Contractors or Employees? Which do you choose and why?

Contractors or Employees? Which do you choose and why?

Joshua D.Pro Member
Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes

So, at the moment, I have 11 units. I aquire new houses and do remodels year round. We typically do 2-3 remodels a year. Right now, I hire 2 full-time employees to do the remodeling work for me, and they do maintenance calls, as needed. I pay them, on payroll, $11/hour.  We give them $25 in cash for any maintenance call they do, after hours. Our accountant charges us around $2,000/year to do payroll, and we pay $1,800/year for workers comp insurance. We obviously have taxes, etc that also comes out of it. 

So, I'd say it's a good guesstimate that we pay $44,000/year for our 2 employees, including everything that comes along with having them (payroll, workers comp, etc.) This numner is STRICTLY employees only, not for materials for the remodels, etc. 

But with us doing 2-3 remodels a year at a minimum (and this doesn't include the smaller jobs, such as finishing attics and improvement projects on the rentals, which we also do year-round), and having 11 full time rentals, in which the employees take care of, does this make sense? 

We'd also, I suppose, have the option of paying a licensed/insured contractor by the job to do it, and just having a few guys to call for maintenance calls, therefore eliminating our payroll entirely as well as our workers comp costs, etc. 

 However, contractors are substantially more expensive and would charge atleast 3x what it costs us to do the remodels, now.

Just looking for your thoughts. Thank you!

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Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
8y

@Joshua D. ,I should have been more clear.  

My entire operation does 15-20+ per month for Flips, Turnkey, Multi-Family, etc.

Out of those that we buy and sell, we only keep 3-5 of them each month for our own portfolio.

But as for how we do 15-20+, just an amazing team LOL. It's all about the team. I used to do triple this amount of rehabs for my REO clients with only a 4-5 person team and the same field contractors.

The answer is making the field contractors 100% responsible for everything instead of hiring dozens in your office.  

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  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    8y

    The answer has nothing to do with your expense or anything other than the IRS rules that determine whether you have an employee or a contractor.

    Read this.  Know it.  Fall in love with it.

    Contractor Vs Employee

  • Joshua D.Pro Member
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes
    8y

    Thank you. Yes, I know the IRS rules. I was just wondering, if you are a BRRR investor, do you hire employees on staff or do you hire contractors by the job, and not have employees?

  • Joshua D.Pro Member
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes
    8y

    @brandonturner

  • Joshua D.Pro Member
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes
    8y

    However, this is helpful! Thank you!

  • Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
    8y

    For that low volume, I'd stick with 100% 1099 sub contractors.

    We didn't even add employees until we were doing 7-10+ per month.  

    Now at 15-20+/mo we have 11 office staff and 200+ field subs and it's still very easy to manage.  

    There are so many advantages to subs (at your volume level) for my business, at least, that I'd go that route.  It's great to have more control over employees, but it's also great that if materials are stolen from a job then it's your subs problem and not your own.  Avoiding workplace injuries, tax hassles, etc....

  • Joshua D.Pro Member
    OP
    Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes
    8y
    Bryan Blankenship how do you acquire that many properties so fast. We have 11 units. 1 duplex and 9 single family homes. Trying to get the systemized where we can grow and do what you do. Any tips or advice on how to run a business to get to that volume? Cant imagine at this time.
  • Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
    8y

    @Joshua D. ,I should have been more clear.  

    My entire operation does 15-20+ per month for Flips, Turnkey, Multi-Family, etc.

    Out of those that we buy and sell, we only keep 3-5 of them each month for our own portfolio.

    But as for how we do 15-20+, just an amazing team LOL. It's all about the team. I used to do triple this amount of rehabs for my REO clients with only a 4-5 person team and the same field contractors.

    The answer is making the field contractors 100% responsible for everything instead of hiring dozens in your office.  

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