Does getting a general contractor a good idea

Question

Hi,
I am getting involved in my first flip project very shortly. I am not sure whether it is wiser to get a general contractor for renovation of this house or should I act as a general contractor. Does getting a general contractor mean that the profit would be cut by significant amount or it is just a myth. I would request your feedback on this. Thanks

Luis A. · Answer

Hiring a GC can cut into your profit. However, you have to look into some factors to see if it might be worth giving away that profit for what you get. For example, if you are strapped for time and/or not sure of what you are doing then in reality a GC can save you money.

On the other hand if you feel comfortable with scheduling the renovation, buying materials and managing the different trades then you can save some money by not hiring a GC. This will also depend on the complexity of the project.

I have hired a GC on two projects and thought it was absolutely worth it. I have also done projects without one (after I had more experience) and did just fine.

J Scott · Answer

I've written some long posts on how we do this and how we started, so I'm not going to repeat it all (hopefully I can dig one up and post the link)...

But, here are some basic thoughts...

If it's your first couple projects AND you don't have any construction experience AND you don't have a lot of time to spend at the construction site, it's probably worth spending the extra money on a GC.

I did this for my first two projects, and it was a great learning experience.  First, I knew my costs upfront (and was fortunate that my GC stayed on budget) and I had the opportunity to ask about 5000 questions throughout the rehab that taught me much of what I needed to know to NOT need a GC on future projects.

Armed with all the experience of the first two projects -- how to find subs, how to create a scope of work, how to define a budget, how to manage the worksite -- I hired a full-time project manager starting with my third rehab.  He didn't have a lot of construction experience, but he is a great manager and negotiator, and over the next couple projects we worked closely to figure out all the processes for the business to make future rehabs easy and successful.

Early on, he got paid purely commission (a percentage of the profits on each deal) and he now gets salary plus commission.  As a full-time employee, even with taxes, benefits and insurance, he's cheaper than a GC, much more reliable, and knows the business inside and out, so I can basically go on vacation for two months and still know the job will get done right.

After 20 rehabs, we have a great crew of contractors, all our processes defined and well-documented and our biggest challenge these days is keeping him from getting bored...it's a good problem to have...  :)

Jack Srimani · Answer

Thanks Will and Mark for further clarification. I appreciate it from  your viewpoint.

Will Barnard · Answer

" However to get there I feel that getting my feet wet in my first project should be important step instead of taking a big leap without an iota of knowledge." This is true and I did not imply that starting out, you should tackle multiple projects at once. On the contrary, doing one at a time and staying "hands on" is important in that you learn the most during your first project. If you rely on a GC to do it all, you will learn less. I highly recommend for beginners to act as their own GC and hire the subs. The learning curve is remarkable and can only take place with the experience. (Just my opinion)

Mark Updegraff · Answer

When I started out, capital was so important to me (starting from scratch) that EVERY time I needed to hire something out, I was there, watching and learning... to save money by NOT having to hire out next time.  Hiring help is expensive, and it actually uses your time finding competent help and dealing with them (not to mention the loss that happens when you don't CYA and get some idiot).  I'm simply stressing that when starting out things are tight enough.  Why make them tighter by paying someone else to do something that you could do?  How do you even know if you're getting a good deal if you've never done the research yourself?  I'm amazed at the amount of stuff I'm able to "ballpark" accurately.  Are you really "saving money" by "saving time" or are you spending just as much time and learning nothing?

So much to do.... So little time!

No matter what, always give yourself time for exercise, and family!

Cheers!
Mark

Jack Srimani · Answer

During my research on real estate in this site somebody else was talking about establishing a system that would be replicated in one or more projects. That sounds quite remarkable idea as you Will are endorsing. However to get there I feel that getting my feet wet in my first project should be important step instead of taking a big leap without an iota of knowledge. Hence if a reliable GC with reasonable rate is found I am willing to go for it. Thanks.

Will Barnard · Answer

It also includes making the pruchases of the materials and items needed for teh rehab. Doing this can save you money but costs you time. There is a measurement of balance you must weigh - cost savings vs. your time.

Some could argue that paying more for a GC is in their best interest because they are better served finding more deals, while others (myself included) would argue that the time and efforts made at the job site end up making me more money on each project and I still have time to find other deals.

Systems are key!

Nate Worcester · Answer

Personally, I'm not very handy and I have a full-time job so hiring a GC makes the most sense for me and I would recommend it to anyone in a similar situation.

Jack Srimani · Answer

Thanks Mark for your input. I am not much of a tool guy. So I am not sure how much hands on I can contribute to my project.

Mark Updegraff · Answer

I'm on #12 and still no GC... I agree it depends on scope / experience / available tools.  I would rather buy a compressor and brad gun than waste the money on a GC.  Not that I'll never use one.  I just love power tools I guess ;-)

Does getting a general contractor a good idea

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