General Contractors and Sub contractors???

20 Replies

Hello,

I have a question for the rehab investors out there.  When flipping multiple homes at once should i hire a project manager and find individual sub contractors to do the houses? or should i hire a general contractor that will use his men to do the houses?  what is better to do being a real estate investor?  Thanks  Marcus

@Marcus J Richardson in order to give good advice one needs to know about you and your goals. What works for one may not for another. I have been the GC, Project Manager, and Hired GC and project managers before. If doing multiple projects it can be a better option to hire an employee if u find an experienced one and have enough houses to keep them busy. Sometimes hiring one or 2 full time and then using a day labor (like labor ready) keeps things legal and controls cost (if u have a good supervisor over the day labors), all options with pros and cons.

It really depends on the calliber of professional you choose to interview; sort through; reference check; background check; and choose to hire..  Minor investigating up front can help prevent a possible nightmare.

It could really go either way though..   So, you want to make sure you have a good gut feeling before you award a huge contract.   Learn to trust your instincts.

When I don't feel confident with a contractor, I divide the project into smaller portions to give their abilities a test drive on a smaller nibbler of the whole scope. Worst case scenario, if the contractor can't delive; you are free to adjust your strategy to bring on a do-er able to overcome performance deficiencies.

Account Closed Thanks for the advice.  My goals are to do prehabs and to hire a PM to oversee all houses i am working on.  Having a PM should i hire multiple sub contractors for different jobs? or should i hire multiple GC possibly from companies to have there men come in and do the work, and work with my PM? My goal is to prehab 4 houses a month to start with.

4 houses a month, you could afford an in-house PM that will do everything for you. Push them to finish, and if they couldn't finish 3-4 a month with 2 properties max carry over on the previous month, fire and move to the next. Give him max rehab 60 days, regardless of the scope and inspection problems. In-house employees are always the best option, if you can get a cross-trained individual, about 2 groups of 3 solid crews -- 6 total, plus the PM/foreman, should be enough crew to run them. I would suggest the PM should be at least a foreman or at average a superintendent of 5 years in rehab/renovation.

@Manolo D. thanks for all the advice. So your saying I can have a PM and have two groups of 3 to do my prehabs.  The two groups should they be sub contractors? Or should I hire a GC and have his group as one and hire another GC and have his group be the second?  

I forgot, you don't have a license, so either you hire a PM that has a license, or could get a license, or something similar. He will serve you as qualifier for your llc, or create an llc that will hold the license, and bill your flipping llc at cost every week, then your flipping llc pays your license llc and license llc pays your workers, this way you wont leave any money on your license llc and there is nothing to sue. Or you could do the pm just manage subs, you don't need a gc if you have a well versed pm. Your PM qualification is important, he should be at least a foreman in residential rehabs.

There are several options on what can be done, but first you need to ask yourself if you can get your license. If you can find someone you can hire that has a license, that's the cheapest and easiest way. I don't particularly like hiring subs or gc, you don't control their time, i like in-house employees because i control everyone's time, and these trades people will always look for stable work, and stable work means cheap labor.

@Marcus J Richardson

What is your experience level?

Are you starting brand new at this?

If you are brand new, consider that if you hire employees they expect to get paid weekly.

Say it takes two months for the first flip plus one month to sell.  That means you need 3 months of payroll before you get your first inflow of cash.  Perhaps this can be covered with the loan you get for rehabbing or perhaps you already have a significant amount of cash accumulated already.

Not ot mention you will need to carry workers' comp insurance.  You will need to pay a premium up front and depending on the carrier make weekly or monthly payments.

Your first employee, especially a PM, better be a really good hire.

IMHO, I think you are better served hiring a GC to begin with.  Let them carry some of the risk while you get established and learning the processes.

Originally posted by @Manolo D. :

I forgot, you don't have a license, so either you hire a PM that has a license, or could get a license, or something similar. He will serve you as qualifier for your llc, or create an llc that will hold the license, and bill your flipping llc at cost every week, then your flipping llc pays your license llc and license llc pays your workers, this way you wont leave any money on your license llc and there is nothing to sue. Or you could do the pm just manage subs, you don't need a gc if you have a well versed pm. Your PM qualification is important, he should be at least a foreman in residential rehabs.

There are several options on what can be done, but first you need to ask yourself if you can get your license. If you can find someone you can hire that has a license, that's the cheapest and easiest way. I don't particularly like hiring subs or gc, you don't control their time, i like in-house employees because i control everyone's time, and these trades people will always look for stable work, and stable work means cheap labor.

Thank You for all of that information. Its really helping me. I think that i will hire the two groups of 3 =6 employees and my PM under my LLC as you said. But i do have a couple questions if i could ask you. Should my employees also need to be licensed contractors or just my PM? Since i am doing prehabs and they will be employees do i set milestones for there pay or just pay them every week according to the hours they work? And how much should i pay my PM and employees an hour? Thanks

You will need two LLCs, one for that will hold a license, another for your regular investment, you could do one LLC but you will need to sell 20% of the LLC to your PM (this is CA law, check with your state), and in legal reasons, they could sue you for that 20% if anything goes sour. The license LLC will only be used to conduct construction business, will have at most 5k bank balance and hold no assets, so basically it won't have any value, this LLC will only be a pass-thru account, you will just put money here when and how much will just be needed.

Your PM needs to be licensed, and he will qualify your license LLC so your LLC will be licensed too. With that licensed LLC, you won't need anything else, you could do whatever you want with your employees, you could pay them minimum wage if they agree. The PM is usually how much responsibility you're putting on him or what his skillset is.

In CA it is costly to maintain an LLC/Corp, we use under one Corp but everything is black and white.

Originally posted by @Manolo D. :

You will need two LLCs, one for that will hold a license, another for your regular investment, you could do one LLC but you will need to sell 20% of the LLC to your PM (this is CA law, check with your state), and in legal reasons, they could sue you for that 20% if anything goes sour. The license LLC will only be used to conduct construction business, will have at most 5k bank balance and hold no assets, so basically it won't have any value, this LLC will only be a pass-thru account, you will just put money here when and how much will just be needed.

Your PM needs to be licensed, and he will qualify your license LLC so your LLC will be licensed too. With that licensed LLC, you won't need anything else, you could do whatever you want with your employees, you could pay them minimum wage if they agree. The PM is usually how much responsibility you're putting on him or what his skillset is.

In CA it is costly to maintain an LLC/Corp, we use under one Corp but everything is black and white.

Ok I'm understanding now. So I need a LLC for the business and one for construction purposes. So to get that second LLC and to not pay the 20% to my PM I need to get a contractors license? And I will pay employees and get supplies through that construction LLC ?

As @Hugh Ayles said, until you're established, it may be prudent to go the GC route. Focusing your energy on your business, rather than your crews may be time better spent. You might want to consider scaling your growth instead of hiring seven people all at once... hire a solid PM, get your relationship with him/her running well and then let them vet and hire your crews... after all, they'll be the one managing them.  Take the time to have your PM learn how you want things done and then task them with teaching the others as they come on board.

Originally posted by @Account Closed :

As @Hugh Ayles said, until you're established, it may be prudent to go the GC route. Focusing your energy on your business, rather than your crews may be time better spent. You might want to consider scaling your growth instead of hiring seven people all at once... hire a solid PM, get your relationship with him/her running well and then let them vet and hire your crews... after all, they'll be the one managing them.  Take the time to have your PM learn how you want things done and then task them with teaching the others as they come on board.

 So your saying I should hire a good PM, then have him form a crew of sub contractors (that aren't my employees). Or hire a PM and he hire a GC? 

A PM could manage individual employees, subs and GCs... or a mixture of all three as the circumstances require. Might want to start with the GC approach first and as you learn and grow ,and your PM is solidly on board and with your program, then spread out to subs and/or employees.

Originally posted by @Account Closed :

A PM could manage individual employees, subs and GCs... or a mixture of all three as the circumstances require. Might want to start with the GC approach first and as you learn and grow ,and your PM is solidly on board and with your program, then spread out to subs and/or employees.

 Ok thanks Micheal. So I should re a PM and bring on a GC to start out. I just have two questions because I plan on prehabbing four houses a month. Will the GC have his own group of workers or will the GC then need to hire more people because just the GC can't take on all the work him or herself. And when I do hire a PM I want him her in control of the prehab process so what 

The responsibilities that a PM should be in charge of are proprietary to your wants, needs, etc.  Having a strong PM on your side is incredibly valuable and if bringing one on board from the word go fits within the numbers, then by all means. You'll just have to decide how much lease (control) to give them if they are a hired hand rather than an equity partner.

Before hiring a PM, you may want to hire a GC for the first few projects and deal directly with them yourself.  This way, you will experience first hand the things involved and can create the list of responsibilities you want to delegate to a future PM.  Crawl, walk, run.

As for GCs, some have in-house crews to handle the work. some use all subcontractors, and others may do a combination of the two.