If you are a builder or Fix and Flipper, you have no doubt thought about outsourcing or not the role of General Contractor in your projects. The obvious benefit of not hiring a general contractor is the money you will save, but what is the cost of saving that money?
A general contractor is someone who will oversee your project. They will manage all the subcontractors and help you get there. They are usually not as adept at specific tasks, such as plumbing or electrical, but they can be more organized and need to understand the basics of the entire project.
BENEFITS OF ACTING AS YOUR OWN GENERAL CONTRACTOR
In most cities you will be allowed to act like your own as long as it is a smaller job or you hire and manage licensed subcontractors. General contractors will want to be paid for the value they bring to your project, so if you choose not to hire one, the savings will go directly to the bottom line. Paying less for rehab could mean more profit for you.
Another benefit of acting like it’s yours is the experience you’ll get. As a real estate investor, it is a good idea to have a basic understanding of what it takes to rehabilitate a home. This will help you with future projects or come in handy if you ever hire a bad contractor.
Finally, if you don’t have one on the road, you will have a lot more control. I’m not saying it would happen, but I could see when there might be a time when you end up with a bad one. Getting a general contractor off the job is not easy. They could have their crews working and they could owe money to their submarines. Dealing directly with the subs that actually do the job is often much easier.
BENEFITS OF HIRING A GENERAL CONTRACTOR
Although I am acting as an adjunct general contractor for a house that I am building for my girls and myself, I strongly believe in using one on your projects. This becomes especially true as you grow as a real estate investor. It’s extremely difficult to scale your investing business if you’re working in it, so anything you can transfer to someone else while still making a profit will help you grow. Besides changing the workload, here are other reasons you might consider paying for a general contractor:
They understand the building code and can ensure work is done in accordance with that code.
If you have a good one, you will save money on your maintenance costs because they know how to complete a job efficiently.
It’s a great way to shift responsibility. If something is not done correctly, you can transfer that responsibility to the general contractor or your insurance. They must also handle any warranty issues.
In fact, they could save you money, because they often have good relationships with subcontractors and get preferential prices. This could also be true with material suppliers.
Although I think it is best for most investors to hire one, there are good arguments both ways. It’s not a terrible idea to go through a few deals without help so you can learn the process. That is precisely why I decided to take on that role in my new home. It may also depend on the amount of time you have and your ability to get the job done. Most investors can do smaller jobs without your help. Experienced investors are likely to be able to handle even large jobs without help. If you have the time and want to maximize profits I can see you taking over, but if you have limited time or are more interested in growing you probably need some help.
I’m a big believer that to maximize income, you need to focus on two things. What are you good at and what makes the most money. In my opinion, finding and negotiating deals is an activity that pays much more than managing subcontractors. That, and I’m learning that not everyone is good at running a project.