Contractors vs. Employees

[Troy Zsofka]

I've noticed from reading posts and listening to the podcast that a lot of investors these days seem to be using contractors for their rehabs. 

I understand that high-volume fix and flip investors might be better off delegating certain things (such as the rehab) and focusing on finding and closing more deals, so it makes sense to sub out the renovation work. However, we've been at this for some time and have always used full-time W-2 employees for the renovations. Our volume isn't incredibly high because we hold basically all of our projects long-term as rentals, and we have repairs and maintenance on our portfolio to concern ourselves with (another reason why full-time employees have always seemed to make sense financially). I am currently having difficulty finding good full-time employees to hire, so I've become curious as to why so many investors go with contractors rather than employees. Perhaps I might consider going with just 1 full-time employee to handle repair issues and then sub out more of the renovations on new acquisitions. The full-time employee could always work on the latest acquisition doing demo and removal etc. to prep it for the subs when not busy with repairs.

Running out of work and having an employee collect unemployment is not really a concern for us. I always buy a house or two ahead, and even if we were to run out of new projects for a while, there are plenty of houses in the portfolio that could use improvements that we had put off at acquisition in order to get to the next one more quickly (for example: new siding or exterior trim replacement that wouldn't change the rental value but needs to be done prior to selling, a roof that will need replacing in the immediate future anyway, etc). We also own multiple lots that could be taken out of current use and developed if we ran out of projects. So, providing consistent work to full-time employees is not a concern.

Any feedback from those who have tried out both avenues would be appreciated. Maintaining the strategy that has worked for us so well this far seems to be the obvious choice, but I'm always open to other opinions that might change my mind.

[Charles Socci]

Many investors like using contractors because they are licensed, get the work done quickly and has you pointed out can be hired and fired at any time.

As a licensed contractor, I have employees, and have more work then employees.  

You need to be concerned with your liability.  If you have a roofing license, and the appropriate insurance, by all means have your full time employee go up there and re roof that house.  If not, hire the roofing contractor.  I know someone that had his unlicensed helper go do that roof, and they fell off the building and broke their back.  Now, OSHA is involved, and lots of costly attorney's.

Recently, Workers Comp has also been cracking down.  If they show up to a job and your workers are doing carpentry and you coded them as "landscapers" for cheap worker's comp, you could get busted and have hefty fines.

The money you save by doing something cheap and fast, could easily be spent later to bail yourself out of a tight spot.