using non skilled labor to fix up your houses

54 Replies

I've been using college kids, just out of college, stay at home mom's, etc to work on our crew to help fix our flips.  We subcontract concrete, roofing, and exterior painting, siding, windows if we are doing the whole house or bigger jobs.  I've found its been a balancing act of choosing cost over quality, speed of completion, etc when choosing between a using GC's, contractors, and hired labor.  its been working ok for me as long as I don't have alot of turnover on my crew.  As my in house crew gets better and faster with each house it becomes better to use them vs. GC's and contractors.  please reply to this post about your thoughts or experiences using hired workers to fix up your flips or other properties.  

Very interesting thought. Not something I had considered. Where are you tracking people down from? What wage are you offering? 

Medium head icon colorRyan Dossey, Call Porter | http://Callporter.com

We own a general contracting company and we use a lot of day laborers. The risk with using them is that they are not committed to being available to us every time we need them. We pick up non-skilled labor for demo. If we find that they're disciplined and have a good work ethic, we'll have one of the other day laborers teach them additional trades. It pays off in that we get the work we need done and we have someone that is more loyal to us and will likely return to us if we need them. Even for the same wage, we've found people prefer working for us if they feel that they have learning opportunities. 

I assume they don't carry their own insurance...do you carry liability and workers comp yourself in case they get hurt or hurt someone else?

Also, if you're providing tools/training, the IRS may classify them as employees, not contractors.  Be careful!

@j scott we have liability and workers comp through our management company we have for our other rentals and property portfolio.    So I guess this wouldn't apply to new investors starting out unless they take the risk and protect themselves by hiring their own labor.   

Cool, I am glad this is working for you! We recently needed more crew for some of our rehabs and I put out a CL ad. After about $500 in tools disappeared, I decided to stop looking for laborers that way :(

@Ryan Dossey  we offer anywhere between 10-15 per hour.  they are hired on as employees with the title of repair tech.  We are fortunate to have an human resource infrastructure to be able to do this efficiently.  So you will need to get legal and HR advice on how to set this up for your particular business.  

I have stopped using craigslist for finding labor.  We advertise on various job websites ie. indeed.com, monster.com, etc.  We interview all candidates and don't hire anyone with felonies or those we can't trust.  there is always a supervisor on site until the laborer is with the company for a certain period of time and earns our trust to be in the house by themselves.  So its an investment in time, effort and training to get this going but as we scale up the number of flips we do then I think we'll be in a good position.  

Originally posted by @Mike Mendoza :

@j scott we have liability and workers comp through our management company we have for our other rentals and property portfolio.    So I guess this wouldn't apply to new investors starting out unless they take the risk and protect themselves by hiring their own labor.   

I assume that means you're paying a percentage of total labor costs in WC for every project -- when you factor in those WC costs, are you sure there's a big savings over using skilled labor?

For example, if you're paying $10/hour for these people to paint, plus an average of 3-4% WC (about right for painters), plus liability coverage, that's likely a total cost of about $15/hour for these "painters." You can probably find skilled painters with their own insurance for $18-20/hour in most parts of Ohio. Factor in the lower quality (meaning lower ARV), the increased holding time/costs (unskilled laborers will be slower) and the overhead in having to do extra management for the unskilled folks, and I'm not sure you're seeing much savings there at all.

I've run the numbers on this in the areas where I work, and I generally don't think it's cost effective to use unskilled labor.  

Just my experience...

I'm with J. Scott on this one... I prefer to pay a bit of a premium to a Licensed GC with Liability and Workmans Compensation which is mandatory here in Toronto, Canada. One fall or injury will debilitate your business plan.

I agree with J Scott . I used to use just about anybody to work for me but now I use someone who is licensed and has wc for all his crew. When you start ramping up your volume of flipping it is likely that you will be audited by the wc people. For me it's better to transfer that liability to someone else.

@Marcela Correa  I guess we are creating our own general contracting company by doing this.  when we advertise and interview we emphasize that they will have learning opportunities on fixing houses and possibly learning real estate investing.  We will only do this for those who stay loyal and prove themselves to us.  I think that's why we are attracting the stay at home mom and others  who watch "flip this house" type shows and want to learn how to do this.  All of our crew is part time and we have a bigger pool of people where I put out a schedule first to those who have worked longer for us then if they can't work I offer the hours to others.  if someone calls in sick we will call others on the list to see if they can come in if we really need the help.  

Originally posted by @Mike Mendoza :

@Ryan Dossey  we offer anywhere between 10-15 per hour.  they are hired on as employees with the title of repair tech.  We are fortunate to have an human resource infrastructure to be able to do this efficiently.  So you will need to get legal and HR advice on how to set this up for your particular business.  

Wow, if you're also paying employer side of FICA taxes for these folks and the additional overhead of HR/management, I just can't imagine that using unskilled labor is cheaper than skilled labor.  And then you still have the issue of lower quality, increased management overhead and increase holding time/costs.

If this is working for you, great!  But, I have a feeling that if you really dug into the numbers, you'd find that you're just creating an unwieldy infrastructure that's going to hinder your growth and reduce customer satisfaction.

Again, just my $.02...

@J Scott great points you bring up.  We have an in house GC/project manager that does alot of the work.  This keeps deadlines on schedule and ensures good quality for the work done.  As far as the numbers, it is a balance and we have found in our last two flips it saves us a little money.  So we if can become more efficient I believe we can save more. Its an experiment and investment in time and effort to see if we can make this work.  and as we ramp up I'm going to hire a GC and other contractors then continue to analyze the numbers and results to prove this out more and use a combination of both or eliminate one or the other depending on what system is working better. 

Originally posted by @Mike Mendoza:

This keeps deadlines on schedule and ensures good quality for the work done.  

I don't buy it.  One of two things is happening:

1.  When there are quality issues (which there will be with unskilled labor), the GC is making them correct the issues.

2.  When there are quality issues (which there will be with unskilled labor), the GC is not making them correct the issues.

If it's #1, your schedules are bloated.  If it's #2, your quality is suffering.  It's also quite possible that it's a combination of both.

If there's a #3, I'm curious to hear it...

@J Scott re: the human resource infrastructure and other costs associated, we are fortunate to have economies of scale as the company I am partnered with manages a very large mobile home park and apartment building portfolio so we are spreading out the overhead cost more so than a starting house flipper. We are analyzing the overhead costs in all our flips and add that to our expenses for each property.  Its working for now but time will tell if we keep this model or mix in more contractors if this doesn't make sense cost wise in the future.  

Originally posted by @J Scott:

I assume they don't carry their own insurance...do you carry liability and workers comp yourself in case they get hurt or hurt someone else?

Also, if you're providing tools/training, the IRS may classify them as employees, not contractors.  Be careful!

 It may be time we had another consultation with an HR attorney. As of last time we checked we hit enough bullets on the list that we didn't have to acquire WC: our day laborers can manage their own hours, are not bound to a schedule when they have to arrive or leave by, and they use their or our tools depending on the work that day. We do have extensive GL. This is an expense that's covered by the GC side of the business (as opposed to the investment side) so the investment side gets benefit from the GC's overhead costs.

Originally posted by @J Scott:

If there's a #3, I'm curious to hear it...

I agree with you @ @J Scott .  we are planning on doing this for the long haul and are investing the time, money and effort on only a small portion (2 properties) of the flip portfolio to see if this works.  So #3 is we are getting lucky. We may be taking longer and/or losing out on some profit potential but we have been hitting our goals for these two properties.  The project manager and I hire those who we feel from experience will be fast learners, and more likely to be concientious about the work we give them.  I will report my findings in the coming months to continue to prove or disprove my ideas on this over a lager sample of properties. 

Sorry but to be honest hiring a bunch of unskilled labor type to flip a house is saying I don't care about quality and professionalism.  I just care about the bottom line.  Especially around here it is still a buyers market and you have to have the best product at the best price.  I've seen houses sit for 6+ months that were fresh flips new everything top notch appliances good design... just awful labor...   Bad paint, bad tile, grout chipping out of brand new tile, ugly drywall repairs, and just basically no attention to detail.  Sure the labor was cheap but you just paid the difference in labor in holding costs.

If I offend you I'm sorry.  I'm a licensed general contractor it is the career I've chosen out of passion and acquired knowledge.  I have been in the hack job flips way too many times either to do a last minute repair before settlement, or just with local reia meetings.  It's sad, I have ripped out entire bathrooms for being hacked together for both homeowners and investors alike and let's just say any money saved on cheaper labor was lost and then some on having me come in diagnose the situation, demo, and rebuild. 

I can't tell you how to do your rehabbing or how it should be done because whatever works for you is fine and I am not perfect.  However I believe professionals should work on houses.  Would you have a mechanic work on your mouth just because he knows how to brush his teeth?

@Greg Behan  no offense taken.  thanks for responding to the post.  I posted to get feedback and learn from others on this forum.  I think I need to describe this a little more. We have a professional in house project manager and a professional carpenter and other in house former contractors that have worked with us for years to flip these two properties.  They also work on the company's property portfolio.  We teach, inspect, and make sure the product on the other end meets ours as well as professionals standards.  I'm sure were not always perfect or meet the standards 100% of the time but we strive to get better everyday.  the unskilled labor only works on things we have taught and qualified them for.  This takes time but we have been lucky that these laborers have worked out for us and we still are hitting our goals.  We are hitting our bottom line and maybe sacrificing some profit for this experiment, and in my opinion, are doing it in a professional and responsible way.  

To be light hearted on the subject...

I think my Chicago Bears use your philosophy as well which explains why we can't complete a pass lol.

Simply put "we get better everyday" "not always perfect or meet the standards 100% of the time"

you basically just said your'e not confident your houses are not the best product you could put on the market.

You have these other "professionals" and "former contractors" to check up on the other guys.  Sounds like your making a mountain out of a molehill and should just hire 1 professional GC to take care of it.

LOL...the Browns don't use any philosophy, just take a look at the national mocking that ensued based on their recent logo "change"

@ greg I think you are implying that a GC does not make any mistakes. I've flipped houses and work with GC's since 1998 in the Cleveland market. I've had my fair share of dealing with their mistakes. There are also very good GC's here also that have done very well for us. To your credit we use a GC for 98% of our flips. This model was only used for two of them.

Originally posted by @Marcela Correa :

 It may be time we had another consultation with an HR attorney. As of last time we checked we hit enough bullets on the list that we didn't have to acquire WC:

If they aren't classified as employees, you may not be required to carry WC for them.  But, if they don't have WC coverage themselves and one of them gets hurt/killed on the job, YOU may be liable.

I would certainly consult a good WC attorney so you know what your exposure is...