Hire A General Contractor or Be Your Own – The Pros and Cons of Both

While speaking with several experienced real estate investors and industry professionals at a recent event, I was told that their #1 problem in any property that involved improvements, was the renovation. That was the ONE thing that caused the most stress and kept them up at night. The biggest issue wasn’t acquiring the property, getting financing or even dealing with nightmare tenants, but rather it was dealing with the renovation work.

Digging deeper, the reasons are obvious. A house is a complex structure, where it’s almost impossible for an individual to tackle a major renovation on their own. No - not even that guy with the denim overalls. Individual systems and components require specialized knowledge and experience, along with specific qualifications, licenses and insurance. It’s very hard to navigate the landscape of who is capable of doing what. Depending on the size and scope of the project, you might need to involve designers or engineers, and deal with permits, plans, municipal building departments, committee of adjustments, etc. The list goes on.

The answer, for most folks, is to hire a GC (General Contractor) that can do the job for you. In other words, know the requirements and manage tradespeople and even deal with city inspectors and the building department, often at a very high cost if they truly are qualified. Good GCs do a 25-50% labor markup on the cost of the tradespeople that are hired. This is actually very reasonable, but it can significantly cut into your profits. The other option is to be your own GC and manage the project yourself. This can save you money and give you greater control, but it eats up a lot of your time. One size doesn’t fit all, and it depends on how you value your time, your ability to deal with issues that come up, and of course how much money you want to save. 

So let’s discuss some of the pros and cons of hiring a GC versus being your own.

Hiring a General Contractor

Pros:

  • You’re hands off (in theory) – Your GC will manage the project and all the trades.
  • Have trades ready - Good ones know who to hire and often have trusted people on their team.
  • Knowledge - Being experienced, they will know things that you don’t and can give you helpful advice on how you should do things.
  • Expedited process – Quite simply because they do this all day, every day, the process should be much quicker than you can do it.

Cons:

  • You’re hands off – Your GC has control of the job, and you’re at the whim of how they operate their business (the biggest frustration for many folks are GC’s that manage multiple jobs and take priority of other jobs for various reason – that is a why a solid contract with dates are imperative)
  • You have no control of the trades – If the job goes awry, so do the trades. Many GCs prefer to work with their own guys.
  • Shortage of qualified GCs - Quite honestly, there aren’t that many good ones compared to the amount of construction happening. Most GC’s unfortunately are specialists rather than generalists due to the construction boom of the last 30 years, and got their skills in one specific area in order to meet the demands of our highly industrialized construction process. The good ones typically have their markup close to 50% with their trades also at the high end of the price spectrum. So if you want the job done right, expect to pay for it.
  • Added cost – Again, 25 to 50% markup of trade labor. So using an example of a typical basement suite reno, the typical labor cost for framing, insulation, wiring, mechanical, plumbing, drywall/taping, painting, flooring, finishes, windows and doors, kitchen and bathroom, you might be looking at the neighborhood of $20k for labour only. At 25 to 50%, you’re looking at a GC fee of about $5 to $10k.
If only all trades were this friendly

If only all trades were this friendly

Now let’s look at the pros and cons of being your own GC and managing the project yourself.

Being Your Own GC

Pros:

  • You have full control – You deal with the trades accordingly. Things going sideways with one trade doesn’t halt the entire project. Not the case if things go wrong with your GC.
  • A great way to learn about the renovation and construction process. You can use the skills and contacts you’ve obtained for future projects – many great resources now online
  • Do a better job – Don’t discount yourself even if you don’t have experience. You would be surprised how much more detailed and careful you will be to ensure that the job is done right because it is your own house.
  • Money – Oh yeah, you save a ton of money. Take a nice vacation or better yet, put it into the next project!

Cons:

  • More work for you - You’ll need to do the research and find out which trades are qualified and licensed to do the work.
  • Time – Depending on what else you have going on, this is taking away from that. It might be family time or another business that you’re compromising.
  • Prolonged construction – Because you’re not doing this full time, and most probably holding a day job, your dedication to this is not going to be 100%. This undoubted will prolong the project. Expect that it’s going to take longer than originally planned. Sometimes a trade that fails to show up will have a domino effect on the rest of the project. Have a contingency for additional carrying costs because the job is not going to finish on time. This is reality.

The Bottom Line

So what should YOU do? Again, it depends on your particular circumstances. How involved do you want to be? How much money do you want to save? How much is your time worth? If you’re making a six figure salary, then it might not be worth your time to manage it on your own. But I would argue that even if you’re making a lot of money in your job, the experience and knowledge gained from being your own GC is worth a lot more than an above-average salary.

Another thing is to consider the scope of the project. Is it something small like finishing a basement, or something big like putting on a 2nd story addition or gutting the entire home? The bigger the project, the more beneficial it might be to outsource that GC job to someone who has a lot of experience in that area. But remember, have a rock-solid contract in place, and pay based on milestones.

It might make sense to start off managing on your own for small projects first, and then gradually go bigger. One option if you do want to manage the job (big or small), is to hire a consultant with experience or a GC and pay them for their time. This is similar to how many people now pay financial advisors or accountants for consultations, rather than have them manage their money blindly. Again, all about control.

Being your own GC can be this fun!

Being your own GC can be this fun!

In my business with Suite Additions, when people hire us to do the design and building permits for legal secondary suites, I include renovation coaching throughout the entire process. I do one-on-one meetings where we go over process, specific qualifications and licensing requirements of trades, and all the things to look out for during construction. As a former inspector and someone who has personally been through 5 major renovations, I can offer a lot of guidance to my clients who are starting out with the world of renovating. Make sure anyone you hire has the knowledge, experience and attitude to do it right. Being your own GC can be scary – but very fulfilling at the same time. And hey, the money comes in handy too!

Did I miss anything? Leave your comments below and let me know your thoughts!