Should I use a general contractor for my first flip?
Real Estate Investor · Atlanta, GA · Member since 2010 · 7 posts · 0 votes
Is it a good idea to use a general contractor for your first flip(s)?
What is going to be the average percentage that a GC will charge?
I would prefer to use one on my first flip(s) however my business partner wants to contract each job to specialty services to save money.
She works full time and does not have the schedule to oversee them during most of the day. Most likely I will be the one *groan* doing that since I already work for myself and have a flexible schedule.
The flips I am looking at are brick homes in Decatur, GA that are built around 1965. I'm trying to stick to cosmetic flips with few repairs. Staying away from mold, flood damage, foundation issues or anything else that appears to be too much for me to handle the first time.
How much time would I be looking at daily to be at the house to manage the specialty contractors? Do you need to be there all 8-10 hours of them working on the house?
Hey Stephanie,
There is no right or wrong answer here...
Certainly, having a GC can allow you to free up your time to do more important things (find more deals, optimize your business, etc), and can also help you learn the process of flipping houses (how to do inspections, how to schedule, how to plan, etc), so if you're in a situation where you need the education or can better utilize your time, then by all means hire a GC.
That said, hiring and managing the subs yourself can both save you money and give you more control of the rehab schedule and budget, so there are advantages there.
Here's how I did it:
- On my first two flips, I hired a GC to bring in the subs, manage the project day-to-day, maintain the schedule, etc. I spent a good portion of my time on the work site learning from the GC -- I got a good idea of how to do inspections, how to schedule subs, how to coordinate works between subs, etc. These two projects were HUGE learning experiences for me, as I previously had no construction experience whatsoever.
- On my next couple projects, I brought in the subs myself, scheduled them, managed them, etc. At first, I needed to spend a good bit of time on the work site (not 8 hours per day, but close), as I didn't know the subs and didn't trust them on my project without me there.
- After a couple of these projects, I brought in a full-time project manager who's job is to hire and manage the subs day-to-day. He spends his days making sure all the projects are on-schedule, on-budget and managing the contractors. We generally have 2-4 projects going at once, so on a typical day, he'll spend about 2 hours at each house.
- After about a dozen flips, we found a crew of contractors that we really like. We completely trust them (and they trust us), they do great work, they charge very reasonable prices, and they work fast so that they can move from one of our jobs to the next. Not only that, but they know exactly what we do in all our houses (from the paint colors we use to the finishes), so even if we didn't have someone managing them (and some days we don't because we're so busy), I'm confident they'll get the job done on-schedule and on-budget without any issues.
So, as you can see, there was a progression from where we started to where we ended up. That was the plan the whole time. Because we knew we wanted to do a lot of flips per year, we had a good idea of where we needed to get to, and we worked our there over the course of a year or two.
So, my recommendation is to figure out where you want to be in 6-, 12- or 18-months, and take the steps you need to get from here to there.
There's no right or wrong answer, and your specific circumstances will help you determine the best solution.
Btw, looks like you're in my area...feel free to shoot me an email if you'd like to grab lunch some time. I'm happy to introduce you to some of my contractors, and my wife is an agent if you need any help on the marketing side.
Hey Stephanie,
There is no right or wrong answer here...
Certainly, having a GC can allow you to free up your time to do more important things (find more deals, optimize your business, etc), and can also help you learn the process of flipping houses (how to do inspections, how to schedule, how to plan, etc), so if you're in a situation where you need the education or can better utilize your time, then by all means hire a GC.
That said, hiring and managing the subs yourself can both save you money and give you more control of the rehab schedule and budget, so there are advantages there.
Here's how I did it:
- On my first two flips, I hired a GC to bring in the subs, manage the project day-to-day, maintain the schedule, etc. I spent a good portion of my time on the work site learning from the GC -- I got a good idea of how to do inspections, how to schedule subs, how to coordinate works between subs, etc. These two projects were HUGE learning experiences for me, as I previously had no construction experience whatsoever.
- On my next couple projects, I brought in the subs myself, scheduled them, managed them, etc. At first, I needed to spend a good bit of time on the work site (not 8 hours per day, but close), as I didn't know the subs and didn't trust them on my project without me there.
- After a couple of these projects, I brought in a full-time project manager who's job is to hire and manage the subs day-to-day. He spends his days making sure all the projects are on-schedule, on-budget and managing the contractors. We generally have 2-4 projects going at once, so on a typical day, he'll spend about 2 hours at each house.
- After about a dozen flips, we found a crew of contractors that we really like. We completely trust them (and they trust us), they do great work, they charge very reasonable prices, and they work fast so that they can move from one of our jobs to the next. Not only that, but they know exactly what we do in all our houses (from the paint colors we use to the finishes), so even if we didn't have someone managing them (and some days we don't because we're so busy), I'm confident they'll get the job done on-schedule and on-budget without any issues.
So, as you can see, there was a progression from where we started to where we ended up. That was the plan the whole time. Because we knew we wanted to do a lot of flips per year, we had a good idea of where we needed to get to, and we worked our there over the course of a year or two.
So, my recommendation is to figure out where you want to be in 6-, 12- or 18-months, and take the steps you need to get from here to there.
There's no right or wrong answer, and your specific circumstances will help you determine the best solution.
Btw, looks like you're in my area...feel free to shoot me an email if you'd like to grab lunch some time. I'm happy to introduce you to some of my contractors, and my wife is an agent if you need any help on the marketing side.
I am just getting started with my first rehab project and I had been dealing with the same exact question you are dealing with. I bought a property at a great price and decided it was worth the extra cost to use a GC, mainly so that I can hopefully shadow him and learn from him, similar to what J has said.
I called and got three GC's to give me bids.
The first one said he was going to email me last Thursday with a bid - haven't heard from him yet, so he is out of the question.
The second one I met at the job site and he essentially said he wasn't interested in the job. He was however helpful and walked around with me giving me pointers and gave me some rec's for subs to use.
The third GC was interested in the job and gave me a reasonable estimate which I was ready to take, however I later learned that he let his insurance lapse so he was essentially an uninsured licensed GC - NOT what I am looking for.
In between these bids I was also getting bids from subs to do the specific work so that I had something to compare the GC's against. I ended up deciding that it will be best if I handle the hiring of the subs since there is no structural work being done.
I am getting electrical, plumbing, HVAC, Pool, and general work done on my property. The best way to tackle this I believe is starting with the systems first and then working your way down to the cosmetic issues. If you think about it, it's common sense. You need to fix the stuff behind the walls first before you start painting and paint before you install the light fixtures and.. etc..
If you are looking for something that needs cosmetic work, I think you should be OK. Between BP, my REIA group and my father I have been able to confidently start scheduling and planning out how I will get this house rehabbed.
I am embarrassingly very NOT handy, my father who is in NJ (I'm in FL now) and is handy has told me to not even think about doing any work myself.. :lol:
ONE of the keys is to network with the investors around you and get recommendations for subs. I have also reached out to J Scott more than a couple times, maybe borderline annoying, but his blog is a great resource and he is also very helpful himself if you reach out to him. I'd read his posts about hiring, finding and dealing with contractors along with what contracts he uses.
Take him up on his offer for lunch! Maybe he'll even share some of his subs with you.. :lol:
Never! I had plenty of people who were willing to do the same for me when I started out, and love to have the opportunity to pay it forward...
I'm always happy to share all my resources...and they're happy when I do!
So, if anyone is looking for good contractors in metro ATL, just let me know...
Samantha,
Jason gave you lots of good advice. I've done a bunch of flips in my career, both for other RE investors and for myself and my partners. I am also a GC as well. I do think there is a right and wrong answer in this situation. The answer to that is determined by your level of knowledge in this type of situation. If you are unfamiliar with construction, you will most likely get taken for a ride. You need to know what a bid SHOULD include, not necessarily what is written on paper. Contractors will purposely omit job details that they know must be done in order to give the appearance of the lower bid only to come back and hit you with a change order mid job.
The other issue with GCing the job yourself is that there isn't a lot of accountability between subs. If you bring in subs that aren't familiar with each other and you yourself don't entirely understand what the process is and how it should work, you will most likely end up with a lot of finger pointing.
Like Jason said, once you are familiar with things, you don't really need a GC anymore. In the beginning though, I believe it can make or break you. If you choose to work with one, obviously get multiple bids. You want to look for someone who will get you the bid quickly and is detailed with what each phase includes and doesn't include. Avoid anyone that doesn't get you a bid when they say they will or submits a bid that consists of a few sentences on a Word doc.
J Scott
Thank you for your reply! You have logically and analytically broken down the flipping process into common sense.
I will absolutely take you up on lunch with you and your wife.
Brian-
Thank you for the fair warning with GC's. I am a detailed person so I will expect and request my bids to be detailed as well.
Well it all depends on the general contractor you pick, on how much they will charge. Usually 10-20% even if you hire a specialty contractor for each thing you will still need a general contractor to oversee all things. If you generalized it yourself it’s a good idea to be there at least a few hours a day to check and make sure it gets done correctly. You probably won't have to be there 100% of the time but maybe at least 40%, it just depends on how good of a job you do and the contractors you hire.
Brian Haskins