3 Types of General Contractors (& How to Choose One for Your Project)

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2014 goes down in the books as an interesting and awesome year for us. We bought and sold several houses last year, and it has been the launching pad for our 2015, during which we already have 6 deals in process. A personal challenge for me — and for many from what I’ve read and heard on BP — is working with your contractors, painters, tile guys, HVAC guys, and carpet installers. Whatever the trade may be, there are a million guys out there, so who the heck do I call? Who do I trust?

Over the course of the year, I’ve met with 6-8 general contractors, 3-4 HVAC guys, countless painters, subs, tile guys, 3 concrete guys. You get the idea. I want to learn who people are, what their work looks like, and what kind of prices I am going to get. And honestly, how easy are they to work with, be in the trenches with, and do I like dealing with them?

I like to think in terms of types of people, types of deals, types of rentals — a hierarchy if you will. It’s the easiest way for me to classify them, organize them, and then easily make decisions on who I should call based on that job.

Here’s what my overall thought process looks like.

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3 Types of General Contractors (& How to Choose One for Your Project)

1. The Corporate General Contractor

This is the guy who shows up, gives me a bid, and has a team in place, usually with a lot of different sub contractors, laborers, etc. This is the person who is NOT swinging a hammer, but has the system in place to handle multiple jobs at a time with other lead guys, project managers, etc.

I’ve met with a couple of these guys; I love their work, but I have not been able to find one yet who would be on budget with my pricing for the renovations on either the rental make readies.

Large GCs often have their pricing at a “retail” price point, versus the guys who are a per hour or per job, or the Mid-Sized GC (below). They are almost always the most expensive bids I get.

Related: The 5 Most Common Items Found in Contractor Lingo

I would consider someone like this on a large, upscale project that would be a lengthy job requiring a lot of management skills and that had a budget that would allow for the expense. This guy is usually a great manager (they have to be; that’s what you’re paying for), so they can handle a lot of jobs at a time with a large pool of resources and team to pull from — just be ready to pay for them.

2. The Mid-Sized General Contractor

The mid-level GCs in my area seem to be able to handle 1-2 projects at a time. They have a lead man, the GC, who generally IS the guy and is at least partially swinging the hammer. This is the key I love about this type of contractor: they know, understand, and DO multiple trades — plumbing, electrical, basic HVAC, framing, tiling, sheetrock. They might not be an expert at all of these, but they have working knowledge and are doing at least part of these within the context of the renovation. They have a crew of 4-8 guys and have a laundry list of quality subs for HVAC, flooring, etc. to sub out to.

The GC makes his money working ON the job, as well as managing and handling tasks like bidding jobs, working directly with his guys and his subs, and building some profit into his price as well. The great benefit to this guy is your prices for the basic plumbing, basic electrical, etc. (assuming they are qualified and licensed to do the work) because they can handle them in house, which will definitely be cheaper than calling out just the plumber or just the electrician.

The downside to the Mid-Sized GC is also his strength. He can do (nearly) everything, but he is also still in the trenches. This GC needs to be able to balance work on the job and managing the job/future jobs/other jobs that aren’t yours… AND managing his guys. This type of person has been the sweet spot for me with our renovation projects on flip properties.

3. The One or Two Man Contractor

I love these guys. They are usually very reasonable, they are quick to call back, they usually need the work, and they work reasonably. (Note: If they don’t answer the phone or at least get back to you after the work day, FIND SOMEONE ELSE. That goes with all of these types.) They may also have a general background in basic plumbing and electrical (I have a couple guys in this category, and they both do). I prefer that so I am not calling out someone to do other work, which costs me more money.

This type of person I typically use on my rental properties for make readies and for service calls. I think the quality of work here is solid, but it becomes a question when working on upper scale properties or jobs requiring specific carpenter skills for cabinets or crown molding. I’ve found it’s usually either an extremely high-skilled, slow, methodical, and expensive person — or a reasonably cheap person with decent value-to-work skills and who works well for the rental units. I never use first type; I always use the second in this category.

This contractor is not someone I typically want running a large scale renovation; it just takes too long with the number of guys they have, and they usually are not quite ready (or they don’t have the skill set) to manage a larger project. I am sure there are guys out there who can manage a project just fine, but it just means those are not the guys in my arsenal to call. I appreciate having these contractors for their use in the rentals and for jobs that take usually a week or less.

Related: A Personal Rant: I Can’t Stand Working with Contractors!

How Best to Decide

Think about what you need in your business. What kind of work, skill set, price point, and experience do you require? My mid-level GCs make a good living. They are definitely not the cheapest guys out there, but I’ve grown to trust both the work they do and their ability to manage a project.

Make sure you know what you need — someone to manage people and jobs or someone you can be more involved with, running the job site, perhaps hiring subs yourself and being a little more hands on with the operation (working in the job) versus managing/working alongside the guys who are managing managing your jobs.

At the scale we are working with, I don’t have time to be working in every job, but I am there multiple times a week, checking on the guys, solving problems, seeing the progress and making sure the operation is running on schedule.

It’s best for you to made a decision of which kind of person you will be; either is fine. But know your role, so your guys — your GCs and all the sub contractors — understand theirs.

How do you manage your projects, and what kind of contractors have you had the best luck with?

Let’s start a discussion in the comments section below!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

29 Comments

  1. Adam Schneider

    Nathan,

    Amen to your article! For the smaller jobs and one man GC operations, I tend to try to purchase some of the big dollar items up front directly from the vendor to help the GC with the cash flow and give me more comfort that my money is going to the job. For the more complicated job, I do traditional draws.

    What are some items you place in your contracts with the GCs that are tips you learned over the years?

    Adam

    • Nathan Brooks

      Adam … thanks reading and taking time to respond! I definitely have learned to make sure I understand what finish, what kind of material, and specifics about new vent covers, or doors, or handles … these things can become an assumption on my part, and not on the part of the contractor. Make sure you ask them, and then have it in writing. For me, the more detailed the better. Good luck!

  2. David Semer

    Nathan Great article. Very timely for me right now. Working on a few projects and trying best how to get them done. I am trying not to spend my day doing the $10 hr jobs (example running back and forth to Home Depot). Spend my time on the money making jobs like buying houses. Sometime it is nice to hear that other investors share the same issues. Happy New Year.

  3. Elizabeth Faircloth

    Thanks Nathan for a great blog post! We are in the midst of interviewing GC’s, subs, and potential team members to be full time with us. The key to executing on our goals of doing more fix/flips and fix/holds this year will be properly staffing our jobs with the right people. I am not a fan of “find the deal” first and then the people. We are proactively lining people up now before we find the deal that way we have a short list of “go to people.” Thanks again. Very timely article! Best of luck to you!!
    Liz Faircloth

    • Nathan Brooks

      Liz, thanks so much for taking your time to respond! I respect you and your team, and what you guys do … so that means a lot. I have that same feeling … we want to be prepared and have the right guys in place for the jobs. There is always a balance for me, trying to make sure I don’t have too many guys vs not enough work, or the alternative with way too many jobs and lack of guys to do it. That’s definitely the balancing act we face for sure!

  4. Lin Vanderhook

    A first time hire of Lic. Contractor……2003 home..foreclosure. Dog and Boy trashed.
    Bid 8k…ask 3 upfront. VERY IMPORTANT….first bid walk thu..must be detailed and clear.
    I said ready to rent….and I would take care of final cleaning. Things I didn’t see in the mire,
    Are now …$$$ add on. his workers are unorganized and unskilled….well I will stop here.
    I think he saw me coming.

    In the future I need a better plan.

    • Nathan Brooks

      Lin … We have all been there. I am sorry to hear it is not going well, but also be thankful it was a rent make ready and not a $50k reno! You can always pay him for the work he has “completed” and find someone else. Never be afraid to fire and move on … better plan, keep asking for references and finding other guys who have worked for investors before. Believe me, I’ve been there too!

    • Man D.

      Lin, contractors cant bill you more than $1,000, you might want to read a little on your rights. Do not give more than $10,000, insurance only cover $12,500. I hope you have agreement with penalty clause for deadline. Sorry to hear about that contractor.

  5. Marjorie D.

    Nathan, thanks for this article. I’m a newbie and I’m interested in fix & flips but I’m still figuring out how to get financing, etc.. That being said, the day will come when I will need to hire a GC and this article has given me some very good information.

    My question to you however is: how do you know which kind of contractor you’re talking to when you start interviewing them? Aside from the obvious that Joe Smith has 3-4 guys working with him and Jim Slick has a team of 20 guys. What sorts of questions do you ask pointedly to know what category they fit into and whether they’re worth your time?

    • Nathan Brooks

      Hi Majorie … most of the time my bigger GC types have come from referrals from other guys who personally knew their work. The smaller time guys I just start asking questions. What will you do here, with this _____ … and I also have started to give much more specific directions as to what we want in our bathrooms, or kitchens in our rentals/flips … start with one, don’t get ahead of yourself … be patient, learn from mistakes! Learning for US as investors is even as much or more important so we can ask the right questions and give the right directions.

      • Marjorie D.

        OK, thanks! Although given what I’m seeing with flips in my area (and the bland cookie-cutter approach to rehabs and materials used) chances are that I would probably want to be specific with the big GCs and not just assume that they’ll read my mind and know what I want. I’m not a control freak – but I do know what I want so that would have to be made clear. Hopefully their egos can handle something other than what they envision 🙂

        • Man D.

          Let them know what you need, that is the most important part. First GC who will visit, take measurements and notes on how much work and how many square foot needs to be done, I suggest to draw a floor plan on 11″ x 17″ (buy them at staples). Rewrite them and go over with them on the next GC, this is to more or less guide you that you will have a uniform scope bid. You will need these notes also when you do the draft contract. Be sure to check license numbers, bonds, insurances and references.

    • Troy S.

      Great article Nathan! The full service guys (#1’s) are expensive, I can’t wait till I can use them though!!! The problem with the #3 group is they disappear, they’re transient job-wise and are always moving on to something bigger and better. Last guy I was using is now selling time shares…

      Marjorie, I like to ask questions that I know the answer to, especially building code related questions that any good GC that’s been around the block would know. Something as simple as “Hey, what’s the code on wall insulation, what is it again, R-?”? I know it, but I’ll throw out the wrong number or not say a number at all and let them fill in the blank. If they don’t know it, that’s a red flag. It’s pointless to try and trick them with something obscure, but a few standard code related questions that you already know the answer to can go a long way to determining what they know. I run into a lot of guys that are fly-by-night, no insurance, no license, etc. They’re the ones that won’t know code questions as they’re not getting work inspected. They’re likely in the #3 category and driving the pedo van (or the GF/wife had to drive them) with 6 kids in tow.

      Another one is, ask them specifically what materials and procedures they’d recommend to fix a problem. Sagging floor for instance. Ask each contractor you walk through a project how they’d fix something, that’ll give you an idea of where their level of quality and experience are. If you get the same answer from two different contractors but a third says floor leveling compound when the others said jack the floor and replacement of the joist(s), you know you can discount the third one. Same with timelines. If everybody is saying 3-4 weeks and Joe Blow says he’ll knock it out in 7 days, run away!

  6. Pyrrha Rivers

    Nathan,
    Your blog post is quite important to my educational focus this year. Following Elizabeth Faircloth’s blog post on how to focus our learning this year, I listed learning how to manage contractors as one of my focus. Your categorization and selection tips make a lot of sense and are practical to follow although I have yet another layer of difficulty being that I am out of country so I have to move very slowly as I build my team, follow the lead and advice of successful out of area investors and as you told Marjorie D. learn from mistakes.
    Thanks

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