Most flip post-mortems trace back to one of two causes: a bad acquisition number, or a bad contractor. The acquisition number gets most of the attention in underwriting, but a contractor who blows the timeline, walks off mid-project, or does work that fails inspection can cost you just as much — in carrying costs, in draw delays, and in rework. Here's how to vet one properly before you hand over your rehab budget.
Verify the License — Through the State Board, Not the Contractor
- Confirm the contractor holds a current, active license in the state where your property is located — not expired, not pending renewal
- Look up the license number directly through your state's contractor licensing board website rather than trusting a copy the contractor hands you
- Check for any disciplinary history, complaints, or bond claims on file with the board — a clean search is worth the five minutes it takes
- Confirm the license classification actually covers the scope of your project — a license for one trade or project type doesn't necessarily cover another
Verify Insurance — Straight From the Carrier
What to require: General liability insurance with at least $1 million in aggregate coverage, with you (or your LLC) named as additional insured for the specific project | Workers' compensation coverage sized to match the actual crew working on your property
Request the certificate of insurance (COI) directly from the contractor's insurance carrier or agent — not a copy forwarded by the contractor themselves, which can be outdated, altered, or for a policy that's since lapsed. A legitimate contractor and their insurance agent will have no issue sending a COI straight to you or your lender.
Structure Payments Around Milestones, Not the Calendar
| Deposit | Typically 10-15% upon signing — enough to secure the contractor's commitment without funding significant work upfront |
|---|---|
| Progress payments | Roughly 30-40% released as major work phases are verifiably complete (framing, rough-in, drywall, etc.) — inspected before payment, not before the work starts |
| Final payment | Held until all work is finished, inspected, and any punch list items are resolved |
A well-structured payment schedule defines four things clearly: the milestone the contractor needs to hit, the amount tied to that milestone, when payment follows it, and how it's paid. Align this schedule with your lender's own draw schedule wherever possible — paying a contractor ahead of a verified, lender-inspected milestone puts your own capital at risk for work that hasn't been confirmed complete.
Red Flags Worth Walking Away From
- Insistence on cash-only payment — legitimate contractors carry standard payment infrastructure and can produce documentation for tax purposes
- Reluctance to provide a COI directly from their insurance carrier, or pressure to accept a copy they provide themselves
- A bid that's dramatically lower than every other quote you've gathered, with no clear explanation for the gap
- No written contract, or a contract that's vague on scope, materials, and payment milestones
- An unwillingness to provide references from recent, comparable projects you can actually verify by calling
Documentation to Have Before Work Starts
- A detailed, written scope of work — specific enough that a change outside it is clearly identifiable as a change order, not a judgment call
- A signed contract specifying the payment schedule, project timeline, and what happens if either side needs to terminate
- Verified copies of the license and COI, obtained independently as described above
- A clear change-order process in writing, so unplanned costs are documented and approved before the work happens, not discovered at the next draw request
The Bottom Line
The contractor you hire controls your timeline, your budget, and ultimately the quality of the asset you're trying to sell or rent. Spending a few hours verifying licensing and insurance independently, and structuring payment around verified milestones rather than trust, is cheap insurance against the single most common way a flip's numbers fall apart mid-project.