Replies

1. 
   DanT | Aug 03, 2004 10:51pm | #1

   I haven't done any new buiilds but all the rehabs I have done were that way.  You had to put up the money of the initial work.  DanT

2. 
   gdavis62 | Aug 04, 2004 12:05am | #2

   I asked the same question over at the JLC forum, and here is one reply.  I had posed a hypothetical situation of an $800K contract and the owner doing financing for $600K:

   "The way it's done around here is the customer puts up his $200,000 with the bank, the bank then sets up a 5-payment draw:
   1) $160,000 at nailing of subfloor (I built a 3-story house once and had to be that far up for the first payment).
   2) $160,000 at roof and exterior closed in.
   3) $160,000 at all trim and cabinets including fireplace mantle installed.
   4) $160,000 at completion, final inspection, and acceptance by owner.
   5) $160,000 35 days after completion with lien-free endorsement from title company."

1. 
   RichColumbus | Aug 04, 2004 04:16pm | #3

   Communication is key.

   I would get a much more detailed pay schedule than what you have in the above post.  Keep in mind, this comes from someone (me) who is adverse to carrying ANYTHING for ANYONE.

   I would lay out a detailed job plan, then use that job plan as the premise for a construction payment schedule.  Submit the draws using that construction plan/payment schedule as work is completed. (example: when the plumbing rough is done... check it off and submit it for payment.  Obviously, you will have more than one construction task on the payment draw). 

   If you communicate and show them your plan... the bank and owner should have no problem.  If they do... I would seriously evaluate your ability to handle the cash flow.  If you cannot handle the cash flow... then better to be in business tomorrow and not take the job, than to get 1/2 way in and realize you cannot make payroll.

   One question... the bank wants their inspector to verify work.  That's cool.  But is it possible to have the work verified by the architect instead?  I have been in this scenario in both situations.  When it was only the bank inspector, it was very tough to get him out on the inspection... thus delaying payment (he had MANY inspections to do and his schedule was MUCHO difficult). 

   When I had arranged for the archy to do the inspections... it was much quicker... and quite frankly... created a great line of communication with the archy as the project progressed.  Of course, the architect charges for this... and that needs to be addressed.  However, if the architect is doing minimal construction supervision, it shouldn't be that much $$.

   Some banks will do this... others won't.  But does it hurt to ask?  saves everyone a lot of headaches if the bank is willing to do it this way.

1. 
   gdavis62 | Aug 04, 2004 04:46pm | #4

   Ain't no archy.  This is being done from purchased plans.

1. 
   RichColumbus | Aug 04, 2004 05:47pm | #5

   Oh well... it was a nice thought though.

   I would then be inclined to ask the bank how long in advance you need to call for inspection.  Do this when you go over the "more detailed construction plan" I discussed earlier. 

   As I said... communication is key.

3. 
   Schelling | Aug 05, 2004 02:16pm | #6

   We have never required a down payment for a house sized project but if we did it would be for a nominal percentage of the cost of the house(<2%). It would only be to assure the ho of a slot in the schedule. No bank that I know of is going to give you a dime without seeing completed work but you can usually arrange for a reasonable number of draws so that cash flow is not a problem. We always frontload our payment schedule slightly so that we won't be caught short by an unforeseen expense.

   Let the ho negotiate with the bank if you are unhappy with the arrangements. We have found that often the ho can come up with extra cash on their own that can take care of a problem area. Paying the bill is their responsibility, not the bank's.