One of the most common questions I get these days is: “How do you get your rehabs done? Do you use a General Contractor or do you sub-contract out the work directly to individual contractors?”
First, I’m happy to share how I do things, but don’t assume that this is the only way to get things done — or even the best way! Every rehabber is going to be in a different situation, and what’s best and most beneficial for one investor may not be for another investor. So, always consider what’s best for you when deciding how to handle your rehabs and don’t let anyone tell you what you should or shouldn’t be doing.
Second, let me tell you how I did things on my first couple rehabs, before I had ANY construction experience whatsoever. On the early projects, I hired a General Contractor (GC) to come in and handle everything from beginning to end. He hired the individual sub-contractors, managed the schedule, budget, etc. Of course, I had to trust him to do everything correctly (not always the case) and it cost me a good bit more, as he got paid for all this extra management work he was doing.
Ultimately, I didn’t have a whole lot of control over the project — I didn’t pick the sub-contractors, I didn’t make the schedule, I didn’t negotiate the prices for the sub-contracts, etc. Given my type-A personality, this system didn’t suit me…but doing it this way for the first few projects certainly gave me the insight into how a rehab should be scheduled, the major concerns I should be looking out for, and the big questions I needed to ask throughout the process.
Once my first couple projects were completed, I radically switched my rehab process to what it is today. Here is how I approach the two major areas associated with rehabbing properties — Management and Hiring Contractors (and even if you can’t implement my management techniques, you can probably implement my contractor techniques if you want to):
Every rehab is going to require some level of day-to-day management. The two most common ways to handle management are to hire a GC — who in turn deals with all the management issues — or to manage the project yourself — in which case you are responsible for dealing with all issues.
The benefits of the GC route is that you won’t need to be on-site all-day, every-day to handle the issues, you won’t have to hire and oversee the sub-contractors yourself and you know that the person in charge has construction background and experience. The downsides to using a GC are that you WILL pay more than if you manage the project yourself and you don’t have nearly as much control over the sub-contractors and their prices.
I actually went a third route for management — I hired a full-time project manager to be my eyes and ears for all my rehabs. His job is to interview contractors, get bids, negotiate prices, schedule work, verify that quality is maintained, ensure that we stay on budget, write checks for completed work, procure materials and basically keep me informed about everything that I might need to know without me having to visit the property every day (I tend to see every project about once per week these days).
My project manager is probably just as expensive as a GC (so I’m not saving money), but because I know and trust him, and because much of his salary is based on commission, I can be sure that the right decisions are being made for the project (as opposed to what will put the most money in my GC’s pocket). Also, because he is only working on our projects, he is always accessible and he knows how we do everything, right down to the paint colors we use and the materials we choose.
Now that he’s been with us for nearly three years, he knows as much about our business as I do, and I can trust him to make the right decisions (or consult me if he’s not sure) every time there is an issue. Because he has authority to write check and hire/fire contractors, the contractors we use have a lot of respect for him, and treat him like “the boss.”
While the option of having a full-time project manager may not be feasible for investors who aren’t rehabbing full-time, for those who are, you may find it costs about the same as hiring a GC on every project, but offers MANY benefits. Of course, you have the overhead of having to manage and deal with a full-time employee, but the benefits highly outweigh the downsides, at least in my experience.
Btw, if you can’t or don’t want to hire a full-time employee to project manage for you, another option is to find someone who will do the job as an independent contractor and work strictly on commission. Lastly, if you have the time and knowledge, perhaps you can put yourself in the project management role for the first few flips until you have the volume to hire an independent contractor or employee.
Because I don’t have a GC to provide all the sub-contractors for our jobs (and I wouldn’t want that anyway), I have the opportunity to hire the specific sub-contractors I want to handle the various aspects of the renovations.
One of the big decisions we’ve made that has made our lives much easier in this business is to hire much of our rehab work out to one company, who is responsible for most aspects of the renovations. Specifically, they handle all of the following for us:
– Basic Carpentry (Handrails, Decks, Subfloor, Doors, Basic Framing & Repairs, etc)
– Painting (Interior/Exterior)
– Sheetrock Repair & Replacement
– Basic Electrical
– Basic Plumbing
– Installing Carpet/Vinyl
– Installing Flooring Trim
– Exterior Repairs (Siding Replacement, Soffits, Fascia, Trim, etc)
– Pressure Washing
We call them our “main crew,” and in general, they handle all aspects of the project that don’t require state licensed contractors, permits or highly specific repair work.
Here is the list of other contractors that we bring in as needed:
– Licensed HVAC Contractor
– Licensed Plumber
– Licensed Electrician
– Expert Carpenter / Deck Builder (for big/intricate jobs)
– Cabinet Supplier/Installer
– Window Company (Supplier/Installer)
– Countertop/Tub Refinisher
– Sheetrock Installers (for very large jobs)
– Hardwood Floor Installer
For a typical project, our main crew will do about 75% of the work. They are the first on the job (they do demo), the last on the job (punch list) and are there almost every day in between.
While the main crew definitely have a scope of work for each job (and get paid by the job), they know that their job is to ultimately make the house look perfect, whatever it takes. For example, if they’re hanging drywall and notice that some framing has rotted or has termite damage and my project manager and I can’t be reached, they won’t wait around for us to tell them what to do — they will fix it, let us know about it at the earliest convenience and, if it was more than a $50 fix or so, they charge it to us at the end (if it’s a cheap fix, they may not even tell us about it until it comes up in conversation later). Also, if they notice something needs to be fixed that we didn’t initially ask them to fix, they’ll just do it, as they know it has to be done eventually.
Most people are probably thinking, “I wish I could find contractors who are willing to do more than necessary and will go out of their way to fix things they haven’t been asked to fix!” but this is one of the perks of using the same crew over and over again (and also recommending them out to everyone we know).
Another nice thing about having a general crew that does most of the work is that you don’t need to deal with a lot of scheduling issues. Not only do they know what to do and in what order, but there are always little nuances to scheduling that now take care of themselves. For example, if you repair sheetrock and paint early in the project, you will find that there’s often a lot of touch-up needed after the flooring goes in, the cabinets go in, the light fixtures go in, etc. But, if you hold off to repair sheetrock and paint until later in the project, you need to be a lot more careful about not screwing up the stuff you’ve already done.
Our main crew of guys are doing touch-ups (sheetrock, paint, trim, etc) throughout the project, and there’s always at least one guy with a paintbrush in his hand at all times just touching-up as necessary (and as we point things out).
Obviously, it takes a while to find a crew that you can trust like this (I would trust most of my contractors to babysit my 1 year old son), but once you do, this business becomes about 100 times easier.
We learned early on that you shouldn’t be scared to go through 100 contractors to find 3 or 4 good ones. Don’t settle for mediocre. If someone does a decent (but not spectacular) job on a project, it’s tempting to keep him around as you know you’ll at least get decent performance on future jobs; but in my opinion, I’d rather cut him loose and try to find someone who is better than decent.
Last thing I’ll say on this topic: When you find a great contractor, treat him/them like gold. It’s taken us about 2.5 years to find a great group of subs, and all the effort that went into it was well worth it and — unless there is something really out of whack — we don’t even negotiate with most of our guys anymore. They know that as long as they give us fair prices and do great work, it will be a long-term win/win from both sides. This is the sign of a great long-term relationship, which should be the ultimately goal for all your contractors.