Rehab for Rental - Be own contractor or hire one?

Rehabbing & House Flipping
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Rehab for Rental - Be own contractor or hire one?

Ricky Stafford
Newland, NC · Member since 2013 · 36 posts · 8 votes

I'm curious how most investors handle their rehabs/remodels.

I have a space that needs completely gutted and it is going to be a big job. It will require everyone - electrician, contractor, plumber, sheet rock, flooring, etc...

I am wondering (and beginning to think not) if it's worth trying to manage the project and purchase materials and pay people hourly. So far, it's been a bust. I called a carpenter that does a lot of work in the area but he has so far been flaky and dodgy. He only came to look at the place a few weeks ago and said he would call me early this week, but haven't heard anything. An electrician I talked to last week told me he would get to me by yesterday or today. Again, nothing.

Are most investors simply hiring a contractor to sub out the work and then presumably eat the 50% markup? I can't hardly stomach the markup involved in letting someone else manage everything. Then again, I'm an investor and not a contractor/builder so I can't hardly stomach managing people that don't want to work either.

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Account Closed
Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
11y

@Ricky Stafford  It so much depends on your abilities and inclinations.  It is always going to be cheaper to do something yourself.  And if you're able to do it and enjoy it: you should do it.  But do excellent work!  When you hire good contractors and tradesmen, you are paying for quality and speed (keyword: good!).  It is always your decision if it's worth it.

Regarding a contractor's markup amount: why does it matter?  Do you want your tenants or buyers asking for a detailed accounting of your expenses...along with a justification for your profit? No. Your rent amount is what it is...as is your sale price.

 You know what you want done and you have a budget.  The contractor's proposals are either within that budget or not.  If you get multiple proposals and none of them are within your budget then it is likely you have an unrealistic budget.  Rather than insist that everyone has to earn less for your sake, you adjust your budget accordingly. Simple, no?

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  • Ricky Stafford
    OP
    Newland, NC · Member since 2013 · 36 posts · 8 votes
    11y

    I should also add I'm looking for this rental to be a STR. I'm not interested in flipping at the moment (not sure why they bundled Rehab/Flipping into one forum)

    0Reply
  • Patrick Gleason
    Investor/Construction Manager · Boston, MA · Member since 2015 · 38 posts · 11 votes
    11y

    Ricky, 

    If you can find individual tradesmen that will work for you at an hourly rate, chances are their work will be far under par. If you want to act as a GC, you may be able to save yourself the 10%-15% markup off each sub contractor. (not sure about NC's laws but in MA you need a supervisors license) If you do take the GC I highly recommend hiring an architect that will design your space, as well as an engineer if you are tearing down walls. This will be helpful in a couple of ways.

    -When bringing individual contractors to bid on your project (plumbers electricians etc I recommend 3 prices from each sub, never go with the lowest price) they will be able to give you a much more accurate price. 

     -The plans will help eliminate massive amounts of confusion. (given you've never done this before) 

    If you can manage people and can solve problems on site go for it. Keep in mind there are professionals that handle these jobs on a day to day basis because things can go wrong very quickly. 

    1Reply
  • Ricky Stafford
    OP
    Newland, NC · Member since 2013 · 36 posts · 8 votes
    11y

    Well, my one and only project that I did before was done by my cousin and his son and a friend. They all charged me by the hour. I was basically able to just tell them everything I wanted and it seemed to go pretty smoothly. While they did a great job I think, they don't normally do rehab work nor will they probably want to in the future. Thus, I'm in my current predicament.

    Is 10-15% standard markup buy a contractor? I have read that they can markup as high as 50% and don't like to disclose numbers so that got me a little scared.

    The architect tip is a great one. I have thought about it. The space isn't very large or complicated though (basically a few boxes < 800 sq ft) so I may be able to save that expense.

    I realize at the end of the day it's all on me whether I want to put in tons of work to save money (and like you say, still get sub-par work done) or hire experienced professionals to make sure things get done right. I am assuming most investors hire GCs, but I wasn't sure so I wanted to ask. It doesn't seem to get talked about enough (or maybe I'm not looking hard enough) because when someone says "contractor", it can mean anything. An electrician is a contractor as much as the person managing the build. I would assume that the GC generally has employees though or subcontractors they have experience with and trust.

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  • M Marie M.
    Rental Property Investor · Washington, DC · Member since 2015 · 278 posts · 156 votes
    11y

    Sound like you need to find a general contractor, a good general contractor. One where you've contacted his/her references and went to see his last or more recent job.

    Yes, you are paying a contractor to do the work you don't have the stomach or tolerance or whatever for. Me, I don't have the time nor the skill. There are some things I can do (replace the fan in the bathroom; build wonky looking radiator covers; tile a shower), but many things I can't do and I have a full time job.

    It also helps to find a contractor who can work with you and vis versa. Maybe you can find someone who is willing to charge for materials and labor. And even with a GC you will still need to be on top of things (checking in on the job site every other day) making sure things are being done to plan.

    And have a plan. Drawings. Be they something you drew up or from an architect or designer.

    2Reply
  • Larry K.
    Investor and Architect · Ramsey, NJ · Member since 2010 · 305 posts · 84 votes
    11y

    do not hire a gc. make sure you have the time to "check in". most trades will meet you at 7 am for pricing and coordination. if you can get there during the day so much the better. otherwise visit at night and call them. going forward you will have areliable group of go to guys.

    0Reply
  • Dana WhickerPro Member
    Investor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes
    11y

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

    2Reply
  • Patrick Gleason
    Investor/Construction Manager · Boston, MA · Member since 2015 · 38 posts · 11 votes
    11y

    A good general contractor will have reliable sub contractors (electricians, plumbers etc) that he has been working with for years. Keep in mind when you're hiring a GC you're  hiring him for his management skills as well as his team of professionals he has acquired and built over the years. Ask any investor or rehabber- That team of professionals in itself is worth its weight in gold.

    3Reply
  • Ricky Stafford
    OP
    Newland, NC · Member since 2013 · 36 posts · 8 votes
    11y
    Originally posted by @Dana Whicker:

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

     Yeah and I really don't plan on doing any more deals in the area that this rental is in so I may be better off just going through a GC. For some reason I have in my head that most investors work with GCs as a rule but sounds like it may be more case by case.

    0Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    11y
    Originally posted by @Dana Whicker:

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

     Having never dealt with a GC on this level, how does one know "what" the mark up is let alone the % of the mark up?

    Thanks

    0Reply
  • Dana WhickerPro Member
    Investor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes
    11y
    Originally posted by @Daria B.:
    Originally posted by @Dana Whicker:

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

     Having never dealt with a GC on this level, how does one know "what" the mark up is let alone the % of the mark up?

    Thanks

     Well, most GCs are kinda shady about it.  They won't be up front and I can't say I blame them.  They can make what appears to be a lot of money but they provide a valuable service.

    Sometimes the only ways to know what they are marking up are by having a lot of experience paying people to do various jobs, or by buying a book like J Scott's book on estimating rehab costs.  His book is probably the most comprehensive ever written on the subject.

    1Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    11y
    Originally posted by @Dana Whicker:
    Originally posted by @Daria B.:
    Originally posted by @Dana Whicker:

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

     Having never dealt with a GC on this level, how does one know "what" the mark up is let alone the % of the mark up?

    Thanks

     Well, most GCs are kinda shady about it.  They won't be up front and I can't say I blame them.  They can make what appears to be a lot of money but they provide a valuable service.

    Sometimes the only ways to know what they are marking up are by having a lot of experience paying people to do various jobs, or by buying a book like J Scott's book on estimating rehab costs.  His book is probably the most comprehensive ever written on the subject.

     Ok thanks. Yeah that's on my reading list but I haven't bought it yet. Trying to get through my other books first.

    0Reply
  • Julia Blythe
    Real Estate Investor · Memphis, TN · Member since 2014 · 156 posts · 101 votes
    11y

    We have a GC that we use for all of our flips. We pay him 12% markup and I pick out and buy most of the items you can see -- tile, cabinets, vanities, sinks, countertops, appliances, lightening, etc.  I can get trade pricing so it behooves me to buy the items myself, yet I still pay the 12% to my GC because he has to handle the items and/or coordinate their installation.  This arrangement really works well for us and I don't have to spend my time trying to hire and manage multiple people. 

    0Reply
  • Account Closed
    Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
    11y

    @Ricky Stafford  It so much depends on your abilities and inclinations.  It is always going to be cheaper to do something yourself.  And if you're able to do it and enjoy it: you should do it.  But do excellent work!  When you hire good contractors and tradesmen, you are paying for quality and speed (keyword: good!).  It is always your decision if it's worth it.

    Regarding a contractor's markup amount: why does it matter?  Do you want your tenants or buyers asking for a detailed accounting of your expenses...along with a justification for your profit? No. Your rent amount is what it is...as is your sale price.

     You know what you want done and you have a budget.  The contractor's proposals are either within that budget or not.  If you get multiple proposals and none of them are within your budget then it is likely you have an unrealistic budget.  Rather than insist that everyone has to earn less for your sake, you adjust your budget accordingly. Simple, no?

    5Reply
  • Patrick Gleason
    Investor/Construction Manager · Boston, MA · Member since 2015 · 38 posts · 11 votes
    11y

    @Daria B. @Dana WhickerThat markup that a GC provides has a lot to do with meeting and managing the subs, its not like we make 30% off their services. 

     Having never dealt with a GC on this level, how does one know "what" the mark up is let alone the % of the mark up?

    One should not be focused on the % of the mark up but more the execution/price of the project as well as the quality of the project. When you buy something from home depot you're more concerned about overall price and quality of the item, not the % that home depot is making.

    1Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    11y
    Originally posted by @Ricky Stafford:

    I am wondering (and beginning to think not) if it's worth trying to manage the project and purchase materials and pay people hourly.

    Other good answers above, but I will add that I'd never pay a contractor hourly (except in very rare circumstances).  When you pay a contractor hourly, you've misaligned incentives -- your incentive is to get the job done as quickly as possible, but his is to bill as many hours as possible.  Not saying that he will overcharge you or work slowly, but that's certainly where his financial incentive is for that particular job (hopefully he thinks longer-term, but many contractors don't).

    Negotiate a flat rate for well-defined work, and go from there...

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    2Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    11y
    Originally posted by @Daria B.:
    Originally posted by @Dana Whicker:

    Your experience with subs so far has been pretty standard.  Expect most to be flaky at best.  The good ones have so much work that they are less inclined to do work for someone that's not well established - yet.  

    Managing people is the toughest part of this business for most of us.

    You should not be paying 50% markup for a GC.  There are some that will try to charge that but don't pay it.  25-30% is common.

     Having never dealt with a GC on this level, how does one know "what" the mark up is let alone the % of the mark up?

    Thanks

    You wont know , no contractor will tell you what their mark up is .  Just like the grocery store doesnt tell you their mark up . Everyone  contractor will be different .  A good GC wont be cheap ,  and a cheap GC wont be good .

    2Reply
  • Anthony Joseph Kendall II
    Avon, IN · Member since 2015 · 30 posts · 12 votes
    11y
    I've been in the contracting business my entire life. A quality contractor is hard to find but not impossible. Remember for us time is money and information saves time. So know what you want, when you want it, how you want it, and stick to it. A solid plan is a path my men can work on, but frequently changing your mind or holding up productivity because a lack of a decision burns up money. If you're realistic with your budget, timeline, and know exactly what you want a good contractor wants you as a customer. Also reputable contractors typically charge fair market price for their good and services. For me if people want to haggle to much over money I will cut my losses before the job starts. Customers who find value in my service are happy customers and I don't lose a lot of time over haggling. Remember time is money for us!
    3Reply
  • Ricky Stafford
    OP
    Newland, NC · Member since 2013 · 36 posts · 8 votes
    11y

     Fair enough, that's understandable, although I do see differing opinions (from searching around online) on this with some contractors being transparent about their markup and costs while others just providing a lump sum number. Guess it depends on the contractor? Will most contractors allow you to buy your own materials or won't even work with you if you want to do that?

    0Reply
  • Patrick Gleason
    Investor/Construction Manager · Boston, MA · Member since 2015 · 38 posts · 11 votes
    11y

    Ricky,

    To answer your questions regarding materials- 

    My firm handles the purchases of all materials. Holding a client responsible for buying materials will complicate and slow up the process. Start looking at your PROJECT as a PRODUCT. Your finished project is no different then buying a finished product. If you are buying a pair of shoes yes, you can buy all the materials and have someone else make the shoe. Wouldn't it be easier to just let the shoemaker handle everything?

    3Reply
  • Stephanie Goodman
    Real Estate Broker · Waterford, MI · Member since 2015 · 67 posts · 23 votes
    11y
    Originally posted by @Ricky Stafford:
    Originally posted by @Account Closed:

    @Ricky Stafford  It so much depends on your abilities and inclinations.  It is always going to be cheaper to do something yourself.  And if you're able to do it and enjoy it: you should do it.  But do excellent work!  When you hire good contractors and tradesmen, you are paying for quality and speed (keyword: good!).  It is always your decision if it's worth it.

    Regarding a contractor's markup amount: why does it matter?  Do you want your tenants or buyers asking for a detailed accounting of your expenses...along with a justification for your profit? No. Your rent amount is what it is...as is your sale price.

     You know what you want done and you have a budget.  The contractor's proposals are either within that budget or not.  If you get multiple proposals and none of them are within your budget then it is likely you have an unrealistic budget.  Rather than insist that everyone has to earn less for your sake, you adjust your budget accordingly. Simple, no?

     Fair enough, that's understandable, although I do see differing opinions (from searching around online) on this with some contractors being transparent about their markup and costs while others just providing a lump sum number. Guess it depends on the contractor? Will most contractors allow you to buy your own materials or won't even work with you if you want to do that?

    Be careful with buying your own materials - a lot of contractors won't warranty the work if they don't supply the materials. Obviously it depends what materials they are but make sure to ask ahead of time. 

    I always manage my own projects but it means a LOT of time spent chasing trades/employees, trying to find backups at the last minute, and attempting to coordinate with unreliable people. I've been thinking about hiring a GC for my next flip so I don't have to do so much of the work myself but I haven't started talking to any of them yet. 

    Until you can find reliable trades, managing them is a lot of work. 

    1Reply
  • LuAnn Pellegrino
    Contractor · Woodstock, GA · Member since 2015 · 3 posts · 1 vote
    11y
    Sorry that your having a time of it. I owned a heating and air company with my husband for over 22 years and I can tell you there are enough losers out there that will pull nonsense like not showing or giving outrageous prices. Try Angie's List for reputable contractors that will do right by you. Get a few prices, be smart and write everything down, people tend to forget what a contractor says - and make sure you get everything in writing - hope this helps
    0Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    11y

    I would want to pick out all the things that I see like light fixtures, cabinets, tops, flooring but I expect the contractor to get all the other things like support for the structure (sockets, nails, screws, drywall, and anything else needed to put it in place).

    0Reply
  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    11y
    Originally posted by @Account Closed:

    @Ricky Stafford  It so much depends on your abilities and inclinations.  It is always going to be cheaper to do something yourself.  And if you're able to do it and enjoy it: you should do it.  But do excellent work!  When you hire good contractors and tradesmen, you are paying for quality and speed (keyword: good!).  It is always your decision if it's worth it.

    Regarding a contractor's markup amount: why does it matter?  Do you want your tenants or buyers asking for a detailed accounting of your expenses...along with a justification for your profit? No. Your rent amount is what it is...as is your sale price.

     You know what you want done and you have a budget.  The contractor's proposals are either within that budget or not.  If you get multiple proposals and none of them are within your budget then it is likely you have an unrealistic budget.  Rather than insist that everyone has to earn less for your sake, you adjust your budget accordingly. Simple, no?

    It's easy to get finished material prices (ie flooring, light fixtures, kitchen cabinets/tops, etch) but the labor part - if getting 3 bids and choosing the mid-level because it "fits" into the budget - how does one know what that budget should be. It's a chicken/egg - which comes first. I've not gotten through all of my reading and maybe the answer is there, it just seems that trying to figure out what is a good labor price for the work is something learned by being involved over time. The 3 bids I get, if all vary greatly what does that mean. The high end is costly and the low end may be cheap but what of the quality. And quality can be missed by the high end as well. If they are within one another by 100-200 dollars then it means they all are probably within a local standard-perhaps.

    0Reply
  • Dan Liptak
    Flipper/Rehabber · Pawling, NY · Member since 2015 · 42 posts · 8 votes
    11y

    If you have experience go for it.  If you get in over your head get a contractor to take over.  If this is your first experience the 10-15% you pay to the contractor will be well worth the hands on experience in seeing the job from start to finish.  Good Luck

    1Reply
  • Robbi Eddy
    Investor/Design-Build Contractor · Alamo, CA · Member since 2015 · 5 posts · 5 votes
    11y

    Check your state's Contractor Licensing laws, in California an "owner-builder" can only work on their own primary residence.  So if you are doing work on investment/rental properties I'm pretty sure you MUST use licensed contractors (at least in California).

    1Reply
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