I'm a General Contractor. You Should Never Hire Me.

TLDR
I have been a GC for over a decade and ran a construction company doing $5 million a year. If you are an investor, do not hire a GC. Hire yourself. Here are five reasons the GC model is broken, and the fix, which is MIY, manage it yourself.

Table of Contents

The Dilution Effect

Here is a P&L from my general contracting firm. $1.7 million in revenue. Not even my best year. Bottom line, $56,000. That is a 3% margin, standard in the industry. Disgusting.

Here is why it happens. Picture a bartender on New Year’s Eve. Arms waving, everybody demanding a drink. You are one of those people. You are going to wait.

My fixed costs as a GC ran about $12,000 a month. insurance, bookkeeping, CPA, legal, office rent, marketing, line of credit interest, payroll even when lean, equipment, tools, vehicles, utilities.

An average project was $40,000 with a 20% markup stretched over three months. That is $2,500 gross per month per project. So I needed five projects running at all times just to break even on overhead. I had to hire three or four more on top to take home a paycheck.

As soon as one wrapped, the revenue dropped out. So I was always lining up the next ones. That means I spent more of my time selling future jobs than managing current ones. A new customer does not want to hear “I can start in 90 days.” So I said yes to everyone. Then I had too many jobs to give any of them the attention they deserved.

When your GC says “no problem, we can start next week,” ask yourself what project they just took attention away from to put yours in the pipeline.

Pro Tip
The paycheck is your power. Never give it away. Set checkpoints tied to completed work and hit them before you release the next draw.

I Am A Cherry Picker

Back to the bartender. Who gets their drink first? The pretty girl in the red dress, not the scruffy guy at the end of the bar.

The 20% average markup is an average. Some jobs are 15%. Some are 25% or 30%. Guess which job wears the red dress. The 30% job.

And investors, ironically, are trying to get the cheapest price possible. That makes you the scruffy guy. Your job, even if you signed it, is lower priority than the homeowner remodel down the street.

Worse, I wanted easy. The pretty girl in the red dress wants a fancy cocktail. Screw that. I want to twist off a bottle cap and slide it down the bar. Floors, paint, cabinets? Perfect. Floor plan changes, structural repairs, a scope of work that is not nailed down? Too much effort. And there are only so many guys who can do that kind of smart work.

Pro Tip
To become the attractive job, break down complex work into simple parts. Instead of “fix this rotted bathroom floor,” ask for three jobs: demo the bathroom, reinforce the joists, put it back together. Simple steps get simple pricing.

The Hot Potato

Your hypochondriac buddy goes to the doctor with a headache. He is sure it is a tumor. The doctor knows it is probably just a headache. But if there is a one-in-ten-million chance it is not, the doctor is the one holding the bag.

So the doctor runs thousands of dollars of scans and sends him to three specialists. Not because he needs them. Because the doctor cannot take the risk.

That is how a GC answers your questions. You ask, “Can we just change out this electrical panel?” I say, “Nope. Rewire the whole house. Twelve grand.” You ask, “Is there a way to reinforce this foundation?” I say, “Tear it down. Build new. Hire an architect first.”

The fix is knowledge. You do not need to swing every hammer. You absolutely cannot lead with blind trust. When you know enough to ask the right questions, the hot potato goes away.

The Scope Illusion

My wife took our van in for a Groupon brake job. $50, all four brakes. Thirty minutes later the phone rings. They took the tires off and realized the rotors were shot, all four tires were bald, and the battery was testing stranded. Funny how none of that was obvious until the van was in the air.

Construction works the same way. You sign a bid. I start work. I am not a home inspector. It is not my job to find every problem before we begin. But I am absolutely going to find problems once we start, and those problems have a hefty markup on them.

Your weapon is a financial contingency. Think the job is $30,000? Carry $40,000. When the change order comes up, you can say:

“You know what, I have a guy I work with who specializes in this. I will have him come handle the extra. You just finish the scope of work we agreed on.”

Boom. That contingency is control. The power comes back to you.

Cost Plus Versus Bid

Two ways to pay a GC. Cost plus and bid.

Cost plus. I tell you my markup, let’s say 20%. Every dollar I spend, you pay me a dollar twenty. Subs, material, equipment, dumpsters, permits, everything.

Bid. We agree on a fixed price for a specific scope of work. Bid is $50,000 and that is what you pay, unless the scope changes and becomes a change order.

Both models bias against you if you do not manage them.

Cost plus rewards me for choosing the easiest subs, buying the most convenient materials, and spending money on anything that makes my life smoother. Every extra dollar I spend, you pay me 20 cents on top. My incentive is to inflate the base.

Bid rewards me for cutting corners. As long as the cuts do not come back to bite me obviously, I am going to find every way to bring the job in under the number I quoted.

Pro Tip
99.9% of the time I only accept bid prices up front. Nobody touches a hammer until I have a hard price and a written scope of work in my inbox. Then I manage the scope hard so the bid stays the bid.

The Hidden Agenda

The most important reason to never hire a GC is the one nobody talks about. My business depends on you needing me forever.

I hide the subs from you. I explain everything in complicated language. I use jargon. I only tell you what you need to know to keep paying me. I give you the fish and I hope like hell you never become the fisherman.

If you become the fisherman, I lose a customer. So I have a structural reason to keep you a customer forever. Even a great GC is stuck inside this incentive.

A GC who teaches you how to GC yourself is giving up their own pipeline. Most will not.

The Fix: Manage It Yourself

There are four ways to get a house renovated. Here is the ranking:

  1. DIY. Swing the hammer. Good for one project at a time. I did this to start. It is a great fallback when times are hard. Do not build a business on it.
  2. Hire your own crew. W2 employees. Sounds great until the first mistakes start costing you money. Then you are paying for mistakes and carrying payroll.
  3. Hire and manage a GC. Now that you know all the tricks, you can do this. Set checkpoints. Break complex jobs into simple steps. Lead without blind trust. Carry contingency. Accept only hard bids. Also be aware of the hidden agenda.
  4. MIY. Manage it yourself. You are the GC. You recruit subs. You manage them directly. You write the scope. You hold the cards forever.

MIY is the answer. Once you have these skills, you can make money at will in real estate. Skills are knowledge times experience. Watch videos, read books, take courses. Then do it. The experience only comes from doing.

Do not build a business where you need a GC. Build one where you are the GC.

FAQ

I’m brand new. Should I really try to manage my own subs?

Yes, on a small project. Start with cosmetic work. Paint, flooring, hardware, a kitchen refresh. You learn how to find subs, write a scope, and keep a schedule on a job that cannot hurt you badly if something goes wrong. You build up to bigger projects.

How many subs do I need to run a flip?

The basic team is a floors guy, a paint crew, a handyman or two, a plumber, an electrician, and a hvac tech. A countertop installer and a cabinet guy show up for most jobs. That is enough to run a cosmetic or mid-range renovation without a GC between you and them.

What if I’m too busy to manage my own subs?

You are running a real estate investment business. Managing subs is the business. If you are too busy to manage the project, you do not have a flipping business. You have a high-cost hobby wearing a GC as a mask.

Is a 20% GC markup standard?

Yes. That is the industry average. Some GCs charge less to win volume. Some charge 30% or more on complex jobs or high-end customers. None of that changes the five dynamics above. The markup is not the problem. The incentives are.

Can a good GC fix these problems?

Some can, partially. They can be honest about contingency. They can accept bid pricing. They can teach you. But the hidden agenda is a structural incentive, not a character flaw. Even the best GC is pulling against the current. You are always better off rowing your own boat.