Sub Contractors Or General Contractors Which to choose!

[Account Closed]

Hey Everyone,

I wanted to talk about choosing between Sub contractors or General Contractors. When should you hire one or the other? What should be some deciding factors? How does each one affect your business models? Etc--

Business Models vary by region, South Jersey, Central Jersey, Jersey Shore, Philadelphia but the core of the decision process remains the same.

South Jersey Is mostly a residential development area so the rehabs center around single family homes. Where as in Central Jersey you start to get into more populated areas where your now dealing with Town homes, and bigger multi units. Down at the Jersey Shore you are doing more tear down and rebuild, which is the same for Philadelphia.

So that being said, Sub Contractors. They are definitely the best option for keeping you rehab cost down. They give you the benefit of control over time frame and cost. You also get to choose who is working on the property on the important items, like electric, plumbing, HVAC, etc. The down side for subs is they can be very time consuming. Managing all the different moving pieces can be overwhelming, especially for newer investors.  Your budget can also get out of control quick if you don't keep track of what each person is charging.

General contractors are all about leverage. Their main benefit is to New investors who don't know anything about construction and to Seasoned investors who are looking to make the jump from 2-3 properties at a time to 10-12 at a time. While the investor is concentrating on finding deals and money the rehab can be getting done. They would also have their own team of subs that work with them, which means the investor doesn't have to worry about finding them their selves. The down side is they are definitely more costly. There is a bigger level of trust needed with GC's as well. You need to make sure you can count on them to get the job done. Some GC's will take on to much at one time as well which slows them down on your projects. 

There are definitely plusses and minuses to both sides. Like I said it really comes down to your business style and what you want to accomplish in Real Estate investing. Think about your goals and personality. Think about the people you like interacting with and what you favor at your own job. These answers will help you choose Subs or GC's. 

As a General Contractor Myself, I choose Leverage. Please let me know what you chose and why? This will help us all learn and see what choices are out there.

[Brian Pulaski]

@Account Closed regarding suggestions for those REIs going the subcontractor route, here is my thought process:

Ask for referrals/recommendations from others in your circle of family, friends and contacts. I found an awesome roofer, awesome plumber and a great tile guy this way. Not every referral is going to be an investor friendly sub, however you might be surprised at who your family and friends have worked with and had good results with in the past.

Get multiple bids. Of course this is touted throughout the REI world, but it holds true. Bring in a minimum of 2 subs, and I usually try to bring in more, 3-4 if I have the time. I will say though, as much as you might save money doing so, if you have only done a couple jobs and have used the same sub and he does good solid work, I would recommend keeping with a good thing. Even if you could save a little trying out a new sub, once you have a relationship, keep building off that. I had a roofer, plumber, carpenter, floor guy, tile guy (for the few jobs I chose not to do my own), mason, tree guy and maybe a couple others that I used on most if not all of my jobs. Once I vetted their pricing on project 1 and 2, and they continued to do the job, on the budget they proposed and on my timeline (usually faster with the roofer and the plumber), why would I not keep them getting my business? If I had more than a couple jobs going at once, I would be using multiple subs of the same trade, however I would keep with the same subs that treat me right.

Pay on time. I found subs love it when you have cash or a check ready to go as soon as the job is done, or exactly when agreed to. I have had subs shocked about it believe it or not.

Have a good solid SOW and contract. I actually end up using the subs contracts, with tweaks if need be, however always have them review the scope of work you want done, agree to it and make it part of the contract.

There are more, but this is some of the basics.