Property Manager act as your General Contractor too?

Question

Hello BP,

Recently secured my first 2 rentals.  SFR and Duplex.  I'm out of state.  Properties are in Indy.

I will need PM on both properties and each will need some fixing up to some degree.  Not full gut rehab, but updated kitchen (layout/paint), a wall removal, interior paint, vinyl floors  That kinda thing.

Some PM's I have talked to have a construction side and inform me they can complete necessary contractor work so long as I hire them to manage the property.   Seems reasonable.

A few have in house contractors and others have said they would take bids from sub contractors depending on what needs to be done.  Everyone says they can do pretty much anything rehab related.

Anyone have experience having their PM do/manage/complete the rehab of a buy-and-hold property?  Pros-cons?

Seems like a favorable situation, as a PM company could get discounts and would not want do a lax job on the property, since they will be managing it in the first place....and then the PM will be set up already.

I'm doing OK managing subs on the SFR thus far but much rather talk to one GC or...PM in this case.

Thanks for any input.

Kenny Dahill · Answer

You should ask what that 20% entails.  And then determine how much it's worth your time and risk to manage yourself.

My viewpoint is that's double dipping.  Unless their GC has no profit markups, which I'd be shocked if they weren't.

You'll need to confirm if their manage fees are based on volume tiers or if it's flat.  20% is a lot if you're talking about a $5k+ project.  But for a less than $2,500 that markup makes more sense.

Keith Shadle · Answer

Hi @Kenny Dahill  Many thanks for the detailed message!

I am getting inspections done on each property with results back to me, not a GC or PM.  So that's good.

And a PM just told me their mark up for GC work (painting, insulation etc..) was 20%.  Not sure if that is a standard mark up for a General Contractor as well for managing project.  Though appreciated his honesty.

Kenny Dahill · Answer

Hi @Keith Shadle, good question.

As always, there are pro's and con's.  You'll have to weigh each yourself to come up with the better solution.

Internal Construction:  Having an in-house team can be extremely valuable.

• Pro's:  They will worry more about quality since they'll be stuck managing it afterwards.  If they're busy enough then their pricing could be more competitive.  Communication would ideally be better between PM and GC.
• Con's:  You have no way to determining market value since you only get 1 quote from a GC, themselves.  They will also have their own team of subcontractors and probably not go outside for more competitive pricing, so potentially 2 levels of non-competitive pricing.  If it goes bad, it'll always be 2:1; PM/GC vs you.

External Construction:

• Pro's:  Liability and risk.  If something were to go wrong then the PM can be more unbiased in regards to which side they protect.  They can also place more protective clauses to confirm the GC meets scope and deadlines.  The GC will want to make as much profit as possible so they'll reach out to subs to help achieve that goal.  Also, the PM might have 3-4 team GC's they partner with and you can compare their pricing.
• Con's:  They don't work for the PM and won't care as much about the maintenance down the road.

Here are some important things to always consider:

• Be a Construction Manager!:  You?  Isn't that why you're hiring the PM?  Yeah, exactly.  A huge key to success in any projects I've done whether they were my $30k renovations or $200m industrial deals is making your presence known early and often.  That doesn't mean micro-managing, but it means keeping them honest.Review Pricing:  You should give all GC proposals a review to make sure the scope is apples:apples.  Your job is to vet the proposals so you can qualify each of them.Be there!:  During the 2-3 month renovations you need to visit at least 2-3x.  Ideally when their invoices are submitted so you can verify the invoiced scope is accurately completed.  Never pay ahead!  Never.  If you purchase your flights well enough in advance you could probably get round trip tickets for $200-400.  Sure that's another $1-2k added to your budget but I'd rather pay to confirm the GC/PM are being honest than risk it and having to go to court and losing even more.  I used to fly into town for 4hrs each week only to check the progress, that's for commercial with larger budgets but the principle is the same.Review Contract:  Especially if it's their internal team, you must review the contract to make sure there's enough heat to make them sweat.  You will want to confirm:Liquidated DamagesActual DamagesInvoicing Due DatesClose-out / Punch ListInsurance Requirements
• Review Pricing:  You should give all GC proposals a review to make sure the scope is apples:apples.  Your job is to vet the proposals so you can qualify each of them.
• Be there!:  During the 2-3 month renovations you need to visit at least 2-3x.  Ideally when their invoices are submitted so you can verify the invoiced scope is accurately completed.  Never pay ahead!  Never.  If you purchase your flights well enough in advance you could probably get round trip tickets for $200-400.  Sure that's another $1-2k added to your budget but I'd rather pay to confirm the GC/PM are being honest than risk it and having to go to court and losing even more.  I used to fly into town for 4hrs each week only to check the progress, that's for commercial with larger budgets but the principle is the same.
• Review Contract:  Especially if it's their internal team, you must review the contract to make sure there's enough heat to make them sweat.  You will want to confirm:Liquidated DamagesActual DamagesInvoicing Due DatesClose-out / Punch ListInsurance Requirements
• Liquidated Damages
• Actual Damages
• Invoicing Due Dates
• Close-out / Punch List
• Insurance Requirements
• Lot's of great GC's and PM's:  Hiring a PM who handles the construction is great, if they're great.  I would encourage you to not make a decision because a PM does or does not manage projects.  You would be better off hiring a great PM who doesn't manage projects than hiring a PM who is okay-at-best managing construction.  It might take a little more on your end to coordinate during the projects but finding the best PM long-term is more important than them managing the renovation.
• Hire Local Inspectors:  If you cannot make it out the property then you must hire a local inspector to examine the property on your behalf.  It could be a home inspector or even another GC.  Make sure they work and report directly to you and not the PM/GC.  You'll want to be open with the GC/PM that you're going to utilize a local inspector but only for examination purposes.  They will not be coordinating or managing.  Their responsibility is reviewing scope in question and confirming the completion status of scope.

• Review Pricing:  You should give all GC proposals a review to make sure the scope is apples:apples.  Your job is to vet the proposals so you can qualify each of them.
• Be there!:  During the 2-3 month renovations you need to visit at least 2-3x.  Ideally when their invoices are submitted so you can verify the invoiced scope is accurately completed.  Never pay ahead!  Never.  If you purchase your flights well enough in advance you could probably get round trip tickets for $200-400.  Sure that's another $1-2k added to your budget but I'd rather pay to confirm the GC/PM are being honest than risk it and having to go to court and losing even more.  I used to fly into town for 4hrs each week only to check the progress, that's for commercial with larger budgets but the principle is the same.
• Review Contract:  Especially if it's their internal team, you must review the contract to make sure there's enough heat to make them sweat.  You will want to confirm:Liquidated DamagesActual DamagesInvoicing Due DatesClose-out / Punch ListInsurance Requirements
• Liquidated Damages
• Actual Damages
• Invoicing Due Dates
• Close-out / Punch List
• Insurance Requirements

• Liquidated Damages
• Actual Damages
• Invoicing Due Dates
• Close-out / Punch List
• Insurance Requirements

I hope this helps.  You've got this and if you ever have questions BP is a great community to ask!

Wayne Yahnke · Answer

Im actually weighing my options on this very thing. I have interviewed what seems to be like a rockstar PM. However I do not have a history with her as of yet. She seems like she would do great at assisting in managing the rehab as well. Ill be interested to see what more experienced investors think.