Using a GC

Rehabbing, Fix and Flip, Rental Properties
1

So it looks like I have three options for contactors on my first project.

#1- estimate 35-40k- This company is huge. It’s one of the biggest and most well respected in my area. They are a turn key general contracting firm and according to the project manage that would be doing my project, I would rarely have to be on site. They are currently doing 60 + projects in my area. Their payment plans are all AFTER they complete 1/4, 1/2, 3/4 and all of the job so no worries about them scamming me. The estimate was 10 weeks. Thi contractor would seemingly allow me to stop thinkin gabout this first house (except selling it) and focus on my next propety (Which I have about 15 leads for already). They openly admit they ae not the cheapest, but counter with their wealth of references and professional work.

#2- estimate -30-35k. much smaller company- only have 3 projects going on right now, but also have good references. This guy seemed really eager to do my project and gave an estimate of 12 weeks. It seems that I would be more involved in the project with this guy (which may be a good thing seeing as this is my first), but may leave me with inadequate time to persue all my other lucrative deals.

#3- contract myself- this would obviously be the hardest and possibly most financially rewarding (if I step it up a notch). I honestly don’t have much interest in doing this as I enjoy makng deals happen, not rebuilding things. I am just curious if many experts would recommend doing my first one myself to see how everything works. The TV shows always seem to show people being so involved in their houses, but I just don’t know if that is reality or if that is just hollywood. *I know the flipping TV shows are essentially just entertainment (especially the parts abort profit which leave out 1/2 of the actual costs), but I occasionally watch to see how people deal with problems and for remodeling ideas.

backound- puchase 25k, repairs- 30-40k. ARV- 90-110k (area is in transition- new costruction all over, renovations all over, not many comps, my figure of 90-110 is viewed by most as too low, but I want to be safe). Paying all cash, no mortgage, no property taxes, insurance is 800 dollars for half a year. Realtor fees are 6%. Closing costs to buy were 800 (including inspections).

I’m just trying to cover all bases- thanks for the advice and bearing with me through this.

2

Provided you have checked out the two contractors thoroughly - I do hope you got bids from more than 2 - then it is simply a decision of what you feel is best for your situation.

Based on your numbers, it would probably work out this way (you didn’t include soft holding costs for while you own, like taxes, utilities and the like, so this numbers WILL BE HIGH) assuming a sale price of $90k:

Contractor #1 - pretty much hands off - you don’t learn much assuming everything goes perfect (rarely, with contractors) but you should have the max time to go after further deals, and a profit (using your figures)-

$17,400 Profit

Contractor #2 - more involved - you learn more about the process - but less time for the next deal.

$22,400 Profit

You Contract - it will take a lot more time both from yourself as well as more time to complete. However you can save a lot of money on materials (due to typical GC markup) as well as save the GC fee and probably find cheaper Subcontractors. Also, you likely can find some inexpensive handiperson for some of the less skilled work - demolition, surface prep for painting, etc, which is a HUGE savings over what a GC would do. If I did it, I’d probably save 40% of the cost, but take 2 months to do it. You might save 20%. You’d also have 500% more frustration, but a 100% education.

$29,400 Profit if you save 20%
$36,400 Profit if you save 40%

Some people don’t like to get involved at all, except the most basic overwatch of the GC, others luike the profit potential of doing much of it themselves. The more you do, the more profit you should see, but it will take away from doing the next deal.

How much? Well, if doing all of the rehab yourself gets you twice the profit, does that make up for the deal you miss because you are doing the work? Maybe but not doing much on the rehab, you can get two deals because you are concentrating on doing what is best for your model.

The other thing is even if I got the high-priced GC to not assume they will do it with no oversite on time and on budget. Every experienced investor here will have horror stories - even from large builders - of promises of time and money that suddenly took a lot more money and three times the time. Until you have actually worked with the company on a couple of projects, and become satisfied from first hand experience that they will do what they say, you must do the old Ronnie Reagan line - trust but verify.

Good luck

3

property taxes are like 200 dollars for 6 months. Utilities are at most 200 a month. I am not positivie about insurance (as I keep playing phone tag with the rep), but I doubt it will be more than 1500 for the entire project.

I just got company ones official bid of 43k PLUS whatever the roof costs. When I went through the house with him I believe I conveyed that everything needed to be NEW as opposed to repaired. He was planning on ripping out all the bathrooms, windows, ceilings, and tilework (Which don’t need total replacing).

In reality I think I took a lot of knowledge from that first one so when I met with the second one the estimate was a lot more about what I NEEDED done as opposed to what would look nicer. I am fixing this house up to sell to an investor and it seems that the first contractor was thinking more of a homeowner moving in.

I have 2 more GC’s and a roofer coming to see it tomorrow so I should have a much better idea by monday about what I actually will be paying for this.

I also put a bid on a second house today which even I can see is an absolute steal at 38k. Everything (including the paint on the walls) is brand new. All it needs is new hardwood (about 1000 feet), new tile in the kitchen/bathrooms (500 ft), a patchjob on the roof, landscaping, exterior paint, A/C replacement, and a kitchen renovation. ARV is about 120k. I think I’ll contract this one myself and let the other one go out to a general. That way I can see both ways at once and learn about both ways to do it.

Thanks

4

Both #1 and #2 are going to try to get $50k out of you and give you a worst job than you contracted them for. GCs always forget that it is not their project it is your project. They will make suggested changes and these changes NEVER are to give you a better job, it is to make their job easier and give you a worse job than you contracted for. That is why I always hire my own subs.

5

I would suggest do both yourself. Contractors charge more than they say and always take longer than they say. My first 2 I did by myself and learned a whole lot about remodeling houses. The educational opportunity of doing it yourself outweighs the frustration and time put in. I do everything myself and only hire out certain things to sub contractors and then I am on site everyday to watch over them and learn from them. Just do it yourself it will be worth it.

6

tedferret

Be careful about how you are doing this. You said you went through with C#1 and he wanted to put in a lot of extra “retail” stuff, then you went through with #2 and it was more “Rental”. It is extremely important that you make sure all bids are for the same work.

If you have different contractors all giving different bids on different levels of work it is impossible to compare them. The best way is to settle on a scope of work from one contractor that has what you want. Then give that scope of work to the other bidders and ask for them to bid for the work shown.

The best thing is to get specific on quality of paint and type of fixtures/cabinets and the like. Otherwise you may have one go cheaper - but planning on putting in really cheap cabinets - while another bids more for granite counters and ceramic hardware.

I’ll have to agree with what Bluemoon said, expect that the contractors WILL end up charging more and taking more time than they say. I’ve been able to do moderate rehabs in four weeks with me hounding everything, but normally you have to expect months minimum - and with busy contractors - they always take lots more time because they are shuttling workers back and forth between different jobs.

The fact is, no matter what you do, especially if this is your first time dealing with them on an actual project, you need to be contacting them at least every other day for updates as well as physically checking the work at least twice a week to make sure things are going well. If problems develop, change it to physically checking daily and phoning 2-3 times a day.

Take this with a grain of salt - I’m on a 3-year vacation to Ecuador and I haven’t done anything for 20 months - but I always found that if I was on top of it, either actually part of the work or constantly checking on progress, it took 1/3 the time and only 60% of the cost against when I left them to their own devices. Once you have a contractor you’ve done a few projects with - who you know that they will do what they say and they know what you expect - then you can loosen the reigns. Until then, keep the reigns tight.

7

And…if you choose to hire a GC make sure you have a per day late penalty in the contract…and make sure it more than covers all of your costs and then some.

8
I am fixing this house up to sell to an investor and it seems that the first contractor was thinking more of a homeowner moving in.

Does that mean that you’re selling to a landlord? If so, that changes EVERYTHING. Unless you’re selling to a brand new newbie, an experienced landlord is going to want a big discount. Even another investor selling to a retail buyer will want a big discount. I guess what I’m asking is where’s the profit? If you bought at $25K; do a $40K rehab; and the ARV is 100K, where’s your profit is you are selling to an investor? A typical investor will want a 30% minimum discount, so that leaves you with $5K if your holding and closing costs are zero. Even if you do a #40K rehab, I don’t see the profit. Moreover, your ARV is $90k-$110k, about a 20% spread. That’s far too much. It makes a huge difference if the market value is $90k vs. $110K. You need to KNOW the right number.

Good Luck,

Mike

9

I realize that I made a mistake by not asking the first 2 contractors for the same level of quality in the renovation. My last post was sort of admitting that I had made a mistake with the first and corrected it by the second. The second bid came in at 28k which would end up costing me an estimated total of 57,000 plus 6% of the selling price. The third seemed to think that repairs were much less than what I thought possible. He estimated 15-20 off hand, but upon further questioning he wasn’t licensed (but was insured somehow). I should hear from the fourth on monday.

Once completed this house will be section 8 ready in an area where rent is 1450 a month. I have really really tried to believe that 90k is way too high because of what I perceive to be reasonable prices (based on rental income) for rental properties, however this property is literally neighboring new constuction in a non-flooded, well located, upcoming area (and truly it is).

My current residence is really close and similar to the one I am renovating. My roomates and I pay 3000 dollars a month. We do have one more bedroom and one more bath, but we lack a true living room. If someone motivated took hold of my potential property they would be able to get more than section 8 rent.

A house 1 block away with 1 less bed and one less bath (3/1) is on the maket for 119k. It is remarkably similar to the house I am renovating. I know it hasn’t sold, but to think that I couldnt get 90k quickly for mine is just seeming less and less likely. Similar houses have sold for much more than what I am planning to get.

Propertymanager…I have actually posted a few times telling others that they need to know their ARV, but in this situation it is really hard to estimate. You may think it is a little risky going into something like this without an exact ARV, but I know that it will sell for at least 72,500 based on rent alone and with all the new constuction and renovation nearby I am willing to take a calculated risk that this house will actually sell for quite a bit more than that. The house (when finished) will be totally renovated, in a nice, non-flooded, new area. The lowest priced house in the zip code sold for 69$ a sq. ft. 1450x 69 =100050. At 90k this would be one of the lowest priced (non gutted) houses in all of New Orleans and NEWLY RENOVATED.

Thanks as always