GC Sanity - I am I being fleeced or is this just the Business

Investor · Vero Beach, FL · Member since 2016 · 22 posts · 5 votes

Good morning BP, I am a long time but and hold investor but a Newbie to new, multi unit construction on the west coast of Florida. I am building out a multi unit building with a cost, including labor and materials of 1.1 million. Because the deal is awesome, I am seeking to close on it even though it is quite a ways from my home. To handle the project I asked for fixed priced quotes from GC's in the area. One of the responses was: Labor and materials 1.1 million Onsite Project supervisor 90k GC profit and oversight costs 260k In my opinion, the combined costs of the 90k plus 260k seems high. Can experienced investors in new construction projects in the Florida west coast area provide me some feedback on whether these costs are responsible? Many Thanks, William William

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

its market driven... we are in a funny cycle right now... many GC's got wiped out in 08 to 2011 went BK ect... so instead of them doing these projects for their own account they are forced to work for others.. So on one hand your getting very experienced GC with no ability to borrow yet.. still feeling the sting of going BK.

So to that end we hire GC by the unit on new construction... and pay 10 to 15k per door. They pay their own insurance etc..

I would say your bids your getting are on the high side.. and I don't see high end finish's or at least just granite stainless and some crown having an affect on what a GC would charge.. those are standard finish's these days in most markets. ( crown not so much) but granite quartz stainless yes.. and appliances are appliances nothing more expensive about installing those in most instances.

Right now in most markets SUB labor is a real issue IE lack of quality subs.. too much demand for new construction and not enough folks to do it.. so this has cost sub prices to rise over the last 3 years.

I would get some other bids to see what the market is paying.. although in our market that would be very high...

in context we will pay about 300k for 4.6 mil of construction cost.. ( vertical only does not include the building of the lots which is another 1 mil and its included in the 300k)

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Brent M.
Investor · Hayward, CA · Member since 2015 · 83 posts · 72 votes
10y
Seems pretty costly for a 5 unit, but dirt cheap for 50 units. What's cost per sqft to build in your market? Is this a high end property with top level finishes, or not so much? Your question is too vague as written.
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William Tharp
OP
Investor · Vero Beach, FL · Member since 2016 · 22 posts · 5 votes
10y
@Brent McAlee The project is 15 units with high end furnishings like granite, stainless and upgrades to crown moldings and trim. The 20 percent profit for GC involvement on top of the site manager, subs labor and materials seemed a bit high, but not sure. Thanks, William
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
its market driven... we are in a funny cycle right now... many GC's got wiped out in 08 to 2011 went BK ect... so instead of them doing these projects for their own account they are forced to work for others.. So on one hand your getting very experienced GC with no ability to borrow yet.. still feeling the sting of going BK.
So to that end we hire GC by the unit on new construction... and pay 10 to 15k per door. They pay their own insurance etc..
I would say your bids your getting are on the high side.. and I don't see high end finish's or at least just granite stainless and some crown having an affect on what a GC would charge.. those are standard finish's these days in most markets. ( crown not so much) but granite quartz stainless yes.. and appliances are appliances nothing more expensive about installing those in most instances.
Right now in most markets SUB labor is a real issue IE lack of quality subs.. too much demand for new construction and not enough folks to do it.. so this has cost sub prices to rise over the last 3 years.
I would get some other bids to see what the market is paying.. although in our market that would be very high...
in context we will pay about 300k for 4.6 mil of construction cost.. ( vertical only does not include the building of the lots which is another 1 mil and its included in the 300k)
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Michael Hayworth
Contractor · Fort Worth, TX · Member since 2015 · 379 posts · 740 votes
10y
With only what you've listed as perspective, it doesn't sound that out of line. It's a very busy time in construction. Anyone good is going to want to make a fair profit. If I can't make 20% on a job after overhead costs, then I'm not spending my resources wisely. There will come a lean time again when we'll need to live off savings and cut rates on jobs, but this is not that time - right now, all good contractors are very busy, and if someone is cutting rates, it would make me question their quality.
That said, I'd have a few other questions:
1) You said you asked several GCs for bids, but you're asking about this one specifically. What were the other bids like?
2) It sounds like the $1.1 is an estimate, and any cost overruns would be passed off to you. If the $260 is a percentage, does that grow if the $1.1 does? That may be perfectly fair, but you need to understand the terms you're working with and not have any surprises.
3) Have you checked references on this contractor and specifically asked how final costs were vs. initial estimates? There are plenty of contractors who make a living using lowball pricing to get the sale, then change order you to death.
4) We don't have any info about configuration of the units, but this brings you out just under $100K per unit. For that, this should be a very nice complex. Is it?
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Kevin Breed
Licensed Contractor · Carolina Beach, NC · Member since 2016 · 83 posts · 22 votes
10y
With my general contracting business and with other GC's that I worked for as a project manager, there would be general requirements which is typically called Division 1 for the project. This would be an onsite superintendent with a weekly salary charged to the job. Then there will be a project manager for the job, his time is partially charged as he is managing other jobs at the same time. Then there are some items such as the wireless phone, the truck, gas for the truck, dumpsters, final cleaning and other items that can be charged to the job. The $90k for superintendent seems OK.
The GC will take all the costs of the job; materials, equipment, subcontractors, permits, etc. and add on overhead percentage (cost of doing business) which could be 3-5% to subtotal, then also add on the fee to come up with a grand total. In my area it is typical to see a home builder use a 15-25% fee to build a house. Commercial is usually much lower and the higher cost of the project, that rate could drop lower. I would expect with competitive bids in my area the fee would be 10-15% range.
Say your project is $1,000,000 plus 3% overhead $30k / $1,030,000 plus 10% fee $103k / grand total of $1,133,000. Any changes, upgrades and such would be charged at 10% fee.
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