
Van Sturgeon:
I get this question asked often. And what I suggest to people is try to minimize that dollar amount, as least amount as possible. And as far as if that money is going towards the purchase of materials, I would even go to the extent of purchasing the materials and having that under my name, somehow structured in that way. Legally, you want to do that because then you retain ownership of the materials instead of in the ownership of that general contractor, tradesperson. But I try to minimize the amount of money put down, and I understand that there’s been an ongoing trend especially now because of this real estate market, how heated it is and everybody’s running, running, running, that more and more people are looking for a deposit, especially these tradespeople and contractors.
Van Sturgeon:
But I try to minimize that dollar amount. In fact, not give any. Like when you walk into McDonald’s, you’re going to give your $10 over to purchase that hamburger. And you step aside and wait for it to be made. But none of these guys are McDonald’s. So this whole notion that me paying upfront for these contractors, tradespeople to reserve them, or for them to go to my job is something that I try to avoid as much as I can. I encourage people to avoid as best they can. They don’t need to get 50%. I’ve heard some outrageous sums of money, 50, 80% upfront. And that’s not the way to do business because guess what? You’ve lost control, Jay, you’ve lost control when you’ve overpaid your contractor, tradesperson, you’ve lost control because then they can jerk you around.
Van Sturgeon:
They can go now. They started your job and they got another job that they got to run off to. They’re going to go run off to that one. And they’ll tell you, they’ll be there. They’ll be back at your place in a couple of days. It turns into being a couple of weeks and who’s paying for that? But you’ve already paid them. So they got you in a headlock and you got no wiggle room. If I got them coming to me every week or 2 weeks with an invoice to pay them, trust me, I got control. They’re going to show up on my job site. They’re going to finish their work. And then they’re going to go take advantage of somebody else’s good graces, but they’re not gonna do that with me. So that’s part of the seasoning and the experience that you and I have, fortunately. You can’t buy that in a book. You can’t download a YouTube video and watch it. These are the types of things that I can tell you, thousands of stories that I’ve come across these situations where it’s just experience.
Jay Conner:
Absolutely. When when you talk about maintaining control, one way that I learned the hard way years ago is I never write that final check to the general contractor, that final draw, until my realtor, who’s going to be selling that house, does a walk through and does their punch lists. Then we get the final punch list, and then we pay that final check.
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