Own GC on a first spec home, or hire one and learn by watching

Question

Consider a builder with eleven years swinging a hammer and experience running other people's jobsites, so framing and sequencing are not the concern. Carrying the money side of a house owned outright is the new part, with a lot under contract and a real choice between pulling a builder license to GC it directly or paying someone 9 or 10 percent of hard cost to run it while learning the weaker areas. The case for self-GCing is straightforward. On a 380k hard cost, that fee runs around 35k, a real slice of a first project's margin, and a builder with sub relationships already knows most of the trades by name. The case for hiring is less obvious but still real. A GC with an established book of subs tends to get called back faster, and in a market where crews are hard to fill, having a framer show up in week two instead of week seven can be worth more than the fee saved. The license question differs by state, so what a given state actually requires to pull permits in an individual's own name needs to be confirmed before assuming it is possible. On a genuinely first project, the case for hiring an experienced GC and learning the money side alongside them tends to outweigh the fee saved by self-GCing, given how much a slow crew can cost in carry.

aliyah_b · Answer

The fee isn't the number I'd be looking at. I'd be looking at carry. If a hired GC finishes 90 days sooner because his subs answer the phone, and your loan is running interest on 380k plus the lot, that 90 days is real money against the 35k you saved. Do the math both ways with the same interest rate and see what the gap actually is before you decide the fee is expensive.

luis_carrera · Answer

The thing to see clearly is that the two options are not symmetric in what they cost when they go wrong. If you GC it and misjudge sequencing, you eat the delay and you also eat the learning. If you hire and he misjudges it, you still eat the delay, but you have someone to argue with about it and a contract that might say something about who pays. Girder, you know construction, so the build itself is the smaller risk for you. The larger one is the first time a lender draw inspection lands a week late and a sub is waiting to get paid.

megan_doyle15 · Answer

The sub-answering-the-phone point seems bigger than the percentage, even though all of this is new to me.

Own GC on a first spec home, or hire one and learn by watching

3 replies