How are people making money when using contractors?

Question

Hello, I am a newbie and a fix and flip virgin. I'm spending a lot of time learning how to analyze properties and finding that the current market offers some pretty slim margins for profit. I'm a DIYer so most of the work and savings will come from NOT using GCs. I'm curious how people are making a profit when using the more costly option of using a GC. Are you accepting smaller profits? Do you just have great relationships with your GC where they're willing to give up their profit margins for volume work? Am I figuring something wrong? Thanks.

Kyle Ebersole · Answer

You have a great advantage that you can do the work yourself instead of paying a contractor to do the work. You won't be able to scale as quickly as you can only be in one place at once, but you will be able to make deals work that others can't because you are doing the work yourself. As for me, I normally GC and manage my own flips to keep costs down. If I know I have to use GC, I just run my rehab numbers a little higher. Best way to answer is I don't cut my margins, and they don't either, I just have to find the right deal that works for all parties. Hope this helps!

Gi'angelo Bautista · Answer

In our market, having a GC partner or being the owner builder/GC helps a lot.

I did notice that it sort of depends on the price point. For some reason, I can get the numbers to work for houses over a certain value versus under. I think it may be because there is less competition for higher valued properties.

I also noticed that in some cities, I am facing a bunch of real cash buyers (no hard money loans) and using a GC would not work.

Henry Lazerow · Answer

Using cheap contractors. I get work done for 1/3-1/2 of what the average contractor off Yelp would charge. Even then margins skinny on most deals, a lot of flippers have their own crew.

Alan F. · Answer

Many people use licensed contractors for flips. Each deal is extremely specific to location, margins, state licensing requirements amongst a few. The comments through out the flipping category display this. More than likely you'll have to figure out a way to navigate your local market. Just to note; It seems that the state of Missouri has no contractor licensing requirements, subsequently the barrier to entry in low.

Samuel Coronado · Answer

I'm running into this problem as well. I had someone put in a bid for $15k labor only on a mobile home rehab. Absolute madness. The next one was $4,500 labor only.

It's wild out here in the tertiary markets. I started doing some of the things myself. Some of the stuff they quoted four hours for took less than 1, including watching the YouTube tutorial.

I'm not sure what changed, but last year I was literally paying a framing crew to pick up trash in my personal home because the owner needed to make payroll. This year, I guess there was no slow season for the contractors. Everyone is trying to make a month's salary in one to two weeks. lol. My properties will literally sit there and rot before that happens. I bought right and have very little carrying costs. It doesn't faze me. :) We're still expanding though as we find the right people.

Stephanie Heron Weeber · Answer

Just a word of caution - where I live you can't do the work yourself on a flip unless you are a licensed contractor - even a GC can't do everything and has to sub out electrical, plumbing and mechanical. When flipping or remodeling anything that isn't your own primary residence you are required, when you sell, to provide a list of all the licensed contractors you used or the name of the GC. Any sub charging more than $1,000 has to be licensed. There is a ton of liability if something goes wrong and you did the work yourself. Perhaps they are more lenient in MO.

John Seitz · Answer

Thanks, Kyle. I am a DIYer. I'm new to this so I may not have the eye for the deal just yet. IDK if it's just the way the market is, but I can't see how anyone is making a profit for fix and flips while having to pay the contractor price.

How are people making money when using contractors?

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