Should I manage the construction or hire a GC?

Question

Looking for advice on the following,

After 2 years of my first investment, I am now getting ready to make my next move on the real estate world. I am really interested  in the idea of building a 3/2 sfh or a small 2/1 duplex, my 2 questions are these:

How does the financing part of new construction work? Is there a big gap profit wise, between hiring a GC and handling the construction myself?

Thanks in advance!

Chris Seveney · Answer

1. your bank will not let you act as the GC unless you have a GC license. so if you need financing no need to read further.

2. Yes there is a huge gap.If you know what you are doing you can save considerable money, if you do not know what you are doing it will cost you considerable money.  So yes a big gap based on experience level

IF you have never managed a project before, then this would be a hard no to tell you to GC it yourself.

Evan Polaski · Answer

@Rick Soto, as Chris notes below, a lender will require an experienced GC/builder.

As for the gap in profitability, yes it can be HUGE.  I have only bid out one new single family home in the past, and effectively to use a GC would have left me very little profit, within a margin of error that I could realistically see breaking even.  Now this is the one deal, with the one GC, and was a fairly difficult lot and was about 5 yrs ago.

Fast forward to today, and my plan is to partner with a builder on the equity side.  I put up the money, we jointly secure financing.  Builder has a full crew of employees, so will build house at cost.  Split profits.  I believe there is a very healthy margin in this relationship.  AND I get to be passive in the deal while making a similar return to if I tried to GC it myself, since I would be hiring subs are retail rates, where builder has them on salary.

Malcomb Stapel · Answer

@Rick Soto  your banker is the best person to talk to about the financing aspect. As for the gap in profits, obviously the GC is going to upcharge you to make their money. The question is, do you think you can run a project with your experience level and contractor network that is going to save you money by the time you factor in delays, setback, hard lessons learned, etc.?

Mark Bohstedt · Answer

This is a great way to do it. I’ve built quite a few homes with split equity and the investor provides the funds. So far it has always been a win/win for both parties.

Should I manage the construction or hire a GC?

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