I’m in the process of flipping my second house and I’ve been thinking that the next logical progression was for me to start my own construction company. My first hire would be an experienced contractor to handle the basics (demo, framing, sheet-rock, flooring, etc.) and sub out the specialties (roofing, electrical, plumbing, foundation, HVAC, etc.).
What do you think?
If you have enough volume for vertical integration to make sense then go for it, most people don't which is why they use contractors.
Like Aaron mentioned you either need the volume to justify the integration, or need to be a business minded entrepreneur that can grow that piece of the business to operate at its own profit. I've found many REI types are entrepreneurial but not necessarily all around good business people. Meaning they're good at their chosen business but not necessarily are capable to running any business...so are you that person?
I myself find myself thinking I could vertically integrate ect, but a reality check says I'm not really a business man, I enjoy real estate that's why I'm good at it not because I can make any business a success.
I have owned or managed a number of businesses over the decades. I have learned that you either have to stay small or go really big. The in between is very tough. To expand requires a lot of fixed or continual costs that don't get covered until you reach a certain volume. There is also the daily hassle of dealing with the maintenance and growth of a business. There is also the impact of economic turns that can impact a larger business (we went through the 2008 deal..prior to that doing 300 inspections per month...then the crash...that was a lot of fun.)
The bigger thing to consider in my opinion and what I have learned with 4 decades of working now under my belt....is follow whatever your passion is. What do you love to do that you are really good at? Spent years in the corporate banking world...did not love that. I spent years as a professional speaker and trainer....loved it! Have spent years renovating....didn't love the whole managing and stressing about employees, vehicles, buildings, traveling, massive number of clients/schedules. Now my hubby and I just flip...so we get to do what we love without all that other stuff...and at the end of the day make more money and have a great quality of life. No customers, no huge overhead, no one calling me at 10 at night or 6 in the morning, no alarm clocks, vacation when we want....that was our direction...finally. And we get to follow our passion. Yay!
What would you gain by doing that? Are you wanting to take on other peoples rehabs as well or just thinking you'll save money on your own rehabs? If you're just getting started, I wouldn't think you would want to tackle other peoples rehabs, at least not until you've done a few yourself and ran into many of the problems that arise. To just save money for yourself, you don't need to start a construction co, just find the right crews and keep them busy. I have crews working for me that I'm the only one they do work for (every now and then they need to take a quick job for something), but I don't have the headache of having to keep up with everything for tax purposes and such. You just need to figure out what your motivation is and how would it really benefit you.