To Sub Or Not To Sub, That Is The Question

Many people start a fix and flip project because they have a certain skill or simply go into the project thinking, "How hard can it be, right? I'll just learn how to do install cabinets, or do basic electrical or plumbing, or ____," you fill in the blank. The savvy investor must ask him or herself this question, "Is this the highest and best use of my time?"

When my husband and I decided to start a real estate investment business we focused primarily on fix and flip projects. One of the largest expenses in a real estate investing fix and flip project is of course, the labor. We decided immediately that we would not be "suckered" into paying outrageous rates for labor and opted instead to do much of the work ourselves. My husband, Jon, is a pretty handy guy and is not afraid to learn something new. In fact, flipping houses seemed like a perfect fit because of his background in project management and did I mention that he is generally a pretty handy guy?

Now, this does not mean Jon was an expert electrician, or plumber or even carpenter for that matter, but we figured he could learn as he goes and that the contractor would be happy to give Jon a little on-the-job-training as they go along. Are you laughing yet? Great idea, right? Our fairy tale contractor would just be thrilled to have the work and would not mind at all to give some pointers along the way. I think we must have been on something that night because people looked at us like we were more than a little loopy.
The contractors who were open to our handy idea didn't mind and gave a lower quote than the others because of the extra help, but the quality of work that we would get was marginal at best.

Actually, I even got into the game and tried my hand at painting, landscaping and other odd jobs. Paint is a breeze, right? Let me just say that I never want to paint another wall in my life. Between the paint and landscaping my hands felt like, well, a construction worker's hands, because they were. The daily activities became a full time job and then some. Between shopping, painting and landscaping, it all seemed never-ending.

Other considerations when planning your project as it relates to contractors are the city requirements. In fact, when you hire a contractor many cities want to know who you are working with, that they are licensed, and require that they register and obtain a business license with that particular city. Check with your local offices because each city has their own guidelines. It is just something to be aware of.

In addition, one must be careful to have a subcontractor agreement, establishing your relationship as a subcontractor and that they are not an employee. There are forms online or go to your RE lawyer for the appropriate wording so that you are in compliance with your state's laws.

Jon working side by side with the contractor was a weakness in our overall plan. Our little experiment didn't work out very well as you might have imagined. There was no accountability for completion of a project and our project was invariably behind schedule without very much recourse at all. I mean, really, who's fault was it anyway? Another concern was the increased liability issues since we were all working on the same projects. If something had gone terribly wrong fingers would be pointing in every direction. In hindsight it was a bad plan but we learned from our mistakes and quickly made sure, on future projects, to get quotes by job from each contractor. Whether it's getting the whole project quoted or singular projects quoted by subcontractors, it is critical to get your information and quotes in writing. This will save from misunderstandings on the back end and give you stronger recourse if something were to go wrong.

I say sub all the way and keep your fingers out of their projects. Let the subcontractors do what they are great at doing and keep the accountability and liability clean. There are many reasonably priced contractors and subcontractors out there that are willing to work with investors which to them translates into repeat customers. Don't think for a minute that any money you pay them is wasted or that you are being "suckered." They perform a service and if they know that you are a real estate investor who plans on doing this regularly, their ears perk up and their quotes go down.

Stay busy at the business of putting together great real estate investment deals and leave the contracting work to the contractors. This may not make sense for everybody but the most important question remains this, "What is the highest and best use of my time."