GC or GLSEEZE?

Question

Good Afternoon BP,

Since I got involved in real estate a year and a half ago, everyone has made wholesalers out to be the worst players in the game. Well, I have come to realize, it's not the wholesalers. ITS THE GENERAL CONTRACTORS!

This morning we went and walked a current flip that belongs of one of my coworker's investors. My other coworker's contractor contact is who is doing the renovation. To preface we budged $57k to renovate the house its 1,200 sqft, the investor had three different GC's come out and walk the property and one came back at $60k, the second at $75k, and the third at $100k. Now the investor went with the GC who gave him the bid of $100k because he felt as if he would do the best job and make the vision he wanted to portray and he pointed out things that the other contractors did not. Now when we were at the property this morning he told us the budget was now $125k... A $125K TO RENOVATE A 1,200 SQFT HOUSE, THATS $104 PER SQFT. There was only 2 men working on the house??

As we all know material costs did go up, did contractors decide to double as well? It's breaking deals in half to where the numbers just cannot make sense. It's almost like they GC is hiding the money their making in the material costs.

Moving forward, asking for breakdowns of labor and material costs. Then just buying the materials ourselves and asking for a labor breakdown and timeline is gonna be the way from now on.

Bruce Woodruff · Answer

@Katlynn Teague You're getting a complete reno for $104 SF? Pretty amazing price if ya ask me. Should be close to double that. :-)

First - How can the price just suddenly increase from $100k to $125k? That's not possible...If you signed a contract for $100k, that's the price 'until and unless' there are changes requested by you OR required by circumstances (in-wall wiring is frayed. headers are undersized, etc)

Second - Please don't breakdown the materials and buy them yourself. This is a guaranteed recipe for disaster...you will automatically lose all of the really good GCs. No serious, legit, high-end GCs will allow you to get materials...it's not how this is done. You will end up paying more for materials actually by the time the GC charges you for pick-up, delivery, unloading, storing, etc. (Hint - Do a search, we have discussed this ad infinitum)

Third - Just find a good GC. Vette them thoroughly. Have a specific SOW and a Valid State contract. Pay as you go, nothing upfront.  [Not sure what @Henry M. means by 'day rate', there is no such thing with General Contractors, must be doing small jobs with pick-up laborers]

And yes @Alan F. is spot on...there are way more investors that screw up a project...no idea how to screen Contractors, no idea how to do their job right on a remodel (have clear objectives and don't change them, then stay out of the way)

Steve K. · Answer

Some GC's are crooks for sure but if these ones are finishing the work in a timely manner, doing quality work, and it's just going a little over budget, then that's pretty normal. The numbers actually seem ridiculously low to me. In my market the very cheapest possible whole-house project would be $250ft2, medium-grade would $400ft2 and most are $800-1,000ft2 (average home price is over $1M so we're talking luxury finishes). That's if you can find a contractor, because most are booked out at least 18 months and are being picky about what projects they want to do and who they want to work with. Going from $100k to $125k isn't that surprising. Almost every project goes over budget in my experience, I'd say you're lucky it's only 25% and not double. What triggered the change order? Usually it's the customer changing their mind about something.

Mentioning you want a breakdown of materials and labor would be a non-starter here, any of the good contractors won't work with you. Offering to buy your own materials and hand-delivering them to the jobsite yourself will get you the same result, but they'll get a good laugh too. That's impractical for a number of reasons anyway: Legit GC's have accounts at contractor's-only lumber yards where they pay up to 50% less than you would at the big box stores (on some items, others are 10-30% less, some are about the same price), so even after their markup you're probably still paying less for most materials through them than you would on your own. Plus they have everything delivered to the jobsite for free at 7am so they can start working instead of shopping. Nobody should be paying contractors to shop at Home Depot for them. For small handyman-type projects, sure, but for anything bigger than that, buying your own materials is silly. You'll also probably get the wrong stuff, and the wrong amount of it, and piss everyone off and hold up the job. You'll probably actually end up paying more in the end.

This seems like a pretty typical project to me. If you had gone with the $60k bid, that probably would have been a big mistake.

Chris Seveney · Answer

@Katlynn Teague

Prior to any GC contract you should have a detailed scope of work, a line item schedule of values

Out of curiosity were these contractors licensed?

What was the cause of the increase?

Was your contract a lump sum contract ?

Alan F. · Answer

Bad idea, I'd follow the states guidelines on contractual agreements. there's always going to be vendors that your not pleased with. Margins collide, it's part of business. FWIW theres far more bad REI investors than contractors. Merely my opinion

Bruce Woodruff · Answer

Gotcha. Never heard of a Sub working by the day, must be regional....?

Henry M. · Answer

Good idea. Btw, don't pay for a day rate. It needs to be project by project and they don't get paid a draw until complete. I have a Home Depot account and I have my workers pickup material and they (HD) text me to confirm. I always audit my receipts. I don't pay for tools, supplies (of the trade), food or drinks...

Bottom line, you have to be in control in this business. No one cares about your problems. Everyone (95%) who is a a worker of any skillset typically just care about themselves. A GC will usually find the cheapest labor to get the most profit out of any job.

Don't depend on the city inspectors to watch out for your benefit... Trust me, I have some stories that ultimately cost me more money in the end.

Message me anytime!

"Big" Henry

GC or GLSEEZE?

Most Popular Reply