Rehabbing houses is making sure things are done right and fast. However, many greenhorn rehabbers are torn whether they need to give the contractor advance payments. After all, contractors need money to start the project, right? Not all the time. For a change, this article will discuss the psychological demands of the business, one of which is learning about making advance payments to rehabbing contractors (RCs).

To determine the answer, perhaps rehabbers need to do some evaluation. It is important that you know the benefits and dangers of giving money upfront to RCs. Among the benefits of this system is work offloading. As an investor, you have other jobs to do apart from the actual improvement of the property. If you decide to give cash in advance to your RC, you will lessen your obligations.

Note that the common reason given by contractors when asking for money is “we need to buy materials.” In many cases, the investor is the one who shops for materials, leaving the contractor focused on working at the property. If you give the RC the money for the materials, then he will purchase the materials himself. That’s less work for you.

There are also rehabbing contractors who want things done quickly. If they already have the money, they can quickly get materials even when you’re not around. They don’t have to wait for you to bring the needed stuff.

The danger with this system is if the RC uses the money for the wrong purposes. A classic example is that of a contractor who used his 50% down budget to buy a car for his girlfriend. Because he will earn that money anyway, he thought he could spend the cash meant for materials for his personal expenses. He then turns to the investor, who ended up releasing huge money with no work accomplished yet.

Another danger of making advance payments for rehabbing contractors is scamming. It doesn’t matter if that RC was referred to you. The risk of RCs running away with the money is always there. As a precaution, you must buy the materials yourself and give the contractor his money after the job is done, at least on your first time to work with that RC. Specify this in your contract with him.

So, is there a cookie cutter for this? Truth be told, there is not an upright yes or no answer to this question. Making advance payments for rehabbing contractors will depend on you. Make sure you carefully weigh things before releasing any funds.