From the desk:General Contracting / Rehab Crews

Carrying two carpenters on payroll or subbing every trade out, at roughly 11 rehabs a year

Two flippers I've done mechanical work for both asked me to take whole rehabs this year instead of just my scope. Between them that's maybe 11 houses, average scope $70k to $95k, mostly cosmetic plus one system per house.

What I'm stuck on is the carpentry. Everything else I can sub cleanly because I know the guys and their pricing is stable. Rough and finish carpentry is where every schedule I've ever been on falls apart, and the two crews in my market that are actually good are booked six to nine weeks out.

If I hire two carpenters direct, I'm looking at about $32 an hour base each, and by the time I add comp, taxes, truck, and phone, I'm burdened somewhere near $47. That's roughly $195k a year of fixed cost before either of them touches a nail. At 11 houses I've got maybe 26 weeks of real carpentry demand, so I'm paying for 52 and using 26 unless I fill the gaps with punch work and small jobs I don't really want.

If I sub it, I'm quoted $58 to $64 an hour equivalent, which is more per hour but zero when nobody's working. I lose schedule control, which is the whole reason the flippers are asking me.

What I can't decide is whether schedule control is worth carrying 26 dead weeks. Anyone who made this jump, where did the math actually land for you?

Answer

1monica_tran3SF4CPRO6

Five years in and I've run it both ways. The number that decided it for me was how much of the paid year they're actually working, and yours is already telling you the answer if you push on it a little.

At $47 burdened against $60 subbed, your carpenters have to be productive about 78 percent of the paid year to break even on cost alone. You said you have 26 weeks of demand out of 52. That's 50 percent. You lose on straight cost, and it isn't close.

So the real question is what schedule control is worth in dollars, not whether you like it. For me it was carrying cost and rework. On a $90k scope with hard money at 11 and change plus taxes and utilities, a two week schedule slip is somewhere around $2,600 to $3,400 of the investor's money. If subbing costs you an average of two weeks a house across 11 houses, that's $30k of somebody's margin, and the flipper eventually asks why.

What worked for me is one carpenter, not two. Hire your best one direct, make him the lead who sets layout, sequences the house, and handles the punch. Sub the volume work behind him. You get schedule control at the layout and finish stages where slippage actually compounds, and you're only carrying about $98k of fixed cost against 26 weeks of demand, which the lead can partly cover with punch, warranty, and the small jobs.

The assumption this rests on is that you can find one carpenter who will run a house without you standing there. If you can't, hiring two doesn't fix it, it just doubles the payroll.

4 replies

3mikeoconnell7SP2APRO6

Before the usage question, check what your workers comp classification does to that $47. Carpentry codes tend to price much higher than mechanical in a lot of states, and the rate is set per state, so the number you're using from your current payroll may not survive the change. Get your agent to quote the carpentry code specifically before you build the model on it.

The other thing that bit a friend of mine is cash timing. Payroll is weekly. Investor draws are not.

1derekj19SB1B

@thatch how did you pay the lead? Straight hourly seemed like it would fight against the whole point of having him sequence the house.

1Rena Expert

@thatch's break-even is the right frame, and the $47 versus $60 spread is where the decision lives. Two things to add to it.

First, your sub pricing is unlikely to hold flat over 11 houses. The Associated Builders and Contractors puts the industry worker shortfall in the range of roughly 349,000 to 456,000, and that shortage has been pushing sub labor rates up rather than down. If you build the model on $58 to $64 as a fixed input for the year, you're assuming stability in the one input the labor market is least likely to give you. Direct payroll doesn't escape that either, since you'll face wage pressure on retention, but it moves more slowly and you see it coming.

Second, the 26 weeks of demand is your estimate of demand under your current client mix. Both flippers are exposed to their own margin pressure, and if either one slows to five houses instead of eleven, your fixed cost doesn't slow with them. Ask yourself what your payroll looks like if one client goes to zero for a quarter. That single-client concentration is doing more work in this decision than the hourly spread.

Third piece is pricing. If you take on carpentry direct, you're absorbing a labor risk your clients currently absorb through their subs. That's worth a number in your bid, and in a labor-short market crews that reliably hit dates have been able to charge for it. Whether you can depends on whether your two clients bid you against three other GCs on every house or treat you as their crew.

The answer hinges on client concentration more than on how busy you keep the crew.