General Contractors

20 Replies

As a general contractor here in the Chicago area. I want my fellow investors to remember when hiring a general contractor, included in the costs of completing your project he/she will charge overhead and profit. So for example, if as one of the line items on your project is the installation of a furnace and a/c and the cost is $5,000 from the subcontractor. If a general contractor is used that cost will now be $6,250. If you are completing a project and you are managing the construction of your project, you will not have to give this $1,250 to the GC.

If you are reviewing potential projects and want the assistance of a General Contractor, remember that this contractor has a very low chance of a job because the investor does not have equitable interest.  If you already own the property and you want a cost estimate, now this is business as usual for the GC because competing for business is what normal businesses do.

This is a snippet from an estimate that I provide on a project. If someone wants general information to help them make a bid, I typically give a ranges to help them assess if a deal is worth pursuing. I only need to see pictures to determine a possible range for the project's completion. When completing a more detailed estimate, a contractor can spend upwards of 8 hours to do this. 

I will admit, I tend to be a bit detailed when completing estimates and some investors don't care for this. I do this because I have to protect my margins and I need to have accurate information to keep my bids relevant and accurate. I am always open to helping anyone but as long as it does not take away from my ability to make money for my company.

@George Foster , I understand what you are saying about working with an investor who doesn't yet own a property.  I have considered paying a gc rep to walk through a property with me when I am interested and need to know the approximate rehab costs.  What would you consider an acceptable payment for a walk through and conceptual rehab estimate?  I am not looking for a huge effort to be expended in determining the rehab budget.

@George Foster you are spot on! And by the looks of it you are very detailed, I tend to break things down the same way, maybe not sqft wise, but definitely as line items. Clients tend to like that more often than not.

On the walk-thru, I think that can be negotiable. Depends on the scope, and also if you get the project in the end. If that's the case, I just as soon roll that walk-thru price into the bid. If not, a few hundred is what's reasonable to me, but like I said, depends on the scope. Hope that helps

@Jeff James  I charge $75 an hour and the owner can ask anything they want but I often try to give them advice on what is important at this stage of the investment cycle. If the investor actually uses me then I take this cost off of the bid. 

@Kevin Lochen  many times investors especially the newbies don't give me a scope or even know what one is. I am trying working in a cost plus fee arrangement because I am always more expensive than my competition. I show the costs them and my fee to it so that they start to understand what things cost. 

The GC margin is why I sub all my trades out and act as my own GC.  But I'm experienced in construction.   I can see where for the non experienced investors the GC can be a critical value add.  

@John Weidner   I often tell investors that the only difference between them and me is overhead and profit. If I had to do the same house, I would have to pay the same materials and labor that they do. Believe it or not, the investor has overhead as well if they want to believe it or not. So the real difference is profit.

@George Foster , I have a question about dealing with a GC. 

Many GCs that I have talked with charge +10% materials +10% profit.   GCs definitely need to make money, as we all do.  It doesn't bother me paying that if it is something I really need them to do that I cannot subcontract myself.  What bothers me is when the GC gets an additional 30% discount or rebate (and doesn't disclose this to me) but yet charges me the non-discounted amount +10% +10%.  When you are talking about a $10k kitchen, that makes my costs $15,000 versus $12,000, increasing his profit from 20% to 50%.  Is this common?

The reason I found this out is because a GC told me a place he liked to buy cabinets from so I went to look. I happened to know the person working there. She told me that my GC would get an extra 30% off the already "discounted" prices, but they were never to tell a GC's client that information. They even supply GCs 2 invoices -- one for the client (full price) and one for the GC (discounted price which is actually paid). I then proceeded to ask her if you have to be a GC to get those discounts and she said we would have no trouble opening an account ourselves in our LLC's name even though we are not a GC.

Is this common practice?  This particular cabinet distributor is a nationwide company, so it wasn't some mom and pop shop.  I am an upfront kind of person and this seems deceptive.

901‑545‑9092

A lot of distributors have different price scales for different customers .  Most of the time its based on volume , a contractor spending 50K a month will generally get a better discount than one spending 5K a month.  Homeowner just about always pays retail .  As a contractor I do not pass my discount on to the customer , my discount is something I negotiated with the supplier based on my buying and paying habits .

@Julia Blythe   the first thing that I will tell you is that all general contractors have different margins and overhead expenses thus the 10% Profit & 10% Overhead does not work for all contractors. A general contractor would have to determine what their volume of business will be and the associated expenses so that an accurate Profit and Overhead % can be added to each bid so that overhead can be covered and an appropriate profit is garnered based on each contractor's business model.

The second thing I want to say is that there are different types of contracts that a contractor and client can enter:

1. Fixed Price

2. Time & Materials + a Fee

3. Hybrid of the above two

There is an article that you can read that will give you a very good explanation with the advantages and disadvantages of each.

Construction Contracts: What to Know About Estimates vs. Bids

It sounds like you had a fixed priced contract with the general contractor. If this is the case, the contractor is providing services for a fixed price. As long as there are no issues associated with uncovered issues once walls come down or changes in the contract due to client changes the job should be able to be done for what the contractor bid. If there are issues that the contractor under estimated for those things that could be seen and not bid the contractor will have to eat those costs. If the contractor is able to negotiate more favorable materials or labor that is a bonus for the general contractor. That is the benefit or advantage for the general contractor and not the client. If you were to do a time and material contract, then you would pay for only the material and labor it takes to do the job. It is more transparent. The GC did not deceive you, he/she was in their right to take the advantages of the contract he/she had with you. If this was a time and material contract you would benefit from any savings in material and labor. If a contractor were to pass the discount that he/she gets in a fixed priced contract along to you, that is a decision that the general contractor made one that is his/ or her option to do. 

I hope this helps you understand the process and differences in contracts. Please read the link provided so that you have a better understanding so that you can be in control of an arrangement you feel benefits your situation.

Good evening @george foster I am located in Chicago and would like to speak with you as an offer to be the a GC for us. My number is 6303792886 please give me a call when you're able too. Thank you,  many regards

I am a GC and Investor, PPL  you need to understand that GC as well as an  Investors we need to make money, we dont work for free, so you can make money.  GC's we buy thousands of dollars in material and not just for flipping homes, I do new construction, remodeling, additions etc  so my discount on cabinets wood electric material has been gain with hard work. We pay L&I for our employees. and Medicare,  social security, unemployment etc.

When I Invest in some house for flip. I use one of my companies to buy the property and I contract my construction business to do the job, and I pay the construction company the same as I were a different person.  I do have a better rate for investors I have some investors that had been using my company for years. Always on time on budget and with quality.  The advantage to deal with a trustee GC is that you will deal just with one person instead of 5.

Eduardo Cedeno MBA, Betancourt's Construction LLC | [email protected] | 206‑604‑6210 | http://www.BetancourtsConstruction.com

Originally posted by @Julia Blythe :

@George Foster , I have a question about dealing with a GC. 

Many GCs that I have talked with charge +10% materials +10% profit.   GCs definitely need to make money, as we all do.  It doesn't bother me paying that if it is something I really need them to do that I cannot subcontract myself.  What bothers me is when the GC gets an additional 30% discount or rebate (and doesn't disclose this to me) but yet charges me the non-discounted amount +10% +10%.  When you are talking about a $10k kitchen, that makes my costs $15,000 versus $12,000, increasing his profit from 20% to 50%.  Is this common?

The reason I found this out is because a GC told me a place he liked to buy cabinets from so I went to look. I happened to know the person working there. She told me that my GC would get an extra 30% off the already "discounted" prices, but they were never to tell a GC's client that information. They even supply GCs 2 invoices -- one for the client (full price) and one for the GC (discounted price which is actually paid). I then proceeded to ask her if you have to be a GC to get those discounts and she said we would have no trouble opening an account ourselves in our LLC's name even though we are not a GC.

Is this common practice?  This particular cabinet distributor is a nationwide company, so it wasn't some mom and pop shop.  I am an upfront kind of person and this seems deceptive.

 Short answer, yes, this is normal. When we start to deal with a company, we get only 10-15%, as we purchase more, our discount increases. My plumbing/electrical co gives me 40% off, but i have ordered hundreds of thousands from them. Just like I charge 25/hour to client on a cost plus contract but i pay my guys 15/hr, labor is different tho, we need to pay WC and insurances, employer tax share and etc. I have no problem with clients buying their stuff, but i let them know i get extra discount on suppliers and if they are nice enough, ill split the discount with them. Not sure 10+10 works for me tho.

Originally posted by @Eduardo Cedeno :

I am a GC and Investor, PPL  you need to understand that GC as well as an  Investors we need to make money, we dont work for free, so you can make money.  GC's we buy thousands of dollars in material and not just for flipping homes, I do new construction, remodeling, additions etc  so my discount on cabinets wood electric material has been gain with hard work. We pay L&I for our employees. and Medicare,  social security, unemployment etc.

When I Invest in some house for flip. I use one of my companies to buy the property and I contract my construction business to do the job, and I pay the construction company the same as I were a different person.  I do have a better rate for investors I have some investors that had been using my company for years. Always on time on budget and with quality.  The advantage to deal with a trustee GC is that you will deal just with one person instead of 5.

Could not agree more!!

@George Foster Very good article .  If the client has their own financing I am always willing to do a fixed price for their project.  This will undoubtedly save them thousands, how much of course depends on the scope of the project.  I will bid the job in detail as usual, let the client see this, then explain if they are going to fund the project, that I will do it for said fixed price. Payments made based on progression of work.  The job is run as usual. Any changes the client makes during the course of the project are handled just like a regular change order so they can track the added costs and not be surprised at the end.  Documentation, Documentation, Documentation. In my experience, the client ends up saving a significant amount of money and I benefit by not having any of my capital tied up allowing me to increase my work load.

@GeorgeFoster  Nice post!  I am in complete agreement with the detail of your bids.  The more documentation the better.

Hello,

I'm looking for a general contractor in Chicago. If someone can point me in the right direction via email or give me a call, that would be great.

Kevinn

(630) 589-6845

[email protected]

@George Foster is it possible for an investor to do a ballpark rehab estimate using a per square foot multiplier?

We have tons of 2/1 sfh where I am and it would really help to be able to get within 10% or so of a rehab cost.

Has anyone you know of broken down costs by type? Electric, paint, etc per square foot for ballparking?

Tia

@Tim Davids any accurate estimate that has been broken down first in pieces can then be manipulated by the square foot or other method but you must first start with accurate numbers. There are many estimating books that use the square foot method but be careful to look at what specifications and scope of work the estimate is based on. 

I am not sure if this helps you but I tend to be a bit strict when it comes to estimating because it is here that money is gained or lost. My recommendation is if it is possible to talk with someone that has done a rehab that fits the 2/1 configuration, review what was done in that completed project so that you can compare against the house you are looking at then converts to a square foot number. Always add a contingency to make up for those things that always show up unexpected in remodeling projects. 

@Kathryn Marchetti thank you. I want to help other investors so that profit is their only option. If you don't plan well, success can be jeapordized. 

@Kevinn Harris this response is self serving and totally biased but I am one of the best. I will tell you that I am not the "back of the truck" guy working for wages but I understand that the investor must make money. I also offer the investor to work as a construction manager so that any cost savings from subcontractors go straight to the investor. You in essence would be "leasing" my skills to aid you in makings money