Hi, there! Joe White here from Grow Property Management, your trusted property management company in Philadelphia.
A viewer recently asked what’s a fair amount to pay a contractor when you’re doing a substantial renovation in a rental property. I think it’s a great question and one worth digging into, especially because paying contractors the right way protects both you and them. Every contractor is different – they run their businesses with their own preferences and payment structures. But just because a contractor has their own standards doesn’t mean you have to automatically accept them. You can and should approach them with your own expectations and see if they’re flexible.
In my experience, it’s only fair that a contractor gets enough money upfront to cover the cost of materials for the job. It’s not reasonable to expect them to go out of pocket for a bunch of materials and then cross their fingers hoping you won’t cancel or flake. Let’s say they’re redoing the flooring – they shouldn’t have to put that purchase on their own dime. So I believe that first payment should give them what they need to buy everything necessary and pay themselves and their crew something reasonable early on.
That said, I usually aim to structure payments in thirds. A third upfront makes sense to me. It gives them the working capital they need without handing over everything before any work is done. Now, I’ve had contractors ask for all the money up front, and for me, that’s a hard no. That’s just too risky. I’ve been burned before. My wife and I once had a contractor who stole $12,000 from us. He was in a tough spot on another job and didn’t have the money for materials. I trusted him – we had a history, and I thought helping him out would strengthen the relationship. My wife warned me, but I pushed ahead. That was the last time we ever saw or heard from that contractor.
Taking someone to court sounds like a logical step in a situation like that, but the truth is it’s not that simple. Even if you win in court, collecting the money is a whole different battle. It costs time, energy, and even more money. That whole experience taught me a very painful but important lesson: never pay for the whole job upfront.
I’m also cautious about paying half upfront, which a lot of contractors will ask for. If I feel really confident in the contractor and believe they’re the right person for the job, I might go ahead and pay that 50% – but only if I’m sure. Otherwise, I stick with my preference: one-third at the start, one-third at a clearly defined midpoint, and the final third (or ideally just a quarter) once everything is finished to my satisfaction.
The key is making sure the contractor knows the second payment will come quickly once the next phase is reached. They’re running a business, and I want to respect that. But I also need to protect my investment. The final payment should always be withheld until everything we agreed on has been completed, and I mean done right.
Contractors often finish a job to their standards and move on to the next one, which makes it tough to get them back if something was missed. This is why the final part of the payment is crucial. You need to make sure everything is done according to the contract before you release that money. This is often where the “punch list” comes in – those final little issues you spot at the end of the job. Maybe some trim is off or a cabinet door sticks. These are the finishing touches, and contractors should expect them. But once they’ve mentally moved on to another job, getting them to return can be a challenge, even if you’re in the right.
This is why I recommend holding onto maybe a quarter of the total payment until the punch list is complete. That way, you maintain leverage. And it gives you space to inspect the work and make sure everything is actually done. Now, while the punch list is for previously agreed-upon tasks, I often find that by the time the job is mostly done, I’ll think of a few extras – maybe a backsplash in the kitchen or something else that would really complete the look. These aren’t punch list items, but they’re opportunities to add work and keep the contractor engaged.
When you bring those up as the job’s wrapping up, it shows the contractor you’re interested in giving them more business. That’s attractive to them. It also helps reinforce your expectations: the punch list gets done, then you’ll pay, and then you’ll be happy to talk about next steps.
Bottom line: paying a contractor is about balance – giving them enough to work with and stay afloat, but not so much that you’re left vulnerable. Protect yourself with a structured payment plan. Be fair, clear, and consistent. Trust matters, but so does protecting your property and your money.
Just sharing my thoughts as a humble Philadelphia property manager, trying to help folks make smart decisions in real estate. As always, I wish you happy investing!
