Why aren't more investors acting as GC's??

Question

Hi everyone! I went to my local REI meeting tonight here in Bellingham, Washington, and was so incredibly moved and motivated by all of the people who are working so intently to make their dreams come true for themselves. One scrappy young guy in particular, named Robert was a real life example of someone who started from nothing, and is making his dreams a reality. It's amazing and beyond inspiring...

Anyhow, I've got a truly burning question that I want to throw out to the BP community. So here goes:

Why don't more investors act as their own GC's?

I can't think of any reason one wouldn't be his or her own GC unless they don't have the time, or just hate coordinating, and managing projects... in which case it seems like REI might not be the right fit! It seems to me it would save money, and a lot of headaches given the zillion posts about the lack of good GC's out there.

Can I get some opinions/reasons on why this is a trend, or am I totally off base here? It seems like GC's are rarely investors, and investors are rarely GC's! What gives?

I leave it to you, my friends. Thank you!

Patrick Britton · Answer

@Clayton Swansen One thing to keep in mind is that investors will focus their energies on areas in which they have a competitive advantage or unique skill set.  There is nothing wrong with delegating the coordinating and managing a project to somebody else who can do it better and cheaper.

Being a real estate investor is not about doing things by yourself to save money, it is about maximizing your time and value.  I think if you ask some of the most experienced and successful real estate investors you will find the vast majority of them delegate most of the grunt work.  This is because they realize their time and energy is better spent elsewhere than handholding and babysitting subcontractors.

Last but not least, it is nearly impossible to take on more than a couple of projects without delegation.

Rob Lane · Answer

I have had too many bad experiences over the past 20 years of doing this.  I am my own contractor/maintenance man.  It took me 10 years to build a team of the 3 bigs, (H&A, plumbing, and electricity).  I have had to fire too many contractors of all aspects over the years.  You need to learn the lingo, and what you are doing.  Even if you are not the contractor you need to be on the site and get your nose bloodied and pitch in and work.  You would be amazed how a 6 month project turns into a 3 month project when you are on site regularly.  Besides that its my favorite part of the job!

Emily Powell · Answer

Probably for the same reason they don't become their own agents, accountants, lawyers, etc.  You could certainly become each of those and save yourself the $ on future projects, but I think most people would prefer to put their time and energy into finding deals (or any number of other things) and letting people who are experts in those areas do those jobs more efficiently, from both a cost and a time perspective.  I think Patrick said it best, all about maximizing time and value.

REI meetings, coffee dates, great questions on BP... Rock on, Clayton.

Bruce Runn · Answer

I live and own properties in Minneapolis and this is the requirement for owner/investor renovations here:

As an owner of property you must hold a valid State of Minnesota Residential Building Contractor License or Residential Remodeler License if you build or improve more than one property within any 24-month period.

Clayton Swansen · Answer

Excellent! Thank you everyone! I love being able to throw a question out to the BP community, and get a variety of solid responses. I feel like I now have a better understanding of the GC question. It just seems like there is a niche in there that is just waiting to be filled by some go-getter... Clearly investors need someone who can manage their projects with integrity, and efficiency.

@Patrick Britton your wisdom is always greatly appreciated. Thank you, sir! If you would ever like to meet up for lunch or coffee one day, it would be an honor and a privilege to pick your brain on a couple of things!

@Samuel Schell the same goes for you, sir. If I can ever buy you a lunch, or coffee, just for the opportunity to sit down with you, and hear about what and how you do what you, I would be honored.

Chris Penny · Answer

I was the GC on a garage conversion for a house we bought for REI.  Pretty sure it cost me more money to not know what I didn't know.   My friend has home building experience and decided to GC his one REI rehab.  It ended up costing almost twice his original estimate. Much of the costs was due to things done wrong that had to be torn out and redone. Always a painful experience.  IMHO, a knowledgable, organized, honest GC is worth twice what you would pay for that service.  Your mileage may vary.

Samuel Schell · Answer

Clayton,

This is a good question that I think I could shed some light on.  I am an aspiring investor (just closing a duplex, have a SFR), real estate agent, and also currently a Project Manager for a local GC that specializes in custom homes in Bellingham.  To my knowledge, there are not local restrictions here as Patti referred to.

In my opinion, these are two distinct jobs and skill sets. It is more about having resources and experience/knowledge to manage the many aspects of the construction process concurrently with the demands and responsibilities of being a full time investor. If you are a single person, this could prove to be more than you could reasonably manage, especially if taking on multiple projects.  In addition, managing subs requires a solid knowledge base in construction to be able to specify and ensure that you get what you pay for. Investors come from many different backgrounds  and many just don't have this knowledge (but they may be great at finance).  From an efficiency point of view, it can be much easier and often cost effective to have a GC manage the process and the many subs for you. This is the same reason that GC's hire subs to manage different aspects of large projects. It just depends on where you want to focus your time. I think you will find RE investment companies or teams that do this effectively, but it requires the resources that a team provides.

There is also additional overhead devoted to keeping your licensing and bonding current in addition to ensuring that of your subs. This eliminates the risk of worker compensation liabilities and potential liens.

Patti Robertson · Answer

We GC our rehabs. In our area if we own more than 5 houses we are allowed to act as the GC and pull permits. Investors who own less than 5 properties are not allowed to pull permits, except for their primary residence. Your local permit office can shed some light about the requirements in your area.

Account Closed · Answer

I live out of state from where I invest.  Also, I have a great GC that I trust implicitly.

Any savings I might be able to make would be offset by the travel cost for me plus to be honest he's more likely to get things done right.

Why aren't more investors acting as GC's??

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