I am 6 months into renovating an older mobile home park. I have personally monitored the rehab, but I plan to start managing remotely in a few months, with the renovation continuing for another 6 months or so after that. Until now, I have paid the contractors in cash, as that was their preference. Once I leave, I am unsure how to handle the payments. While I trust the property manager, I would prefer that he not handle the cash each 2 weeks. I have considered having the property manager fax me their invoices and overnight mailing checks for them to take to the company bank to cash, but would like ideas how others handle this, as there must be an easier and less expensive way to do this. Thank you in advance for your help.
We generally don’t pay in cash. Doing so tends to filter the world of contractors down to the wrong kind of contractor - they either have a drug problem, or are cheating the IRS (and probably you). You know you are dealing with a quality vendor when they are fine waiting a few weeks to get paid, and are more interested in repeat business with you over the years.
That said, if you are going to pay cash, just call your bank and approve your contractor to pick up cash. They’ll require the contractor to show ID, but you can just approve ‘John Doe to pick up $2,600 cash today with his ID.’ Most banks should be fine with that. Request that the teller clearly mark on the withdrawal slip who picked it up and what it was for - to make your cost control accounting better.
But switch to financially stable / non-druggie / non-IRS-cheating contractors. You’ll be ahead in the long run.
I would use an petty cash system with a max amount of $200-$300 used only for emergencies where cash is not acceptable or for very small items and have the manager provide receipts when the cash amount falls to $100 and then you replenish. Otherwise cash is too tempting. For major items I would recommend YOU pay by credit card or by check after getting the bill. I would also want to pre approve any significant purchases.
First, I think it’s great that you have been on-site for 6 months learning the ropes. This way, you can visualize what needs to be done. When the contractor tells you it will take 12 hours to dig a hole, you know it’s BS from experience being on-site.
When I have managed from afar, although my experience with this is only about 10 homes… Some things have helped me including:
Being upfront with contractors via email about how and when they will be paid ( I give them the option of credit card or mailed check in the full amount after final inspection to the address of their choice), being very descriptive about the work that I need done remembering that the contractor will probably want more money for additional work. When he wants a payment plan, being as descriptive as possible with an email about the schedule of payments. I don’t do this anymore because it is significantly more work for myself and the manager. I now hire someone else if the contractor insists on a payment schedule or reduce the price of the work significantly.
No early partial payments (They will run off)
Insisting on a walk-through inspection with the manager when work is completed, get pictures and video from manager’s phone whenever possible.
Having manager walk-through without contractor (When the manager walks through with the contractor it can put pressure on the manager to say the work is all done)
When the contractor says, “I didn’t think it was going to be this much work and I’m leaving unless someone pays me,” - (which has happened to me 50% of the time) reminding him of the contract that we agreed to in writing via email. Being as descriptive as possible with the email. If he still wants to leave, I tell him, “you are breaking the contract and will not be paid for the work or materials that you have contributed up to this point.” If he leaves, realizing quickly that it wasn’t the right match and get back on craigslist to hire others. (Don’t spend time crying about it like I have)
My park has a bank account setup at an online bank (EverBank) and their remote payment options are excellent, allowing for free electronic transfers directly to contractor’s bank accounts. I tell contractors they need a bank account to receive electronic payments, otherwise they will be required to wait a few days for the bank to mail them a check.
Now that you will not be on site the entire scenario changes. Understand contractors are generally not trustworthy when not closely monitored.
As suggested you need clear written contracts, regular inspections and a contractor willing to accept checks on your schedule.
Be very careful as your turn around can easily go off rail at this point.