Do you use a contractor for rehabs? Why or why not?

25 Replies

My plan is to house hack a MFH for my first investment. I’m 21 years old and have never lived away from mom and dad, so doing so will not only be my first experience with REI and being a LL, but also living on my own. My original plan was to use an FHA loan because I don’t have much to put down, but I’ve just found out about the 203K loan. I have a couple of questions about your opinion on adding a rehab into the equation. First of all, do you think that would be too big of a leap for me? I work full time so my spare time is limited, but I am willing to put in the work and research time if it could be worth it. I’m thinking this could be a great way to start with some equity to eventually use towards my second investment. Second of all, is a contractor worth it? I’m fairly handy, working with tools and making repairs for a living. I have multiple close family-friends who work on redoing interiors of houses for a living who I could ask questions. So, would doing the work myself be possible and worth the saved cost of a contractor? TiA for all the great advice you guys consistently give! -Devon

I apologize for the block of text. I had it spaced out in paragraphs but the app posted it like this

Hi @Devon Martin ,

In my opinion, think of a contractor as a way to buy yourself time. For example, a contractor may cost $30/hour. They come with their own tools, experience, insurance, licensing, and continuing education. If job is done poorly, you can have them redo it the right way.

If you do the work, you're paying yourself $30/hour. If you're ever going to make big money, you need to earn more than that $30/hour.

I use contractors because I want my time to be worth more than $1,000/hour and everything below that rate should be contracted out. Do activities that generate the highest value possible, most often finding deals or selling yourself/your product.

Hello @Nathan. Thank you for the advice and the new perspective of how to view expenses.

However, I just ask if you still find this should be true for someone such as myself, a first time investor with no way of making $30/hr currently? I believe there’s much value to what you said, but it seems like it would mostly apply down the road when I’m able to more actively involve myself in more deals than just one.

I think you need to ask yourself, why do you NOT want to hire a contractor? If its finances, you have to weigh how much it will cost you to take three times as long (or more) to do the same job. How much more money could you make if you could do 4 deals a year instead of 2? If you really want to learn about construction and enjoy doing the work, the time and money sacrifice may be worth it to you. I would rather use my time to find deals and line up financing and things like that, than cut wood and lay floors and tile.

@Jason DiClemente it’s not really a matter of me not wanting to use a contractor. I’m just trying to think of what would put me in the most advantageous position for moving forward. It seems like the general concencous is that a contractor would be worth the expense, so I’ll most likely use one. Thank you for the words of advice!

I do all my work myself. It can be done although it’s a lot harder than it looks and will take a lot longer to get done. Just finished up my third property and just now hired some help but I still do most myself. I think it is a good plan when starting out and low on cash.

That being said all the above comments are correct. A contractor will be faster and probably better quality work. If you do choose to do yourself be sure to check codes as some things you can’t legally do yourself with a rental property.

I think it works for me as I don’t do 3 or 4 deals a year. I go at a much slower pace plus my town is really small so there isn’t a lot to work with at any given time. Plus the equity I get when I’m done is insane.

For my first few deals I did pretty much everything other than roofs and electrical because after my acquisition I had NO MONEY, hah!

Now I have a little bit of capital, and a young son, so I sub contract most of it out. I still GC the work and manage the subs, and I'll do some tile work because it comes out pretty good and I like it.

But yeah - used to do the work, now only some.

You need to figure out what needs to be done and what you are good at doing.

If you’re planning on one project at a time, you can decide what you want to do and what you don’t feel comfortable.

Gas piping - hire a contractor.
Change out some doorknobs, DIY.
Re-tile the shower, that could go either way. You’ll save money doing it yourself, but your first time won’t be perfect. But then you’ll know if you can/want to do it next time, or hire it out.

Gaining knowledge and skills is always good. Even if you hire out the next tile job, you’ll know the difference between using a cement underlayment, or what type of grout they should be using. You’ll be able to talk much more intelligently to the contractor then!

@Devon Martin I recommend having the bigger jobs done before moving in your unit, regardless of if you have a contractor or not.

I think with a 203K loan you must have a licensed contractor 

Hey @Devon Martin props to you for going out there and doing it! I completely agree with @Mike McCarthy 's point about doing it yourself the first time. I'm house hacking now in northern NJ right outside of NYC and bought a fixer upper. I didn't know anything about rehabs but taught myself to lay floors, tile a bathtub, paint cabinets, paint walls, basic plumbing, you name it. Did I enjoy the process? Usually not lol but I learned a ton and wouldn't trade it for anything cause now I know what I'm talking about and can carry on a conversation with a contractor who can respect my opinion.

That's my 2 cents. Good luck!

@Devon Martin as @Matthew Paul accurately said, you need to have a licensed general contractor to do the work if you are going to go the FHA 203k route. Can you do the work for a lot cheaper yourself? Yes. But you also don't have to pay for the work yourself, by financing it through a 203k loan. The fact that you can get a construction loan at permanent loan rates makes it worthwhile.

I'm 2 weeks away from closing on our first house hack. Our estimate came in higher than we could justify for the property so we trimmed down the scope of work and are going to handle some of the lighter tasks ourselves. I highly recommend you read J. Scott's book on estimating rehab costs. It will give you a good broad overview of how much work goes into a full rehab. Roofing, electrical, rough plumbing, mechanical, sheet rock, floor finishing are all things you are probably better off hiring out.

@Devon Martin I will take the opposing view here. If you are only paying your contractor 30 an hour he is not a contractor. He is a handy man. (Or a hack....)You can not get someone in there that pays taxes on employees+WC+insurance+bond+ license+ commercial truck insurance++++ for 30 dollars an hour.  They would not be able to finish the very first job before going broke. 

That being said, if you go 203 loan you have to have a certified 203 loan contractor anyway. 

Now, if this is something you want to end up doing full time by all means you should get your hands dirty on something other than a 203 loan project. Dont bite off more than you think you can chew at once. Do this for no other reason than to understand the mechanics of a remodel. It builds a healthy respect for the job as well as makes you realize when you are being played by a not so honest contractor. 

Best of luck. 

Your lender behind your 203k loan is likely going to require a licensed and insured contractor to complete any of the work subject to repair in your appraisal report and any the repairs that you want to finance.

Any renovations on top and outside of that will be under your control. Some of the people here are reasonably against doing the work on your own. If you are going to do a bad job or can earn more in your own time than the amount you need to pay in labor to complete the task than I completely agree. If your wages are below that which you would pay a contractor and/ or you can complete the work in your free time than it is worth taking a look at doing the work on your own.

I use a contractor.. Myself. I have worked my whole career in the building trades.  There is no way to learn more about your properties than doing the work yourself. (assuming you have the skills for the task)

Don't fall for the B.S "I'd rather work on my buisness than in it" A good contractor can make more than a doctor.

 For example we will fininsh 2 complete gut remodel apartments this Friday. Started March 26. (Working less than 6 hrs a day)  If I hired out we would probably be around 12k in it. We will have less than 5k doing ourselves.  That is probably 70-100 per hour if we were to pay ouselves.  Not to mention the improvements will result in a 200-250 a month increase in rent, reduced water use and electricity. Which will increase the value of the complex by nearly 15-20k. If you figure that in our wages are over 300 an hour.

Yes because I don't know how to work with my hands.  It's also more lucrative for me to not do the work myself.

@Devon Martin Hey Devon, another approach is to buy something that is relatively stable, meaning that it has tenants and maybe ONE vacant unit for you to move into. 

As the tenants move out, you find a really good project manager or someone that can help you with light rehab some paint and carpet work while you use professionals for the heavy stuff like changing a water heater. 

A general contractor for your first deal will depend on the state of the asset; however, to be on the safe side, buy a MFH that is somewhat stable. 

Hope this helps, Devon. Goodluck. Thanks! - Ola

@Peter B. you sound to be in a different position than Devon, skill wise. Working in vs.on your business isn't B.S., it's a factor of scale. You are simply an employee of your business if you are doing the work yourself, and the money that is potentially costing you, far outweighs what you could be making, if you were focused on big picture tasks, instead of hanging drywall or laying tile.

@Jason DiClemente

What do you mean by big picture tasks?

Building a porfolio large enough to work when you want, dropping your kids off at school, going on field trips,not missing a single christmas concert or sporting event, kids never seeing daycare, volunteering,coaching, being able to make donations to charities of my choice.. This is my big picture. And it was all done with a tool pouch on.

I get it if you don't have the skills to do the work by all means hire a contractor. Probably the second biggest complaint on this site is the challenges related to contractors. (First being p.m.s)  I just think it is kinda interesting all these folks posting on here must be making well over 100k a year "working on their buisness"

@Peter B. by "big picture", I meant finding and closing deals, lining up funding, working with contractors, project managers, property managers, real estate agents, etc.... Yes, working on those things easily nets $100k, without hammering a nail. Like I said. you may be in a different position than others because of your experience. Just like when I'm ready to buy a new car, I could build one myself, but the people at Ford are much more efficient at building cars, so I pay them to do that, while I do what I'm good at.

@Jason DiClemente

Ah that was what my second guess to what you meant. Yeah sure if your closing on hundreds of units a year. Pretty sure Op is 21 looking at his first property. 

My argument is diy is one of the more efficent ways to get started/scale up IF you have the skills.  I just find it interestining how often this is over looked or people refuse because the work is beneath them.. Maybe I'm wrong??

For what it's worth,my favorite thing about B.P. is all the different perspectives.  

If you decide to go with something other than the 203k loan and decide to do the work yourself just remember YouTube is your friend. Just like a few others on this thread, I had little to no experience (and still don't in the grand scheme of things.) I lay flooring, change faucets, replace sub-flooring,  and just fixed a bunch of plumbing issues by fixing a bunch of issues on my house.  But most of the time I basically act as the general contractor.

I have a handy man that I pay when he works for me. He's a licensed contractor but has no employees, just him. He's older and could easily draw disability with his leg but he works his butt off. I go to the store to get all the supplies. If we need to make a run to Lowe's then I make the run while he continues to work. I pay him to do all jobs I can't do while I do all the things I know I can do. We typically work at the same time. I ask him what he will charge for this/that before hand. Been using him a year so I know what he charges for most things now. I have him do the things I can't do or don't want to do such as electrical, putting in new floor joists etc. I usually help him on big tasks that require multiple people. I know how to do it, but I don't think I'm capable nor do I have all the tools. So I help him and receive a discount. 

Doing most of the work on my first place was the best tuition I ever paid. Using a contractor on my second place sucks as I see so many inefficiencies and detect BS stories real quick. I will be acting as GC from now on and sub out skilled trades.

Originally posted by @Shawn Pottschmidt :

Doing most of the work on my first place was the best tuition I ever paid. Using a contractor on my second place sucks as I see so many inefficiencies and detect BS stories real quick. I will be acting as GC from now on and sub out skilled trades.

EXACTLY what I do.

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