Do we need/want a General Contractor as a partner?

Question

Hello all you awesome investors! I am ready to do some flip and/or brrrr deals with a partner in Louisiana. I'm trying to understand how the permit situation works.

My partner is a project manager for a custom home construction company in Louisiana and she wants to get into real estate investing. She doesn’t have the money or the credit yet, but she DOES have project management experience, relationships with local materials vendors and subcontractors, and access to a licensed general contractor if we need him. I’m just trying to figure out if we need him. Does a GC pull all the permits for a rehab job, or do individual subcontractors obtain them? If a GC is not necessarily needed, what are the advantages/disadvantages to working with one? Like I said, my partner has plenty of property management experience.

If we are to use the GC, should he be included as a partner (assuming he wants to be involved ongoing), or would he get paid like a regular job? Does anyone have any experience with a three-way partnership deal like this? I'd love to hear your thoughts! Thank you in advance!

Tami DuBose · Answer

@Jessica Fatel, every parish's permit process is different. I encourage you - before purchasing a flooded/gutted house to rehab, call that parish's permit office to confirm the extent of the permit process. I pulled permits for 4 of my East Baton Rouge properties (not a GC, just me) for post flood reconstruction. I did NOT need electrical or plumbing (well, that's what I told them.) Electric always requires a licensed electrician.

I manage my projects, but I don't flip. I buy/hold.

I wouldn't partner with a GC. Yet, that could motivate him. Bonuses are also a good motivator.

I hope your friend has some real pull with contractors as anyone with a reputation is booked up for the next year.

@Richard McCray, @Brandon Johnson & @Robert Leonard might offer some additional insight as we're all working on properties in the flooded areas.

You're also welcome to call me for their contact info.

Side note on partnerships - They're a quick way to lose a friend. EVERYTHING must be in writing. I'm sure there are a number of posts in BP about partnerships.

Brandon Johnson · Answer

@Jessica Fatel  I have to agree with @Robert Leach

Finding the right general contractor has been an absolute game changer for me and has allowed me to scale my business significantly.  I don't like the idea of a three way partnership.  I'd rather just pay him what he charges for the rehab.

Good luck to you in your rehab ventures. See you at the top!

Robert Leach · Answer

Well speaking from the GC side...I equate a good portion of investors that go without a GC as reckless. I have done deals on both sides of the fence and unless you absolutely know what you're doing, tackling the GC tasks as part of your business plan are simply foolish. I would argue that the "property manager" you are partnering with is more of a waste as 90% of what that position can bring to the table a good GC does already.

My advice is this...sweat equity is over rated and usually not profitable. Pay a good GC and use your time to go find new deals. DIY is over-rated and usually doesn't save you much in the end. I am sure there will be 20 plus investors that disagree but the top 10% know what I say is fact.

May your bottom line always be above the water line!

Adam Avinger · Answer

well, yes the GC would pull permits for when they are required. Usually thats only for additions and adding permanent structures not already in place. GCs aren't cheap, but handle the bulk of the rehab process.

Jessica Fatel · Answer

Thanks, @Rob Lane, @Robert Leach and @Brandon Johnson. I appreciate all your feedback and insights.

Rob Lane · Answer

Dear lord no.  Do not partner with a contractor.  Your licensed electrician, plumber, H&A can all pull their own permits.  Besides, you are really tapping into your profits with multiple partners.  If you are the money person and the other two are laborers?  Everyone would need to have skin in the game.

Jessica Fatel · Answer

Thank you,

@Tami DuBose. Yes, I will be in touch with that parish's permit office, for sure. I'm interested in what you're saying about being able to pull multiple permits without being a GC. My mother has twenty something buy and hold properties in northern Oklahoma, and she is also able to do this.

I like your idea about bonuses as motivators for the GC. My partner and I have not yet sat down with him to talk about involvement and pay structure, but want to be able to come up with options that serve everyone...

And yes, I plan to sit down with an attorney and have each of our roles/obligations thoroughly drawn out before any deals are penciled out. Sounds like I need to read as much about it in the forums as possible, too!

Jessica Fatel · Answer

Thanks, Adam. I'm trying to find all the building permit info for that area, so I can see what we really need. Do you think a general contractor is better than a project manager for overseeing the rehab process?

Jessica Fatel · Answer

To clarify, as far as what each partner would bring to the table, I would be supplying the financial backing for these deals. My partner would be our "feet on the ground" in that town, help find deals, and act as project manager. So I'm trying to figure out if and how the GC factors into the equation.

Do we need/want a General Contractor as a partner?

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