Quick liability question

[Randyj266]

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[az45]

Cash with no receipt? How you pay him shouldn't mater, if hes licensed and bonded and can prove you paid him I dont see the issue. He's obviously doing it for tax reasons, so you did end up sideways with the guy the cash he took could work against him if its not reported.

That said, I wouldn't trust a guy doing a 50k side job, he doesnt sound too legit to me.

 

[Oggy]

Form of payment is irrelevant. If he's been paid to do the work, and you have everything on paper, then you're protected, assuming it's all legit.

 

[slip knot]

A $50K transaction will raise some ??? with the IRS. Why would you want to pay cash? do you get something in return? if not the screw it and make draws. if youre not getting a significant discount for cash, why bother.

 

[69gp]

couple of things I would do would be to first get pricing from other contractors to make sure your cash guy is in line with his pricing. If he wants cash his price should be about 20% below what the legit contractors would want.

If you do use him and its a cash deal I would make sure that he can provide you with general liability and workers comp. If any workers get hurt or killed on your property and he does not have the proper coverage than when the lawyers show up your going to PAY.

Even if it is cash have a contract. You would not be in trouble for paying with cash. It will be the contractor who is responsible for his books.

 

[Architorture]

A $50K transaction will raise some ??? with the IRS. Why would you want to pay cash? do you get something in return? if not the screw it and make draws. if youre not getting a significant discount for cash, why bother.

The irs doesn't care if you spend $50k on a garage so long as you don't try to claim it as some kind of deduction

 

[c39er]

He needs cash because his credit with suppliers is not good.

 

[bczygan]

Sure, I'd give him 50K cash, after completion of the job, final inspections and walk through, signed waivers of lein from all subs and suppliers and C of O from the building department. I would retain 5 or 10% for 1 year for call backs on the warranty period though.
And he would need to give me a receipt and waiver too.

I might be tempted to video the transaction too.

And welcome to GJ!

Where are you located?

BTW, You need to become a LOT more savvy before you enter into this kind of process. You have a big learning curve ahead, before even thinking of signing a contract.

 

[RedneckWelder]

I have a rule against doing business with family and friends. Many tales of woe start out with "I paid my brother-in-law or friend to do X job" and end with "I GOT SCREWED"

And if he does great work, then why does he have financial trouble with suppliers? Kinda disconcerting that.

 

[Carl B]

A Written Contract is a MUST - before any work begins. If he is planning on using your money rather than putting his own money in up front. - - that if fine too. Just make sure YOU have complete control of YOUR money at all times.

Never Pay a lump sum - for a job before it is completed. You can make reasonable progress payments - and that keeps the incentive for the GC to get the job done on time. You don't want him using your money - to get some other job that he is behind on - done.
FOR EXAMPLE / DISCUSSION: {you can mix the money in any way that both of you fell is reasonable for each progress payment}

A written contract would specify not only the expected building - but the method of payments.

Payment #1 - - Foundation & Slab complete. $16,600.00 Cash in Advance.
- Permit Pulled & All necessary inspections completed
- Lein Releases signed by Materials Suppliers & Labors - this is an absolute MUST.

Payment #2 - - Will only be made when all items in #1 are completed. PERIOD $15,000.00 - cash in Advance
- Building Framing Completed
- Rough-in Electrical completed
- All necessary inspections completed on Permit
- Lein Releases signed by Materials Suppliers & Labors

Payment #3 - - Will only be made when all items in #2 are completed PERIOD - $13,400.00 Cash In Advance
- Roof Completed
- Doors and Windows Installed
- Electrical Work Completed
- Exterior Finished

Final Payment - Will only be made when all items in #3 are completed $5,000.00 Cash

You have to make it very clear that all work on the building and paperwork associated with it - must be DONE/COMPLETED before any further payments will be made. Then you have to stick to that.. and he has to as well. NO EXCEPTIONS/EXCUSES. Far better to STOP - than to get sucked in farther and farther on a job that isn't getting DONE.

Attach to the Contract examples of the Lien Releases - that must be completed. This has to include suppliers and labor. If he hasn't paid them - they can put a lien on your building/home.

If the contractor objects to any of this - find someone else.

If he is actually ligit and successful - he should be able to finance each stage with his own money. Far safer situation for you. Even then pay progress payments - and get all paper work done - before you go forward.

Just my experience - paying for things that never got done…
FWIW,
Carl B.

 

[Big Bad Dad]

In addition to the above coments, you might want proof of the $50K spent in case of possible future capital gains tax on your property.

 

[NUTTSGT]

I was going to post something similar to what Carl did but he typed up a fine post. I might even break down the payments in smaller steps, carrot in front of the horse, to keep him working.

I wouldn't necessarily think he has money issues or supplier problems. He's just doing what many of us already do, construction contractors, mechanics or DIYers, side jobs for a little extra cash. He is probably figuring as a good neighbor, you're not going to report him to the IRS and off hand, he's putting some trust into you.


$50K lump sum, no way.

 

[wilcolater]

Carl's post is right, just like what a tittle company would do, but with the payment up front instead of behind. That cash up front should put you at the front of the line on any to get done list, not the back. That being said, as a contractor, friend/neighbor jobs can be tricky, there's a feeling that a handshake is good enough, and it is, just the expectations need to be clear on both sides. As a home owner who is looking at garage journal your ideas of a garage may be more refined than the average customer, details that are not spelled out in the plans need to be discussed in the planning stage not after work is done. when everything is clear, in a non confrontational way, the job should be a joy to both parties.

 

[xyster101]

I just had my father-in-law work with me last summer to build a garage and I paid him cash.
Just a FYI for your money, you can only take a certain amount of money out of the bank in a single transaction without raising eyebrows with the IRS. I talked with my finical advisor and was told $10,000 per transaction. I am not sure how close together those withdrawals can be (I only had to pay $6,000 to in-law).
I paid for the materials, concrete trucks, lumber, roofing, gutters, directly to those suppliers and when the materials were delivered the father-in-law (GC) and I would install them. You can do this and less money will go through your GC hands.
Like others have said, get everything in a contract you both agree to, communication is the biggest reason for bad relationships. Work out a payment plan for small amounts as parts are done. To help cover your ****, you can pay subs directly and pay for materials. Then out of the $50k you will only end up giving the GC $20k cash. I ordered my lumber with my credit card, $8,000 in one charge, that is a lot of points/miles/etc. Concrete was a check/cash.

Just cover your *** in terms of the contract and money. $50k is a lot, and there are many horror stories on here of people getting screwed by GC for poor work and even buildings falling down. I learned a lot building my own building even working with an experienced GC, but I did all the ordering, organizing, planning, permits, inspections with the town, etc. Communicate everything to a "T" and put things in writing you both sign for. Make sure he has insurance and any worker is covered too. Basically do everything like you paid in credit, but use cash. It is up to him to claim the cash as income, but you can set off bells if you withdraw too much in one transaction.

Keep us posted

 

[sracer99]

Lien Release: never any $ without one. And read up on the lien laws for residential work in your state, here in TX we have some fairly protective ones for residential, not at all for commercial.

 

[lynnbilodeau]

"however he likes cash payments for obvious reasons."

I fully understand that we all hate paying taxes. I am a firm believer in tax avoidance. However, I don't believe in tax evasion, which is what you are implying is going on here.

If you pay in cash, believing he is not going to report all of the income, you are assisting a tax dodger.
In the final analysis, you and your buddy (if you do this) are stealing money from every honest taxpayer, and increasing the burden on us.

There is no way you can do this right, i.e. protect yourself (see CarlB's post) without a paper trail. I am not saying you will get caught. I am saying you will have already built a case for the prosecution if you do get caught.

An honest GC can make a decent living without tax evasion.

$50k isn't a little side job.

 

[Kevin54]

I look at it this way, if he wants to report the income, fine, if he doesn't want to report the income fine. How many have sold a car and not reported the income? Probably 99% of the people on here at one time or another.

Now as far as paying him......no money up front. After the foundation and floor is done, pay for it. After the wall are up, trusses are up, pay for it. When the roof is on and sidewalls are on pay for it. You can work out a deal with him that either you pay some labor as you go along, or you can hand him allthe cash for the labor when completed.

I did the same thing when I built the wifes building and had a lot of concrete work done. I told the guy doing the work, that I will pay for materials the day he was done working with the materials, and it was to my satisfaction. I also told him....Look, you expect me to trust you, I expect the same from you towards me. You do the work, I pay the bill.

All worked out great. He did a hell of a job, and also ended up with a few more concrete jobs in my town. BTW.....he was $11,000 cheaper than the lowest guy around here.

 

[yeldogt]

The form of payment is irrelevant. The IRS has reporting requirements (10k) -- but they are backward looking. Some businesses have restrictions on accepting cash payments -- maybe that is what people are thinking about.

Would you give someone a check for the whole job before he started? They have the money the next day.

The only issue with Cash is you must get a proper recite. If this person is a contractor you must get the recite with his letterhead -- your are paying a company for work ... not the person standing in front of you. Otherwise it is a side job and you are hiring him not his company.

The same protections are required regardless of the payment. Most bigger contractors I have hired don't require any money upfront.

I had a retired mason work for me years ago -- I did have to slightly change my insurance to make sure I was covered.

 

[69gp]

I just had my father-in-law work with me last summer to build a garage and I paid him cash.
Just a FYI for your money, you can only take a certain amount of money out of the bank in a single transaction without raising eyebrows with the IRS. I talked with my finical advisor and was told $10,000 per transaction. I am not sure how close together those withdrawals can be (I only had to pay $6,000 to in-law).


You can withdraw as much as you want in cash that is not reported.

Its when you go to do a deposit that the bank has to file on you If its over 10K in a single transaction or if you structure the deposit to go over the 10K limit at your bank. The structuring would be if you made 2 or more deposits that total over 10K at your bank in a single day. You could deposit $9,999. per day for as long as you want and it wont get reported. Besides if its legit cash that is deposited and reported there is nothing to fear as you would be showing it on your books.

This was setup to keep track of drug and illegal dealings with money.

 

[jimindm]

I love reading threads like this. All I can say is cash is king, if you got it and want to spend it, then yes it should save you money dealing with it. To say, many companies and people do not want to deal with it any more is just not right. Every denomination of paper bills say "this bill is legal tender to pay all debts, public and private".No one can refuse to take your cash.

I love the advise that is given to many that are ready to build anything on here. Get a GC, do not get a GC. Get 9 bids from different GC. GC it yourself and get 9 bids from each of the different professions needed. I just do not get it.

You have a set of plans just have it built. Call family, friends or whoever and get referrals. Do you think that they would recommend some one that screwed them over? You do not need 31 bids to have something built.

I put a 1500 square foot addition on my house. The project was much like kevins garage addition. Was it all new construction? no. We added on, roofed the whole house, put windows and doors on the whole house, and sided the whole house in the process. I acted as the GC and intended on doing much of the work myself.

It was 10 years ago and maybe luck was on my side. With a set of plans I set out to do the job. Called dirt guy I know. He could not do it as it was small, but refereed me to a nother guy, and I had a basement dug in a week. Called a friend that managed a ready mix place and told him I wanted a poured foundation guy. He gave me a name, I called and the basement walls were done the next week. Dirt guy friend came and we installed the drainage system, sump pit, and back filled. Concrete flat work done the next week and was ready for the walls.

First guy hired was a no show. Two days later and three phone calls I had a another company crew here framing. Me and friends installed all of the windows and doors in the existing parts of the house, and stripped the old siding off ready for new. We wrapped and installed hardie plank siding over the nest two weeks, while the Latino neighbors roofed it. Painted it and the outside was ready.

Electrician friend was slow, so he roughed it in. He also recommended an HVAC guy that was slow and they roughed in that. One weekend to put insulation in, and I was ready for the dreaded drywall.

Neighbor down the street had been watching progress. He is a drywall guy and in June wanted something like 40 cents a square foot to hang it, start to finish and paint. This was about thanksgiving time and he knew he was about to be laid off for a month. He did all of the drywall, took care of a few ceilings that were destroyed in running wire and HVAC, all of the window repair strips, start to finish plus paint. I bought materials and he did it for a grand.

Me and the wife finished the woodwork, set the HVAC registers, and finished up most of the electrical. Picked out floor covering and had them installed.

I have to say that I paid cash for just about all of the labor and you better believe I saved some money. Only things that were not paid in cash was much of the product used on the site, which the lumberyards delivered.

OP you should not be weary of paying cash. I would not pay it all up front however. I would also not worry about working with a friend, usually they will perform a better job. I think where people get hosed with working for friends is that usually its a deal or a trade situation. Just pay them, no need to work out anything else,

The best advise I could give you is to have a plan and make sure that it is built that way. How you are paying for it, should not be a problem for you or anyone you are dealing with. Some one wanting to deal in cash would not bother me at all.

Good Luck

 

[wssix99]

He needs cash because his credit with suppliers is not good.

RUN AWAY. Even if your friendship survives the job, his suppliers could decide that "their" unpaid material is in your structure and then lien you.

 

[Kevin54]

RUN AWAY. Even if your friendship survives the job, his suppliers could decide that "their" unpaid material is in your structure and then lien you.

If you had read ALL of the above, the remark that you quoted was not made by the OP. It was more or less a smartass remark as to why the neighbor wanted cash.

 

[NUTTSGT]

You can withdraw as much as you want in cash that is not reported.

Its when you go to do a deposit that the bank has to file on you If its over 10K in a single transaction or if you structure the deposit to go over the 10K limit at your bank. The structuring would be if you made 2 or more deposits that total over 10K at your bank in a single day. You could deposit $9,999. per day for as long as you want and it wont get reported. Besides if its legit cash that is deposited and reported there is nothing to fear as you would be showing it on your books.

This was setup to keep track of drug and illegal dealings with money.

Actually, it's any withdraw, deposit or other money transaction that is over $10K in the US. It's part of the Currency Transaction Report that a financial institution must fill out and report to the IRS.

Your local bank may have some other paperwork that is filed on their behalf per their own set of banking rules.

 

[hippie2cams]

Never, ever pay all the money up front for anything, nada, zip. That is where all the problems in the world arise. Thats why c-list has all those notifications about paying money up-front for cars and other things. maybe not all but most are going to be ripoffs.

 

[Lassen Forge]

Get EVERYTHING in writing, and make further payment contingent on completion of the former phase of work. We had a GC come in and screw us because he started numerous jobs all at once, and got paid a percentage, and then left a lot of the work incomplete and half-assed. Keep a TIGHT structire on it. And DO NOT PAY THE ENTIRE SUM UP FRONT - if the GC wants this, then run. no... RUN!! That is just too tempting for someone to half-*** the job and walk away with YOU holding the bag.

That the GC is a friend - you can do that if you want, but there's a reason most people don't do business with friends or relatives. It *may* work OK for you, and if so, cool... but it's also a really great way to end a friendship or start a family feud.

 

[c39er]

A Written Contract is a MUST - before any work begins. If he is planning on using your money rather than putting his own money in up front. - - that if fine too. Just make sure YOU have complete control of YOUR money at all times.

Never Pay a lump sum - for a job before it is completed. You can make reasonable progress payments - and that keeps the incentive for the GC to get the job done on time. You don't want him using your money - to get some other job that he is behind on - done.
FOR EXAMPLE / DISCUSSION: {you can mix the money in any way that both of you fell is reasonable for each progress payment}

A written contract would specify not only the expected building - but the method of payments.

Payment #1 - - Foundation & Slab complete. $16,600.00 Cash in Advance.
- Permit Pulled & All necessary inspections completed
- Lein Releases signed by Materials Suppliers & Labors - this is an absolute MUST.

Payment #2 - - Will only be made when all items in #1 are completed. PERIOD $15,000.00 - cash in Advance
- Building Framing Completed
- Rough-in Electrical completed
- All necessary inspections completed on Permit
- Lein Releases signed by Materials Suppliers & Labors

Payment #3 - - Will only be made when all items in #2 are completed PERIOD - $13,400.00 Cash In Advance
- Roof Completed
- Doors and Windows Installed
- Electrical Work Completed
- Exterior Finished

Final Payment - Will only be made when all items in #3 are completed $5,000.00 Cash

You have to make it very clear that all work on the building and paperwork associated with it - must be DONE/COMPLETED before any further payments will be made. Then you have to stick to that.. and he has to as well. NO EXCEPTIONS/EXCUSES. Far better to STOP - than to get sucked in farther and farther on a job that isn't getting DONE.

Attach to the Contract examples of the Lien Releases - that must be completed. This has to include suppliers and labor. If he hasn't paid them - they can put a lien on your building/home.

If the contractor objects to any of this - find someone else.

If he is actually ligit and successful - he should be able to finance each stage with his own money. Far safer situation for you. Even then pay progress payments - and get all paper work done - before you go forward.

Just my experience - paying for things that never got done…
FWIW,
Carl B.

Right answer.

 

[CTyankee]

Won't get into the moral or ethical issue of doing a under the table cash deal. But as mentioned 50K isn't a "side job". What I'm interested in knowing is he:

1) Giving you a discounted price on the job for paying in cash.

2) Even willing to give you a written contact and receipts for the job. He'd be risking a lot by leaving a paper trail for the unreported income.

 

[PanelDeland]

All I'll add is to put a timeline in your contract. If he starts, then gets ******* on other jobs, you may be a year or more getting anything built. Especially if it's a "side job" or "filler" (no profit but keeps his crew making a living).

 

[rburke65]

Big Bad Dad.........Capital gains tax on property?

 

[Ironcrow]

I had a lumber yard try to bill me for the wood in my house that the general never paid for. They alluded to the possibility of a lien. I had my lawyer write them a letter and tell them to pound sand. Problem went away. State laws and situations vary.

In this case the contract is key. Payment method doesn't matter. Maybe he's just trying to hide the income from his crazy ex.

 

[Holzarbeiter]

I have a rule against doing business with family and friends. Many tales of woe start out with "I paid my brother-in-law or friend to do X job" and end with "I GOT SCREWED"

Plus 1
Should things get sour, nothing worse than having the offender living on the same street. Its hard enough to keep things pleasant with neighbors, never mind throwing money into the mix.

 

[hangfirew8]

He needs cash because his credit with suppliers is not good.

Then I would avoid him as a GC.

When the housing market went bust the country was full of GC's who were caught finishing jobs with the money from the next job. They were good foremen but bad businessmen. Lots of people lost money on just-started construction when they went bankrupt.

Also payment is done in multiple drops after milestones are reached. Only the deposit is up front.

Avoid.

-HF

 

[Kevin54]

Quote:
Originally Posted by c39er View Post
He needs cash because his credit with suppliers is not good.
Then I would avoid him as a GC.

When the housing market went bust the country was full of GC's who were caught finishing jobs with the money from the next job. They were good foremen but bad businessmen. Lots of people lost money on just-started construction when they went bankrupt.

Also payment is done in multiple drops after milestones are reached. Only the deposit is up front.

Avoid.

-HF

Does nobody read past the title, and then only the short replies?

The OP never said the GC does not have good credit. You are the second one that has replied to something that the OP never once stated.

 

[slip knot]

The irs doesn't care if you spend $50k on a garage so long as you don't try to claim it as some kind of deduction

I sold a piece of property for $35K. the buyer paid in cash. I depsoited it and 3 days later the IRS was on my doorstep wanting to know where the $35K came from? Dont think they aren't looking at deposits. They asked me where it came from. I showed them the sale papers and they left for his place next. Cash aint always king nowdays.

 

[ZRX61]

He's going to use your cash to pay off those creditors he's already in debt with.... Worked for a guy like that for a few months, he always used the new customers $$$ to pay the wages he owed me for work done 2 months previously.

 

[c39er]

Regardless of what the OP stated I don't think this GC is to be trusted with 50K up front.
Never pay all the costs of a sizable job up front with cash!!!.

 

[NC4AB]

Going back to the OP's initial question on liability -

No question about needing a written contract, and if you really want to make sure you are covered require a Performance Bond, made out in your name. I don't think I have seen Performance Bonds used in residential construction but they are common in commercial work.

Pretty much an insurance policy that guarantees your job will be completed.

 

[hangfirew8]

You are the second one that has replied to something that the OP never once stated.

That's why I was so sure of myself!

OK so I mistook consensus with fact. But my advice remains the same, break into drops and no drop in advance, at least not beyond the initial deposit on contract signing.

 

[wssix99]

A Written Contract is a MUST - before any work begins. If he is planning on using your money rather than putting his own money in up front. - - that if fine too. Just make sure YOU have complete control of YOUR money at all times.

Great point. In addition to the money, it's also important for the contractor to accept liability for the work they do on your site and attest that they are insured. If they get injured and don't pay their medical bills, the lawyers will eventually come after the homeowner. (... And your homeowner's policy probably does not cover your personal liability in such matters.)

Lien Release: never any $ without one. And read up on the lien laws for residential work in your state, here in TX we have some fairly protective ones for residential, not at all for commercial.

This is an excellent point. During our home construction, we were in a time crunch and needed to have a subcontractor work for us who was having money/supplier problems. (He still screwed us by not showing up for work when promised, *we should have known better * but that's off topic.) We fronted him money to pay his supplier for materials. In that case, we also had the supplier agree to sign the lien waiver. (So they could not come after us for other debts he might have with them, etc.)

 

[purplezr2]

Won't get into the moral or ethical issue of doing a under the table cash deal. But as mentioned 50K isn't a "side job". What I'm interested in knowing is he:

1) Giving you a discounted price on the job for paying in cash.

2) Even willing to give you a written contact and receipts for the job. He'd be risking a lot by leaving a paper trail for the unreported income.

Remember he is only failing to pay tax on a much smaller amount, a large portion of that would be materials. No need for tax on those, unless he is buying them tax free at the lumber yard.

I sold a piece of property for $35K. the buyer paid in cash. I depsoited it and 3 days later the IRS was on my doorstep wanting to know where the $35K came from? Dont think they aren't looking at deposits. They asked me where it came from. I showed them the sale papers and they left for his place next. Cash aint always king nowdays.

Should have split it in to under 10K amounts and split it up over a number of weeks.