What are Labor ONLY Costs?

Question

What percentage of the rehab budget does the labor make up? If I've put 60k in the rehab - how much of that 60k would be going to only the labor, vs going towards the materials?

Thanks for any help.

J Scott · Answer

It depends on a lot of things...

- Are you buying materials or are your contractors?  For example, are you supplying the paint for the painters?  Are you buying the lumber and nails for the carpenters?  Are you providing the wire for the electricians?  Are you providing the roofing material for the roofers?

- What type of rehab are you doing?  If you're only doing cosmetic work, then a large percentage of the job will be finish materials, which you pay for.  If you're doing a lot of rough-in work, a large percentage of the job will be building materials, which are generally a smaller percentage of the cost and often are provided by the contractors.

- What level of finishes are you using?  If you're using very low-end finishes, the material cost is going to be a much smaller percentage of the job than if you use high-end finishes.

- What type of contractors are you using?  If you're using unskilled labor, your labor costs will be decreased.  If you're using a high-end GC, your labor costs will be increased.

Long story short, there's no good rule of thumb for labor versus materials (at least not in my experience).

Brian Beck · Answer

Looks like @J Scott beat me to the punch haha, pretty much exactly what he said!

J Scott · Answer

How many hours will you be putting in?  How much will you save by doing the work yourself?

If, for example, you put in 500 hours and you save $25,000, that's essentially the same as paying yourselves $50/hour ($25,000 / 500).

Would you take a job for $50/hour right now?  If so, maybe it's worthwhile.

Personally, I got into real estate so that I could make $500/hour or more...you're not going to catch me doing work that I can hire out for $25 or $50 per hour.

Plus, if you're putting in 250 hours on a project, why not instead spend that 250 hours finding five more projects and finding the financing for those projects.  Let's say you earn $25,000 in profit for each of those five projects (not an unreasonable return on a typical deal).  That's $125,000, or $500/hour for those 250 hours of effort.

So, using these hypothetical numbers, you can earn $50/hour doing the rehab work yourself or you can earn $500/hour hiring contractors and spending your time finding deals.

That's how you scale in this business.

Kevin Young · Answer

@J Scott @Brian Beck

Kevin Young · Answer

Thanks for the info guys. More background - I'm going in on a flip with a friend and we are doing all the work ourselves, both of us have done the work on our own personal homes. So we'll be buying any/and all material - more on the high end in terms of finishes. I'm trying to figure out how much more bang for our buck we'll be getting by doing the work ourselves and what that might mean as we try to figure out what the numbers.

Brian Beck · Answer

That's going to vary heavily depending on the scope of work and the quality of material you are using.  In theory you could have $60K labor only contract where you are supplying everything or as little as $10K in Labor and $50K in high end materials.

The scope of work itself will be the biggest determinant in what this should look like, then from there the neighborhood will dictate the quality of materials and cost of labor.

What are Labor ONLY Costs?

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