Real estate investing can take on many different forms, but if your strategy involves renovating houses, then this blog post is for you.
Before we get down to the nitty-gritty of putting together your own construction crew, let me say one thing: if you’re going to renovate houses, make sure you’re close by.
In other words, don’t buy trashy houses out-of-state, and put all your trust in a general contractor to get the job done right and within budget. You’d have better success playing Russian roulette.
I don’t care if the general contractor is your brother, uncle, dad or the guy Home Advisor says is great. Don’t do it! I’ll even go so far to say this: don’t hire a general contractor at all.
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In most cases, you’re much better off being your own general contractor, and hiring your own guys. This way you have complete control over the day-to-day operation and making sure things are happening according to budget. For state laws specific to general contractors, click here.
How Big Should My Crew Be?
Real estate investing is not a one-size-fits-all kind of thing. The dynamics of your construction crew are going to vary depending on what you’re doing.
Buying a package deal of 10 houses at once is going to have different labor needs than renovating a triplex or a single-family home.
To keep things relatively simple, though, let’s assume you’re going to start with one single-family home – which I think would be wise. With this being said, start with two people.
Some may disagree with me here, but, in my experience, more than two guys leads to a circus. I realize that more guys may equal getting to the finish line sooner, but start with two, and scale up from there.
What Skills Should My Crew Have?
You need guys with at least basic construction experience. You’re better off finding guys who have a broad knowledge of skills compared to people who only have one “specialty.” A guy with five years roofing experience may not do you any good unless you need a roofer. Here are some skills you should look for:
- Basic carpentry
- Trim work
This list is by no means exhaustive. You also want to make sure they are comfortable using power tools and other equipment needed for the job.
How Much Should You Pay?
Pay obviously depends on location. Where I buy properties near Springfield, MO, I start guys at $12/hr. I also provides tools.
Require An Application
In the construction business, everyone claims to be an expert. Despite how qualified someone may seem after a 5 minute conversation, discipline yourself to make everyone fill out an application.
The application should include all their personal information along with work history and several verifiable past employers.
Make sure they also have an active driver’s license and reliable transportation.
I look for patterns. We all make mistakes in life, but if your screening process reveals that an applicant has a pattern of being in trouble with the law & is notorious for getting fired, what kind of employee do you think they will make?
1009 vs. w2
It is vital you understand the difference between a 1099 contractor and a w2 employee. Instead of me trying to explain the difference, here is what the IRS has to say:
“In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”
Some business owners treat their workers like employees but pay them as 1099 contractors to avoid the hassle and extra cost of dealing with payroll taxes, however, this can get you in trouble with the IRS.
Click here for more on this topic.
Having guys show up to the job drunk or high could put you out of business. It also creates a very dangerous work environment for everyone. Sign up with a drug testing service, and have your crew randomly tested for drugs and alcohol. Check out this link for state-by-state drug testing laws.
It’s important, and possibly required by law, to have your employees sign some kind of a drug testing consent form. These forms can be found online, but be sure the form you use complies with the laws of your state. It may be best to consult an attorney.
Now that I’ve covered a bit about building your own construction crew, let’s discuss subcontractors. The four main subs you’ll need when renovating houses include a roofer, electrician, plumber & an HVAC technician.
Now, don’t assume that just because someone owns a business and has a logo that they are reliable and professional. Screen these guys in a similar fashion as you would your own workers. While subcontractors won’t be filling out an application, here are some ways you can get the skinny on them:
- Look at their reviews online
- Ask if they have a master-certification (they likely can’t pull permits without it)
- Get referrals
- Inquire about rates
- Make sure they are property licensed and insured
If renovating properties is part of your real estate investment strategy, I recommend running your own construction crew instead of hiring a general contractor. This will save you money and give you maximum control to help ensure your renovations stay on schedule and on budget.