Atlanta - Severe Shortage of Affordable and Licensed GCs

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Atlanta - Severe Shortage of Affordable and Licensed GCs

Rashad Nelson
Rental Property Investor · Douglasville, GA · Member since 2015 · 83 posts · 67 votes

All - I have a continual dilemma.  There's seems to be a rampant shortage of affordable, licensed general contractors in the Atlanta Metro market.  Key word being licensed.  I know the state of GA implemented a law that went into effect on July 1, 2008, that required general contractors / builders to be licensed when offering their services to the general public.  Because of this, I suspect the guys who are licensed are being bombarded with work and get pick and choose their projects - as they should.  

However, my main beef is that this law went into effect mid 2008, but it's now 2017 and there still doesn't seem to be an abundance of licensed GCs in this market, at least in investor circles.  Atlanta is a big market, so I really don't understand.  Every GC in this ATL market that's recommended to me by a fellow investor, agent, or mortgage broker are either unlicensed or a custom home builder charging $120 per square foot (how the hell can you make money off a deal if you're GC is charging $120 per square foot?) 

Another gripe is that contractor prices charged down here are on par with what's being charged in north eastern cities like Baltimore and Philadelphia.  However, in those cities, property and rent values can support those prices charged.  I have an expensive GC in Baltimore, but I can easily find deals to fit his renovation costs into my budget.  I can't do that in the ATL.  

Does anyone else have this dilemma here in Atlanta?  Obviously this a major pain point and if I were so inclined, I would put in my dues, get the necessary credentials including a license, and start my own contractor firm.  However, that's not where my passion or talent lies.  I enjoy being an investor - finding and putting together deals, getting the necessary talent together to make it happen, and spending my time and energy on finding the next one.  

Thoughts?

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Chance Bridges
Atlanta, GA · Member since 2016 · 42 posts · 18 votes
9y

How many deals are you flipping a month in the Atlanta area? If you build a relationship with a contractor and start giving him a lot of jobs then a lot of times you can get his prices down. I refer out my contractor to investors when I wholesale deals. It keeps my contractor busy and I know the people I sold the deal too will get a good quality contractor. That will not do a million change orders on them during the process.

The down size is then he gets really busy and may turn down your jobs  so you have to go find another contractor.

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  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    9y

    Start a legitimate business and try to keep it open charging the rates that illegal (unlicensed) guys charge. You won't last long... or you will be so disorganized that your customers will hate every second they have to spend dealing with you.

    3Reply
  • Account Closed
    Contractor · Chicago, IL · Member since 2016 · 42 posts · 19 votes
    9y
    What Aaron said is 100% true. Here's an example: I send 3 people to complete a day project that requieres skilled workers. Let's say I pay each of them $20/hour. 8 hours a day * $20 per hour * 3 people = $480. I add the minimum profit and overhead (20%) and that bring me to a total of $576. That is going to be my quote for you. Now, an unlicensed "General Contractor" will think this way: 3 people * $15 per hour * 8 hours a day = $360. Add (20%) O + P. And you will get a quote of $432. And that's because there's no insurance, workers comp or license expenses... 90% of the real estate investors I know will choose the unlicensed GC over me. That's why you don't find licensed and insured companies.
    2Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    9y

    Around here total labor burden on a skilled carpenter who can read, write, and speak on a GED or better level is more like $28 to $35 an hour. Overhead and profit on top of that.

    The bigger issue is that the unlicensed GC isn't using legal labor and his labor likely isn't paying taxes... so his labor burden may literally be half that of the legal contractor.  No insurance, no taxes, withholding, etc...

    0Reply
  • Rashad Nelson
    OP
    Rental Property Investor · Douglasville, GA · Member since 2015 · 83 posts · 67 votes
    9y

    Oh hey @Aaron McGinnis and @Account Closed

    1Reply
  • Account Closed
    Contractor · Chicago, IL · Member since 2016 · 42 posts · 19 votes
    9y
    I'm sure you can find a contractor that you will be comfortable working with him and you would be able to make money in Atlanta. Have you considered doing a partnership or joint venture with a GC?
    0Reply
  • Rashad Nelson
    OP
    Rental Property Investor · Douglasville, GA · Member since 2015 · 83 posts · 67 votes
    9y

    Actually yes, I had a joint venture with a local, licensed spec builder for a new construction project in an up and coming area in Atlanta called Hapeville, just northeast of Atlanta International Airport. We had the JV agreement drafted through my attorney where I would fund everything - land acquisition, soft costs, hard costs and he would basically use his expertise and contractor network to run the construction from start to finish. No money out of his pocket, just his energy and time. The property was to be marketed and sold, I get back my original investment and we would split the profit 50 / 50.

    Unfortunately, after the initial mock-up from our architect, he wanted to bail on the project.  He didn't feel comfortable with the end profit.  My numbers showed us making a total of $79K if we built something smaller, around 1850 sq. ft.  Guess he wanted more money.  I'm currently selling the lot for the same price I acquired it for.

    You nailed the point on the head. Unless it's a JV, you can't make any money in this town, at least on the mid-tier projects.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    You have to be more careful on your costs these days. Land prices have gone up for residential and commercial development.

    Commercial crews used to work for 105 a sq ft 2 to 3 years ago to keep crews going on thinner margins and now want 120 a foot with the economy more in an upswing for commercial retail projects. 

    So you have to really watch land and development costs.  

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    0Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    How much are you willing to pay per man hour? The rates Alex quoted for licensed and insured work is what I pay my unlicensed guys and my margins are still good.
    0Reply
  • Account Closed
    Contractor · Chicago, IL · Member since 2016 · 42 posts · 19 votes
    9y

    Also, the $20/hour rate I listed is just an example. I'm not very familiar with construction prices in Atlanta. It might be more or it might be less in your area. 

    1Reply
  • Chance Bridges
    Atlanta, GA · Member since 2016 · 42 posts · 18 votes
    9y

    How many deals are you flipping a month in the Atlanta area? If you build a relationship with a contractor and start giving him a lot of jobs then a lot of times you can get his prices down. I refer out my contractor to investors when I wholesale deals. It keeps my contractor busy and I know the people I sold the deal too will get a good quality contractor. That will not do a million change orders on them during the process.

    The down size is then he gets really busy and may turn down your jobs  so you have to go find another contractor.

    4Reply
  • Rashad Nelson
    OP
    Rental Property Investor · Douglasville, GA · Member since 2015 · 83 posts · 67 votes
    9y

    Most of my deals are happening in Baltimore.  I've continually run into a brick wall with potential Atlanta deals because of my inability to find licensed GCs whose numbers can fit the models.  I get constant leads from various wholesalers and agents, but without a solid partner to get renovations completed at a decent price, its basically putting the cart before the horse.  

    A business associate recently informed me of a lender whose willing to lend on projects as long as the subs are licensed, not necessarily the individual overseeing the project. I have a meeting this week a local wholesaler and a licensed architect with GC experience and a solid network of subs. I hope to JV up and finally get some ATL projects going. We'll see.

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    9y
    Very interesting. It also depends on the price point. Licensed or not, you will get what you pay for. I hired one temporary power company that charged me 4,500 to do a 3-man 3-hour electrical work with 250 feet of electrical cable and exterior conduit ($7/ft for a 6-month free rental) . I was laughing at myself when they called that they were done, however, I don't know how to do it and/or did not want the liability of doing it. Even if they were paying their workers at $50/hr that's only $450 (9 hrs), call it $600 (4 hrs x 3 men) including material loading and transpo time, cable and conduit, i believe they already own but charged me for it (say $4/ft) so that's $1000, they were probably at $2,200 all in including removal. Talk about easy money. Anyway, what I am saying is, if your rehab costs are high, then it is what it is, it might look like a deal for you when in reality (and in other's eyes in those areas) it is really not.
    0Reply
  • Erik Peddle
    Investor · Denver, CO · Member since 2016 · 84 posts · 22 votes
    9y

    I'm a PM/builder in the Buckhead market whose looking to do some flips on the side.   The most expensive part of construction is the person making the decisions/or not making decisions and holding up the process.  We build in luxury areas for $140-$300+/sf.  But that is all based on selections and the speed at which decisions are made.  Good subs are paid more because they are worth it.   An efficient GC who has all the specs in hand before the project starts can meet any realistic budget and even get costs down under $100/sf.  Speed is the key to making profits and not losing your mind with crap GC's.  I've got one to flip that I need another investor to partner with. Anyone interested?  

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    9y
    It's too rare to get even a finish detail on a residential flip, I would bet ten to one that 90% of investors won't have a spec book before they start.
    1Reply
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