Rehabbing Houses: General Contractor vs. Sub-Contractors

My husband, Christopher, and I, are part of a unique real estate investment group here in Texas called Lifestyles Unlimited.  This group focuses on RE investor education, offering many workshops, online training and documents, and even interactive road-trips to further member education and increase success. 

 

Yesterday, we took our 2-year-old, Sarah, with us on one of these educational road trips.  (We know she must have gotten something out of the experience besides her first donut hole.)  This road trip focused on purchasing and rehabbing single-family homes.  While we acquired lots of useful knowledge, and learned from the experiences of the many other investors present, the discussion we had at one particular property really piqued my interest.  As we were discussing the planned rehab work at the house in question, someone asked if the investor would be doing the work himself or hiring a general contractor (GC).  This sparked an open forum on when to hire a GC, when to hire your own subcontractors (SCs), and when you can literally do the work on your own. 

 

First off, the obvious disadvantage of hiring a GC is the COST.  Now, as an economist, I must point out that here we are talking about the monetary cost, not the total cost.  Hiring a GC may tack an extra 35-40% onto your final rehab budget.  So, when is a GC worth this premium?  The following conditions may make it worth your money:

• You’ve never actually rehabbed a house: the knowledge and experience of a GC can outweigh the premium.  One gentleman actually quipped, “If you’re married and have never rehabbed a house, being your own GC is a sure way to a divorce.”
• You’re working a full-time job as well as investing: you may not have the time to invest in getting the job done efficiently and overseeing all the SCs.
• Your investment property is not close to where you work/live: driving to and from the property is too expensive in terms of cost and time.  It will also be more expensive for the SCs you generally work with to make the commute.
• You’re in a time crunch to flip or rent the property: Using a GC can significantly shorten the amount of time it takes to get your property ready for the end user. 

 

With that in mind, when does it make sense for an investor to act as the GC and hire SCs to do the work, or simply do the work himself?

• You’ve already been through a rehab or two: You’ve learned by communicating with your GC, knowing which SCs he used, and have a better picture of how the process should go.
• You already have a background in rehab/construction: You know what needs to be done when, and you’ve already built up a list of reputable SCs to work with and/or have a crew of your own.  You also have access to discounts from suppliers, lowering your overall costs.
• You have time: Rehabbing is your full-time job, or your only activity.  You can be at the property to oversee the work and make additional trips to Home Depot as supplies run low. 

 

These are just a few circumstances to consider when deciding how to effectively rehab your investment property.  The main question to ask yourself is, “Am I an investor or a rehabber?”  If your main goal is to build your portfolio of investment properties, then you should probably hire a GC and then move on to look for and acquire your next deal. 

 

Please share your own experiences, comments, and suggestions on this topic so we can learn from what you have to say.

 

For additional info, see the following articles:

http://home.howstuffworks.com/home-improvement/construction/planning/why-hire-a-contractor.htm/printable

http://www.bankrate.com/brm/news/real-estate/20041123a2.asp