Subcontractors vs Employees

Rehabbing & House Flipping
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Subcontractors vs Employees

Account Closed
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes


Back in NY I was setup with a workers comp policy and had a handful of guys who worked for me.  I used them for flips and rentals repairs.  Since then I have moved to Pa and need to come up with a new solution.   As I see it I can do 1 of 2 options, setup a new workers comp in Pa or use subcontractors.

I have only used subcontractors on a handful of occasions, siding and roofs only.  With my employees I would act as manager and have anywhere from 1 to 3 guys working with me.  I would do all the electrical and plumbing and trim work, while they did the basic tasks like cleaned and painted.  

Now I am working full time as an investor and need to ramp up my workforce and get more done quicker.

As an employer I was paying my guys around 13/hour and the overall cost was small.  The problem with this approach is I am inconstantly baby sitting  them and still stuck doing half the work myself.

The problem I would expect to see with subs, is they are expensive and harder  to control.

I am sure some of you have been in my situation and I would like to know what you did to take your business to the next level.

Thanks.

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    IMO, the employee choice forces the State Labor Board into your affairs and all that accounting is a nightmare (ie you need to off load this) and has large, non-roi expenses (workmans comp, ssi, liability insurance).

    You can be the manager and sub out the big stuff to licensed workmen who have their own businesses and you treat them as 1099s.  When you have good specs to work from, you can turn loose of the details (ie learn to be less of a perfectionist), after all, it's not the same as rehabbing your own residence.

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Jeff B.

    For me the logistics of having employees is not that burdensome, beside my wife has historically handled the need filings and reports;)

    I am just concerned I will be paying for things that are not needed and brought to a level too high or low.  I feel as though I would get ripped off without being on the job myself, and at that point I might just as well have my own guys.

    I estimate for me to have a rehab done in 3 weeks, which includes cleanup, new kitchen, bath, flooring, finish or clean trim and wall coverings should take 3 guys 3 weeks.  That does not includes, well, anything I did not mention. That's been about my pace.  The cost is about (6-7)k in labor.  What would I pay in labor if I had a sub and his crew come in and perform said work?

    I am certainly not arguing these are the kind of workers where you need to be on site at all times.  They don't have to tools, background, experience or work ethic to be on their own.  That is unless you want to leave for 5 hours, see that nothings gotten done and spend the rest of the day upset.

    I don't want to work in the business, but I am concerned the subs will be so much slower and costlier than what they should be.

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  • Account Closed
    Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
    10y

    @Account Closed  Does it really only take you 3 weeks to renovate a house?  Do you do a good job?  Do you pull permits?  Are you licensed to do electrical and plumbing under your permit?

    It would probably be best for you to sub out as much as possible and/or pay your help a little more, especially if you want guys that have their own tools and can work without supervision.

    You have to spend money to make money and you have to buy low.  If you don't buy low, you end up having to compromise quality, producing an inferior product, in order to do well financially ...and that should not be a part of anyone's business plan.  

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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Account Closed

    That's a great  response and one I'll take to heart.  I guess there is an intermediary choice which is hire pros.  The problem with that is having enough consistent work to keep them.  I am very sensitive to not keeping a guy like that busy because he needs and deserves it.  I am generally hiring guys who aren't working on a regular basis anyway.  So when a house is done, so are they for the most part.  At least until the next project.  Hard to keep good help around when that's your situation.  If i run an ad for help in an area, I get calls every 30 minutes for that morning, of guys looking to do something that day, and that may be all I get out of them.  That being said, I have had some guys work for me for years, on and off.  

    To your questions:

    Does it really only take you 3 weeks to renovate a house? Sure for the said scope of work, and me in the mix.

    Do you do a good job?   Good enough, and no more or less.  I sell houses in the 100k range and the less the price the less picky the buyers generally are.  Of course the more money the home, the more pickier they are.  The quality of work follows.

    Do you pull permits? I follow your question relative to the post content but, not unless I absolutely have to.

     Are you licensed to do electrical and plumbing under your permit? I am not licensed.

    Long story short, I really like your idea.  At least having one pro on the job and 2 laborers.;  I don't want to be painting houses on a ladder at 65;)

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Robert LaBrie I have 2-3 crews running at any given time, and visit them everyday if i could, but as little as 2 times a week. I pay my foreman 30/hr, adding CA taxes at 15.15% and work comp around 15% thats 30% or I end up 39/hr, I'd like to assume 40/hr for it, that is MY cost. Good thing is, I don't need to buy tools, only consumables. I don't hire laborers anymore, they are pretty useless and just screws up all the demo don't really do anything aside from learning. Usually I hire at 17-25/hr but they need to be a handyman type or at least 3 trades. I know, I run an expensive crew, but I could be just looking and pointing at things that I don't like, give an hour to fix it and before I leave I make sure what I point got done. Crew size is about 4-15 depending on the project, with 15 crew, I do pay at 13 for 5 laborers, but all they do is feed materials for my skilled persons or demo.
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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Robert LaBrie Oh, and if you have previous WCI, you can transfer them to your new state, but make sure you apply for reciprocity on your contractors license. Having a WC is the easy part, doing things under the radar without a contractor's license is an illegal activity depending on the limits of your new state.
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  • Account Closed
    OP
    Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
    10y

    @Manolo D.

    Thanks for the heads up.  I will look into that.  

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  • Leigh C
    Brooksville, FL · Member since 2012 · 429 posts · 220 votes
    10y

    I use in house "project managers" who hire outside vendors for everything.   Easier to hold people accountable and limits all sorts of liabilities.      We tried employees and the costs went through the roof since people weren't as productive.

    We rarely do large extensive flips though.

    We try to use the same contractors obviously over and over but it rarely works out that easy.   Did 75+ flips in 2015...

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Leigh C Then obviously your "project manager" did not really do a good job, or has hired the wrong employees. I use two methods on my employees, sometimes piece work and the others just pure deadlines. if they don't meet it, I just change them, so the fear of losing more work opportunities or not getting hired is present. The savings is two fold, I save on time contingency the subs use, and the subs profit/overhead. The key is, before everyone starts the job, I do a project briefing, a week target, what materials to buy, where to buy, etc, I let them decide what to do first then next then next, then i just say approve or not. With this method and strict control, we never miss any deadline.
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