who has the control you or your general contractors?

Question

Hi BP

I'm not taking about who is running the show or whose the boss. That should be the investor.

But I'm wondering what the different dynamic/relationship there are between contractor and investors?

1. Are you your own general contractor?

2. Does all decision have to run by you 99% of the time?

3. Do you trust them enough to run with it, if something comes up?

4. Do you keep them and they become part of your team?

Aaron McGinnis · Answer

I am my own GC. Actually, Licensed and running a construction company. It's convenient and I retain a huge amount of control over my rehabs.

I didn't always do it this way, but as my rehabs got larger and larger I found myself needing to control more and more of the process. Finally, I just took the plunge and realized that, in fact, I was running a construction  company in addition to a flipping business.

This doesn't mean that I babysit job sites all day long. I pay other people to do that for me. It does mean that I manage the overall process, handle large problems when they crop up, and get the privilege of dealing with many more headaches than any two people should have to.

I think the question of "GC or PM" is a factor of the following -

1) How big are the projects you're running? If you're doing simple paint and carpet flips, then having a PM who may or may not know all the details of running a construction company isn't a bad idea. If you're running really big projects, you'll need a GC who is well-versed in construction and remodeling. At some point, if you're a total control freak, that person will probably become you.

2) How specialized are the projects you're running? If you're doing very basic projects where you can fire off the same list of fixtures over and over again, then a PM is fine - you don't need a real 'business'... if you start doing very detailed, very complicated, very sensitive construction work you'll either need a design-build GC...... or.... you'll need to build a design-build company to do that work.

Be very clear on this - a GOOD design-build company is NEVER going to want to become beholden to you or any other individual investor. Work with you closely? Sure. Do a lot of work? Absolutely. Let you become their sole customer? They'd be insane to do so... and I seriously doubt that you'd want to become responsible for handling the overhead associated with running such a business.

Also, let's be clear on what a "Contractor" is... you will never find a single contractor who handles 100% of a large job outside of major, major firms like Choate. Most companies will outsource certain aspects of any renovation.... to other contractors that they (should) have long-standing relationships with. You may find a painter who can also do some basic carpentry or knows a floor guy, but understand that the painter himself isn't going to go build you a house.

I'd also like to address the question of, "Do you trust the contractor to make decisions"

Some decisions are simple. "Should the wiring be to code" or "Should the plumbing work right", or "Should we replace this rotted out joist"... yes, of course. And any construction manager worth his salt should be able to make those decisions.

Other questions, such as, "Should we have an outlet on this specific wall" or "Where exactly should this light fixture be cut in" or "Exactly how should this trim package look" should not generally be left to the guy cutting in the trim. Oftentimes, workers do not make great designers and painters can't be trusted to pick out the exact color of paint you want.

This is where you have to have a manager who either knows design, or make sure that you have a designer on your team who can make those kind of decisions and then give clear direction to the rest of the team.... otherwise you're going to end up with poor results.

Bottom line - it's highly improbable that you can hand a serious renovation or construction project off to a single person, ever, and let them run the entire thing from start to finish.

Gary Parker · Answer

For me this is one of the best threads I have read in a while.   This may be the year my business gets to that point where it is too hard to be a one man show any longer.   I have a part time assistant, but I mean on the construction side.   As I think about and experience what is going on in my business right now, I am starting to understand what a tough transition it is to manage 2 or 3 rehabs at a time, fulfill marketing requirements, meet with people and so on.  I really appreciate J  Scott and is pure business approach to this business.   Sometimes I just hope the 2 or 3 rehabs at a time keeps up :-).

Jennifer Lee · Answer

Thank u!!!! That is what I needed to know!!  I'll be mindful we are only a few days in the project. That is so true about the financially aligned!!

This has been a huge learning curve for me since I joined BP 
Thx for always answering my post

J Scott · Answer

To be honest, I think you may be a little too lenient.  There's a big difference between your GC and my PM...

My PM is mostly paid on commission (% of the profits), so his financial goals are 100% aligned with mine -- get projects completed with high-quality and under-budget, so we sell them quickly and make the most money.  The more money I make, the more money he makes.

Your GC and your goals are not financially aligned.  The higher the budget, the more he makes, not less.  While he doesn't want to go over-budget too often (that makes him look bad), he has very little incentive to come in under-budget or to keep surprises to a minimum (unless he's doing your inspections, surprises don't make him look bad but will put more money in his pocket).

In fact, by definition, the more money he makes, the less money you make...and vice-versa.

Therefore, I'd be very careful about being too lenient.

I'm in the process of building a team up in Milwaukee. I have my carpenter in charge of the projects up there.  He gets very little of the same slack my PM gets, and doesn't make any design or financial decisions.  I trust him, but he'll never get the same amount of trust as someone who has their financial goals aligned with mine.

Jennifer Lee · Answer

As for me, I haven't done enough flips to say I always...

But currently I'm working with a contractor with flipping experience.  This is the first time I'm working in a SFH. Last few projects has been condos, where I only deal with the interior of my four walls.

I pretty much have him run with it. He has stayed true with my budget and advised me in the right direction, bc I'm new to this market. He has renovated a majority of the neighboring homes.

He actually lost his flipper/investor and happens to be looking for a new one.  
Seeing that we work well together he wants me to consider him part of my team.

Since he was been doing this along time he was almost an inspector for me, granted he missed a few things but they weren't major.

When something arises he is on top of it . I just check up daily on him and he reports back.  I think the key is trust, respect and relationship.

In contrast to my first flip from hell... I had my fair share of bad contractors.

But my most successful project is when I give the general contractor the trust to handle the issues. It had worked well for me on 3 other projects in different states.

Jennifer Lee · Answer

@j scott and scott Sorry dont know how to @ with phone.

I'm glad your method is similar to mine, I thought I was too lenient.

Will Barnard · Answer

1. Yes, I am my GC, although, on large projects where the rehab is $100k plus, I hire a GC who happens to be a trusted cousin. I have always been of the opinion that family is a huge asset.

2. When I am the GC, my project manager (my brother) runs the show on one or two projects at a time (my typical projects have $40k plus in rehab) and I am on the largest one. Once one is finished, he moves on to the next. Minor decisions are made by my PM and anything medium to major is discussed with me. The more experience he gets, the more decisions he is capable of making.

3. If something goes wrong and it is within my PM's scope to deal with it, he can run with it. If it is major, he will consult with me.

4. My PM has his own company and is hired as a sub. He is not an employee of my company nor are any of my subs. In J's case, his PM is an employee and in mine, he is not. There is another thread regarding this situation and one must be careful not to simply call an employee a sub just to avoid the employee contributions an employer must make, including workers comp.

J Scott · Answer

1. Are you your own general contractor?

My project manager is the guy who manages the project day-to-day.  If we need permits pulled, we'll hire a GC to pull the permits (and may use some of his crew), but otherwise, we bring in our own subs.

2. Does all decision have to run by you 99% of the time?

In the beginning, yes.  Now, no.  It only needs to be run by me about 1% of the time.  That's because 99% of the time, my PM knows what I expect and doesn't have to ask.  He is allowed to make decisions without consulting me, but rehab and design decisions aren't his strong suit (and he knows it), so when there's a design decision to be made, he'll call my wife or myself.  I wish he were more independent in this respect, but we all have strengths and weaknesses, and making design decisions is a weakness for him.

3. Do you trust them enough to run with it, if something comes up?

My PM has the authority to make any decision that comes up (and he has a company checkbook).  That said, if it's a decision he's not comfortable with or it's an expensive decision, he'll run it by my wife or myself.  Again, he's a bit on the conservative side when it comes to making decisions, but in 4+ years of working for us, he's never made a decision that I had a major issue with.  He knows his own boundaries.

4. Do you keep them and they become part of your team?

Do I hire them as employees?  Nope. Other than my PM, no employees.  As for contractors, they will become part of my regular rehab team (meaning I won't get bids for their work -- they are my default contractor for whatever their specialty is), but I never hire them as employees.