The Lazy Man’s Way to Fix and Flip
When you're learning how to flip houses, you may not think that there will be a day when you'll be doing multiple house flip projects at the same time...let alone multiple flips in the same year.
But that day will come...
If you're just starting out of the house flipping business, chances are pretty good that you feel the need to domost of the rehab work yourself.
It makes sense. If you're flipping a house every 6 months or so, perhaps on a part-time basis, you may be tempted to think that the only way you can be profitable is to put in a lot of the "sweat equity" yourself.
If you don't learn how to buy houses right, get unrealistic ARV's and only adhere to the 70% rule when it's convenient, then yes you probably do need to do all the work yourself. In cases like that, here just isn't enough profit to hire someone to do it.
But if you stick to the rules of house flipping and are disciplined in all aspects of the house flipping formula, believe it or not, you actually don't have to do any of the work yourself, which is nice.
It's the lazy man's way to flipping houses.
Fix and flip, fix and flip, fix and flip, fix and flip…
"To GC or Not to GC…THAT Is the Fix and Flip Question"
Enough with the clichéd Shakespearean quotes…let's get down to business.
After you have determined a realistic ARV (After Repair Value), used the 70% Rule and bought the house, you're now dealing with the repairs.
In some previous examples, we have covered a hypothetical scenarios where the repair costs are around $40,000.
The question now is: who is actually going to do the repairs? Should you do it or someone else?
Here is a video which explains it a bit more detail:[youtube]http://www.youtube.com/watch?v=Z4PBorK7d-s[/youtube]
For some reason you can't see this video, click here.
If you want to flip houses the lazy man's AND generate a nice profit, his is where the general contractor (GC) comes in.
If you are a new house flipper and you don’t have a lot of experience doing construction work and have visited Hoe Depot lss than twice in the last year, then you really don't have much of a choice here. You need to get other people to do the work.
However, as much as GCs can save you time and money, there are pros and cons to hiring a GC.
Pros of General Contractors
- Physical Exhaustion: This may seem obvious, but when you hire a general contractor, you don't need to do any of the physical work, which can be exhausting! Unless you're one of those gluttons for punishment, this fact alone is reason enough to hire a GC for your house flip.
- You Can Still Do Your Day Job: When you hire a GC, this allows you to go out and do your regular day job, spend time doing other things, or hunt down your next house fix and flip.
- "No Subs for You!": Unlike the frustration of not getting an excellent bowl of soup from the soup Nazi, the absence of aggravation dealing with subcontractors is one of the very best reasons to hire a general contractor. You won't have to waste your time or effort dealing with subcontractor scheduling issues, lack of professionalism at times and all the management headaches that come along with dealing with a bunch of independent workers.
- No Micromanaging: You can run your project efficiently without having to constantly micro-manage the people on the job site. The general contractor deals with subcontractors and they all report to him. He is responsible for hiring the electrician, the plumber, the roofer, the carpenter, the flooring guy, while you sit back and let the work that's done. He manages it all, you oversee the fix and flip project.
- No Dodging Town Regulations: In many states, you cannot be the GC on a house flip unless it's your own primary residence. Sure, there are ways to get around this, but it's best to not tick off your local building inspector. Especially if you might be doing multiple house flips in the future, you want to keep these people on your side.
- Faster Sale: Even though it may seem that hiring a GC will cost you more money, in most cases, the flip will sell far more quickly when you use a GC. Remember, the longer you hold on to your house flip, the higher your soft costs will be including your financing - especially if you've learned how to flip houses with no money. In this way, getting the job done faster could save you thousands of dollars in finance charges alone.
- Partnership Potential: You can form a partnership with a general contractor to do the deal with. You raise the money from another party, assemble the entire project and the general contractor does the work at cost. Some of my best house flips have been done this way. It makes for an extremely motivated general contractor doing your job for you.
- It's Hard to Admit..But You Don't Know It All: Even if you do decide to do some or most of the work, you will eventually need subcontractors to do some of the specialty work like electrical, plumbing and heating. Very few people, unless they are builders or general contractors themselves, have this kind of experience.
Cons of General Contractors
- Cost: General contractors typically take anywhere between 5 to 8% of the total rehabilitation costs. So if you have an overinflated ARV and have not stuck to the 70% rule, then you may not have the budget for general contractor. That's why the house flipping fundamentals are so important.
- Potential for Deceit: General Contractor's may overcharge you for their subcontractors work. Although I have not seen this personally, some house flipping friends of mine have had this issue. So it's something to be aware of.
- Time To Find Mr. Right: It may take you going through several general contractors until you find the perfect one for your house flipping team. For me, I have multiple general contractors that I use on multiple house flips, so I'm constantly evaluating their effectiveness. This also gives me a good backup in case one of them does not perform up to expectations.
A Good General Contractor Is Worth His Weight in House Flipping Gold
Bottom line, if you are starting out new to the world of the fix and flip, you can certainly cut a few corners and go without the general contractor. However, I would highly recommend that you go with a general contractor. After all, it is the lazy man's way to flipping houses!