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How to Decide WHO Should Renovate Your House Flip [Here Are 3 Good Options...]

by Michael LaCava on March 30, 2014 · 6 comments

  
House Flip

You’ve found that perfect house flip

You’re a week or so away from closing…

You’re in the game…you’re excited, filled with anticipation, maybe a little fear

You’ve taken the plunge and you are now officially a real estate investor…

It feels pretty good…

But then you think: Aw man, who the heck is going to actually MANAGE the renovation?

You hadn’t thought that far quite yet…but don’t worry, it’s not as challenging as it may all seem.

When all is said and done, you really have three options.

Option #1: You

Let’s say you’re not working and you have more time.  In that case, you may consider doing the general contracting (GC) part. 

But if you have a full-time job and you’re trying to manage two or three rehabs, I can tell you right now, don’t bother – because you’ll end up having a nervous breakdown.

Now if you have a full-time job and you’ve got one rehab and it’s a mile down the street from you and is not too extensive and it requires some plumbing work, some electrical work, and a little bit of finish work, then I would say you could probably manage that one.

In that case, there’s no reason to get a GC involved – plus you gain great experience doing it.

So again – only you can determine that.  In most cases, you’ll be better off letting someone else manage it all.

Remember even though you may not be DOING the general contracting, you’ll be managing the GC and you will be intricately involved.

Plus, if you don’t get to fully understand how the process works, then you’re never going to be able to manage the GC and you’ll never know whether he’s doing a good job.

So ultimately you’re the one in control regardless of whether you’re hiring a GC or hiring the subcontractors.

Option #2: Project Manager

In some cases I’ve used something called project managers.  This is a little bit different from what a GC is.  How it works is rather simple.

Let’s say that you have a carpenter on the job as a hands-on guy, and he’s doing all the carpentry work like installing windows, putting in the kitchen, replacing the doors, and installing baseboards.  And let’s just say it’s a four- or six-week project.

In cases like this, I’ve talked to a few of my carpenters and said, “Hey listen, would you be interested in managing the project?”

First off, I want to know what his credentials are and if he knows how to do the general contracting.  Maybe he’s done big projects in the past, so his experience would allow him to effectively manage this project.

But he was hired to do some of the carpentry work and other things on the job, so I said, “Would you be interested in it, if I were to pay you a project management fee to oversee things? You’re there anyway and you’re going to be there for the next four to six weeks.  Would you be up for managing the plumber, the electrician, the sheet rock guys, and the insulation guys and all that? I’ll pay you an additional fee above and beyond what I’m paying you now.”

All you have to do is ask in most cases.  

In this case, we put together a little thing where he got an additional $2,000 which was great for him. Of course, some guys might think that’s a little bit of money; some guys might think that’s a lot of money.

That really is going to depend on the person you’re hiring and whether he feels it’s worth his time.  In that particular case, $2,000 was what we agreed and he was very happy with that.  He was getting an extra $400 a week.  He was there anyway, and he had no problem getting extra money to do a little bit of managing and spend some more time to make that money.

And then we also put in a kicker.  It stated that if we met the timeframes and we met certain budgets, we would talk about an additional bonus.  He eventually got that as well, so he was very excited.

Project managers might be a great solution, especially if it’s a smaller project. Think outside the box a little bit and don’t just think in the terms of a general contractor to manage your project.

Option #3: GC

And of course there’s the full-fledged general contractor route.

This is the guy that’s managing all the subs for a percentage of the total cost.

He’s got his list of subcontractors and is going to price out the job in its entirety, with you having one point of contact.

In this case, you don’t need to deal with any of the subs.  You just call your contractor and get fixed whatever you see is wrong and don’t even deal with the subs at all.

Having one contractor is great if you can get pricing that always fits within the model.  But the best thing to do is talk with the GC, explain what it is that you do, how you do it, and see if they’re receptive to working with investors.

At the end of the day, everybody has to win.  You want a win-win situation for yourself.  You want a win-win situation for your contractor.  You want a win-win situation for your subcontractors.

And you’re only going to find this out through talking with different folks out there, seeing what their ability is to work with you with your model and getting their reaction.  Some will be interested, some won’t.

Pick the ones that are, try them out, and always keep an eye out for other potential GCs as well.

But before you hire one, make sure you ask them these essential questions here.

Conclusion

Only you can know if you have the skills to be a GC on a house flip. In many cases though, you may need your general contractors license to pull the permits and keep everything legal. Just for that reason alone, hiring a GC may be a good idea.

We always do GCs now, but one of our crews just recently started hiring project managers to manage individual projects, which for us is a roundabout way of using project managers.

Whichever way you go, it all comes back to “do the numbers make sense?”

If you can hire a GC and still adhere to the 70% Rule, then go for it.

If your margins are a bit tighter, you may want to consider the other options above. At the end of the day, its your call.

If you’ve made it this far, please leave a comment below! What do you prefer to do? Do you manage your own flips? Do you use GCs? Project managers? Please leave a comment and share your thoughts!

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{ 6 comments… read them below or add one }

Sharon Vornholt April 3, 2014 at 11:12 am

Mike –

You broke down the differences in how to manage the rehab very nicely. I think most folks doing their first few rehabs, do everything themselves. The best case scenario is to have good people to manage those jobs for you. In the end, it’s all about the numbers. You have to buy those properties right.

Nice post.
Sharon

Reply

Michael April 3, 2014 at 2:55 pm

So true Sharon. It is about the numbers. The funny thing is, I know a few contractors that tried flipping and lost money. Don’t figure? This proves the importance of the ARV and renovation costs even if you are doing it yourself. I say to anyone that is running the numbers you need to base it on what you would pay to have the renovations done by an expert and if you decide to do it yourself and “maybe” save some money then it is just more money on your bottom line.

Reply

Eric April 3, 2014 at 9:38 pm

Thanks for the info Mike! I’m using a GC on my first flip – interestingly enough, my lender was relieved to find out I was using a GC and not trying to do everything myself.

Reply

Michael April 10, 2014 at 3:38 pm

Good Point Eric. many lenders will require a licensed contractor to run the project. All the best on the project. Stay close and be involved even though you hired a GC. You can learn a lot but it is your ship so be the captain.

Reply

Shaun April 6, 2014 at 7:26 pm

GC all the way.
I could see doing the GCing yourself on a small straight forward job when starting out, but not the highest and best use of time once you get more than a few under your belt.
The project manager idea isn’t one I had considered. Makes good sense as a next point for DIY GCer that doesn’t want to spend as much time on the job but has found a good group of subs to bring on and had a guy they trust to coordinate on site.

Still if you find a good GC that is a good business person and does good work with a good stable of subs you will save a ton of time and you might even save money, or at least not pay more, since they might have access to deals and suppliers you don’t know about.

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Michael April 10, 2014 at 3:39 pm

Yes sir Shaun.

Reply

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