Rehabbing is one of the major components of the real estate business. A property in need of a rehab is often where the money can be made. But doing a good quality rehab and bringing it to completion is not easy, as there are many potential bumps along the way. You need to know how all of those property pieces fit together, and you will need many different types of contractors to get your job done.
Some contractors are essential due to their knowledge of potentially dangerous systems, such as natural gas or electric. But do you need a general contractor to oversee and coordinate all of this work? Or should you act as your own general contractor? There are pros and cons to each side of this story, and we will go through some of them shortly. First, let’s make sure we all understand what a general contractor is and what they do.
What is a General Contractor?
A general contractor is someone who you hire to manage, coordinate, and complete a rehab project. They may or may not be specific tradespeople, but they are often a sort of “jack of all trades” who have detailed knowledge of how to complete the project. They are often responsible for making sure that the project comes in on time and within budget, and they hire and manage sub-contractors, such as electricians or plumbers. Most of the time you will pay and direct the general contractor, who will in turn pay for materials and manage the sub-contractors.
Acting as the General Contractor
As the property owner, most jurisdictions will allow you to act as your own general contractor (this will, however, vary by jurisdiction and scope of the project, so check your local laws). Therefore, you get to ensure that things are completed on time and within budget, and you would hire and manage all of the other sub-contractors. Why might you want to do this? Here are some thoughts.
First, you can save the money that you would pay a general contractor. General contractors are not going to work for free. They will add an up-charge to all of the services they procure and oversee. This up-charge will directly affect your bottom line.
Secondly, being your own general contractor allows you to learn the business. One of the best ways to learn anything is to do it. There is a real advantage in this business to knowing and understanding how a general contractor operates.
Third, being your own general contractor means you will likely get hands on experience with many of the components that go into a rehab job. It is very handy for a real estate investor to have a basic understanding of plumbing, electrical and HVAC systems, as well as all of the other things that make a building function. Knowing and understanding the costs of materials, the time it takes to install them and the prices of labor will be invaluable to your real estate investing career.
Finally, you can watch over things much more closely and perhaps better control the pace of things. If one of your sub-contractors begins to slack off or not do the work to your standards, you can fire that contractor. With a general contractor, you will likely have to go through him or her. It adds another layer.
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