Hiring One General Contractor or Multiple Specific Contractors?

Question

Hi All,

I have a real quick question for people who have flipped homes in the past or currently flip homes. Is it hard to make a good profit on a flip if you work full-time, and use a general contractor to do most\all of the renovation work for you? Or do you generally find that with the overhead a general contractor takes, it cuts into your profits too much to make it worthwhile? When I say general contractor, I mean someone who would do most of the renovation work with his team, and take care of hiring licensed, well priced subcontractors for the jobs he can't do or isn't licensed to do himself. Basically am I better off working with a GC who subcontracts, or hiring separate contractors and a handyman individually for different jobs myself?

In addition to using a GC, I would most likely be financing with hard money, so the interest from that will also cut into profits somewhat, although I would spend a lot of time on scheduling things correctly so as to try and have work going on every day, in order to get the flip done as soon as possible to cut down on interest payments.

Any input would be greatly appreciated.

Thanks!

Matthew Paul · Answer

A good GC will make you money , you may not make what you wanted to , but if you try to run the job you may cost yourself more money and make much less .  You work full time , its next to impossible to schedule subs and run a job while you are doing a 9 to 5

Doug W. · Answer

Just my $.02.

If you did your numbers correctly you should be able to pay the GC as part of your rehab costs.

You may save money on paper when you are the GC but if you aren't able to be there Monday - Saturday during the day you are going to lose money in time. And that time will, eventually, cost you on paper.

If you don't have the contacts (electricians, plumbers, framers, roofers, tile installers, floor refinishers, landscapers, etc.) you will spend a ton of time trying to set up appointments and then waiting for bids and then picking that trade. Lastly, you will need to meet them at the house in order to explain the work (or at least confirm that you are both on the same page).

Say that you do it yourself and you hire it out..... if you don't know the proper order of doing the work you will run into a ton of inefficiencies with the trades. Does the HVAC guy do his work before or after the electrician? Do floors get refinished before or after paint? Who is buying the windows and are they (and when) being shipped or picked up? Who will get the building permit from city hall and wait on inspections at the house?

I learned the hard way that being the GC myself cost me more because of the time if took me to complete everything.

Jim Keller · Answer

Tim

I have 2 fix and flips going right now and have close over 10 others this year all using hard money.  Keep this simple, you have another job so you need a person to take the responcability of completing your project.  I have a very qualified GC that subs that i use for that. About half the work and has his own crew of handyman and project managers that he gives the responcability of completing the job.  Then he has a crew of 4 laborers, they work at the direction of the project managers and save the GC money for time consuming high labor cost items.

This works very well for me, and on most of my visits to the site we negotiate the completed "look" we both want.  He understands as do I we both need a win win to stay in business.  If there is an extra that needs to be added it will be easy to see if you don't do it you won't be able to sell or get top dollar.   The other day I was working on a flip in Menifee, Ca "see my first mobile home flip in Southern California  on BiggerPockets " the deck just was not right the contractor has a line item of $800 in the reconstruction of the deck and it's clear he has gone way over that in cost.  He offered to fix it one more time, but I feel like if I want it right I may have to pay a lil more to get the right look, I just know this is coming and won't be suprised.

I hear many people being way to rigid over their original agreement that was made with the contractor.  I think if the 2 of you are true to the goal which is to sell for a profit, you will both be successful.  This business is not for people looking for a one sided gain.  I need partners that Uber stand the concept of the WIN/WIN......

good luck

Jim

Manolo D. · Answer

@Tim Porsche Go for a GC that doesn't sub out, pretty much a flip is a handyman work. Since there is HML in the picture, do not forget to vet a contractor that does a good timeline, for a contractor that takes too many job at a time, tends to stretch their 3 week project to 16 weeks, put a liquidated damage per day clause when they go over the specified calendar day.  Read J Scott's book on rehab, it should bring you up to speed.  A GC has different levels, the most bottom is more or less "three guys with truck and tools" that performs handyman service, this type is what most investors hire, they tend to be over-budget and not finish the job.  Another higher level is a GC who hires 100% subcontractors, this could wildly vary in level/caliber, the top being always under budget and lesser time, so whatever floats your boat. The more qualified GC you get, the more expensive they are.  I would go with a good GC, even for less profit, at least on your first 2 rehabs, rather than hire a GC that wont/cant deliver.

Yinan Q. · Answer

@Tim Porsche, you've got a lot good advice from other BPers. I would just add one point. To me it also depends on the natural of the rehab.

I'd be my own GC if all it needs is a coat of paint and new carpet, maybe a new roof. Anything more than that I'd hire a GC.

Tim Porsche · Answer

Thanks for the replies everyone! Lots of good advice there. I have absolutely no construction experience (I work in IT. I can fix computers but am pretty much useless with anything else), and I'll be working full time while flipping, so I think it will definitely make more sense for me to get a good GC to take care of the renovation work. My main concern was if a GC would tend to cut into the profits too much, but hearing from several of you who use GCs and seem to be doing well encourages me.

By the way, are there any resources you would recommend that could help bring me up to speed with my renovation\construction knowledge so that I can at least talk intelligently with contractors about the work that needs to be done? Books, videos, online tutorials, etc?

Ryland Taniguchi · Answer

Probably the answer here is depends on your background, natural talent and skill set. Do you have a construction project management background? If you don't a general contractor can possible save you money.

If you do hire a GC, make sure you hire a great one. The GC can make or break your flip.

Adam Bartomeo · Answer

What your asking boils down to a numbers game and a time game. I have certain margins and dollars that I want to make when I am rehab'ing a property. I normally act as the GC for several reasons. I like to be in control of the project and for me it is easy enough to manage the specialty contracts as I have experience in construction and management. Also, by acting as the GC I can save money and negotiate with the contractors. I have my finger on the pulse. I also become familiar with the individuals on the jobsite and know who I will or will not use again.

It is a little difficult if you are trying to do this for the first time and you do not have the contacts to accomplish the task in a timely manner. Time is of the essence since you will be using a HML. If you spend too much time trying to find contractors that actually show up your profit will go south very quickly.

I sometimes do the work myself because a rehab that should take 5 months I can get done in 2 months.

The other time issue is your time. What is your time worth? If your time is more valuable then a GC's wage then hiring a GC will make sense. You also have opportunity costs, I have often missed out on opportunities because I was too busy on the jobsite.

Hiring One General Contractor or Multiple Specific Contractors?

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