If you are a Builder or Fix and Flipper, you have no doubt thought about whether or not to outsource the General Contractor role on your projects. The obvious benefit of not hiring a general contractor is the money you’ll 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 to the finish line. They are typically not as adept at specific tasks, such as plumbing or electrical, but may be more organized and must understand the basics of the entire project.
BENEFITS OF ACTING AS YOUR OWN GENERAL CONTRACTOR
In most cities, you’ll be allowed to act as your own as long as it’s a smaller job or you hire and manage licensed subcontractors. General contractors will want to get 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 rehabilitation 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’s a good idea to have a basic understanding of what it takes to rehab 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 in the way, you’ll 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. Taking a general contractor off the job is not easy. They could have their crews working and they could owe their subs money. Dealing directly with the subs that actually do the work is many times much easier.
BENEFITS OF HIRING A GENERAL CONTRACTOR
Even though I’m acting as the general subcontractor on a house I’m building for myself and my daughters, I’m a big believer 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 investment business if you’re working on it, so anything you can trade someone else while making a profit will help you grow. In addition to changing the workload, here are other reasons you might consider paying for a general contractor:
They understand the building code and can ensure that the work is done in accordance with that code.
If you have a good one, you’ll 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 his insurance. They must also manage 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.
While I think the best thing for most investors is to hire one, there are good arguments either way. It’s not a terrible idea to go through a few deals without help so you can learn the process. This is exactly why I decided to take on that role with my new home. It may also depend on the amount of time you have and your ability to do the job. Most inverters can handle smaller jobs without the help of one. Experienced investors can probably handle even large jobs without any help. If you have time and want to maximize profit, I can see you taking the role, but if you’re short on time or more interested in growing, you probably need help.
I am a big believer that in order 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.
