Rehab company VS Independent GC VS Self managing subcontractors
Specialist · Columbus, OH · Member since 2019 · 110 posts · 102 votes
Rehab company VS Independent GC VS Self managing subcontractors
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Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes
4yOriginally posted by @Marc Rice:
Each of these approaches have pros and cons, even the local guys struggle to have a perfect system.
Rehab company
- This is similar to a GC, I'd more so call this option using an unlicensed GC that has access to a lot of crews. This can be cheaper than a GC but more liability due to not being insured and not knowing the quality you will get. Some people like this option if they can find a good rehab company to handle their stuff, but usually it requires some time to establish that relationship.
Independent GC
- Will be the most expensive but should have the least amount of time requirements for you as the investor. You'll still want someone to be boots on the ground to check on status, draw requests, updates, etc. It is very hard to find affordable do-it-all general contractors due to the demand for them right now.
Self managing subcontractors
- This is the approach that myself and a lot of local investors use because we can get better pricing, have better control in exchange for a little more managing and quote shopping. The issue with this strategy is that somethings get delayed sometimes and its harder to get a lot of the smaller stuff done on the projects. It can also get tiresome negotiating and price shopping when subs are being too expensive. You always want a breakdown of labor vs material and usually with this strategy you are paying for material or directly reimbursing the subs when they submit receipts.
Property manager as project manager/project manager with subs
- This approach is good as well where you can actually pay your property manager a "project management fee" and they will oversee your rehab, get quotes, check on work, etc. This is usually great for out of state investors doing lighter rehab turns on buy and hold rentals. Theres a few in Columbus that offer this service. Sometimes you can also hire a project manager to act as the middle man between you and your subs/GC and pay them a fee. There's not a reliable service offering for this in Columbus on the smaller rehabs but in commercial real estate its called a "builders rep service" I believe.
We do renovations - full exterior and roofing as a GC and also Property management, but I think the best setup I have seen is Property Manager as a Project Manager - but please pay the project management fee :-). We have had to do this at no charge and literally killed ourselves to do it and left close to 500K on the table. I use other PM's acting as an asset manager and will say make sure the team has the ability to manage a crew daily, resident communication and of course bank draws from title...otherwise it can get messy quickly.
10 Replies
- Realtor · Columbus, GA · Member since 2017 · 13 posts · 14 votes4y
This is the forum for Columbus, Georgia...Here is the Columbus Ohio Forum https://www.biggerpockets.com/...
- 4yMarc RiceBusiness MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
Each of these approaches have pros and cons, even the local guys struggle to have a perfect system.
Rehab company
- This is similar to a GC, I'd more so call this option using an unlicensed GC that has access to a lot of crews. This can be cheaper than a GC but more liability due to not being insured and not knowing the quality you will get. Some people like this option if they can find a good rehab company to handle their stuff, but usually it requires some time to establish that relationship.
Independent GC- Will be the most expensive but should have the least amount of time requirements for you as the investor. You'll still want someone to be boots on the ground to check on status, draw requests, updates, etc. It is very hard to find affordable do-it-all general contractors due to the demand for them right now.
Self managing subcontractors
- This is the approach that myself and a lot of local investors use because we can get better pricing, have better control in exchange for a little more managing and quote shopping. The issue with this strategy is that somethings get delayed sometimes and its harder to get a lot of the smaller stuff done on the projects. It can also get tiresome negotiating and price shopping when subs are being too expensive. You always want a breakdown of labor vs material and usually with this strategy you are paying for material or directly reimbursing the subs when they submit receipts.
Property manager as project manager/project manager with subs
- This approach is good as well where you can actually pay your property manager a "project management fee" and they will oversee your rehab, get quotes, check on work, etc. This is usually great for out of state investors doing lighter rehab turns on buy and hold rentals. Theres a few in Columbus that offer this service. Sometimes you can also hire a project manager to act as the middle man between you and your subs/GC and pay them a fee. There's not a reliable service offering for this in Columbus on the smaller rehabs but in commercial real estate its called a "builders rep service" I believe.
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews - Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes4y
Originally posted by @Marc Rice:
Each of these approaches have pros and cons, even the local guys struggle to have a perfect system.
Rehab company
- This is similar to a GC, I'd more so call this option using an unlicensed GC that has access to a lot of crews. This can be cheaper than a GC but more liability due to not being insured and not knowing the quality you will get. Some people like this option if they can find a good rehab company to handle their stuff, but usually it requires some time to establish that relationship.
Independent GC- Will be the most expensive but should have the least amount of time requirements for you as the investor. You'll still want someone to be boots on the ground to check on status, draw requests, updates, etc. It is very hard to find affordable do-it-all general contractors due to the demand for them right now.
Self managing subcontractors
- This is the approach that myself and a lot of local investors use because we can get better pricing, have better control in exchange for a little more managing and quote shopping. The issue with this strategy is that somethings get delayed sometimes and its harder to get a lot of the smaller stuff done on the projects. It can also get tiresome negotiating and price shopping when subs are being too expensive. You always want a breakdown of labor vs material and usually with this strategy you are paying for material or directly reimbursing the subs when they submit receipts.
Property manager as project manager/project manager with subs
- This approach is good as well where you can actually pay your property manager a "project management fee" and they will oversee your rehab, get quotes, check on work, etc. This is usually great for out of state investors doing lighter rehab turns on buy and hold rentals. Theres a few in Columbus that offer this service. Sometimes you can also hire a project manager to act as the middle man between you and your subs/GC and pay them a fee. There's not a reliable service offering for this in Columbus on the smaller rehabs but in commercial real estate its called a "builders rep service" I believe.
We do renovations - full exterior and roofing as a GC and also Property management, but I think the best setup I have seen is Property Manager as a Project Manager - but please pay the project management fee :-). We have had to do this at no charge and literally killed ourselves to do it and left close to 500K on the table. I use other PM's acting as an asset manager and will say make sure the team has the ability to manage a crew daily, resident communication and of course bank draws from title...otherwise it can get messy quickly.
- Property Manager · Atlanta, GA · Member since 2021 · 15 posts · 24 votes4y
This may not be directly related but I think it is important. If you are not local you want to be sure you have somebody representing YOU. Managing on your own from afar often seems like a great idea because of the cost savings but you will find even the best contractors may cut corners if left unchecked. Pictures leave out a lot and contractors will only send you pictures of what they want you to see. Time and time again I have seen examples of work being managed from afar and the investor has to fork out money to fix something that was either not completed correctly or at all after the fact. Again, many contractors have the best of intentions but if they are on a tight budget or timeline they will make decisions differently if you are not physically there constantly to check their work at all stages.
Hiring an owner's rep to manage work typically costs about 10% of the project cost and a true owner's rep will have a strong contract to ensure you both are aware of what your respective responsibilities are. I have a lot of experience with all three options you mentioned above and I am happy to answer any questions you may have and offer free advice if needed. Feel free to message me.
Just remember, do not leave the fox in charge of the henhouse, even if the fox seems reliable!
- 4yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
Originally posted by @Mike Hasson:
Hi! I'm wrapping up my first SFR deal, it has been a gradual learning process and I tackled one issue per month; it was very time consuming, frustrating, and I was more involved in every step than I would like to be moving forward. For my next projects I need them to move a lot faster and am just looking for some insight into some of the trade offs of using an all-inclusive home rehab company, vs hiring a GC to manage the entire project, VS doing what I did and self managing the subcontractors.
I imagine I'd pay a premium for any sort of all-inclusive service, so I'm curious - have any investors out there made any of these rehab companies work with their ROI? Or have you built your own teams gradually the way that I have been doing on my current project? Or some combination of both approaches? Any tips for success with either approach?
Specifically looking to relocate to get started in Columbus, Ohio, so I'll be starting with a new team from scratch, so I would also appreciate some recommendations of companies/contractors to work withThanks for sharing!
That is awesome! You will not regret moving!
I started purchasing small multifamily in Columbus, Ohio about 4 years ago and have done extremely well. The cost of entry is low while the cash flow is high. Columbus is the only Ohio market that has seen rapid growth in jobs and population.
- Specialist · Columbus, OH · Member since 2019 · 110 posts · 102 votes4y
So much good advice here!
And it has given me a lot to think about.
I think that the property manager as the project manager will be a good goal to work up to while I continue to fill that role myself and manage the subcontractors. While tedious, I think that the hands-on experience will be invaluable for how I will know if my future property/project manager is doing a good job!
I'll go ahead and ask for those contractors to start building my team in the correct forum ;-) thanks for pointing me in the right direction
- Specialist · Columbus, OH · Member since 2019 · 110 posts · 102 votes4y
@Marc RiceQuestion about the project manager fee - If it's, let's say, 10% of the project cost, and the project manager is in charge of choosing contractors/materials/etc, how might you incentivize them to keep costs down? Or what types of checks and balances might be in place to maintain your financials?
- Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes4y
Originally posted by @Mike Hasson:
@Marc RiceQuestion about the project manager fee - If it's, let's say, 10% of the project cost, and the project manager is in charge of choosing contractors/materials/etc, how might you incentivize them to keep costs down? Or what types of checks and balances might be in place to maintain your financials?
Great question! From be on all sides of the deal - owner/management/underwriting etc. that is a fair question.
In order to make a renovation work for financing/underwriting of of course investor returns the decisions are made pre- purchase. I panic when a building is bought without a budget, plan and even materials picked with shopping dates/storage etc. If you fail to plan you plan to fail.This should always be determined in advance. My goal is to have materials delivered and contractors ready the day of closing/like a 50m race :-) (like running). If you do this with the goal of hitting financial targets and build in cost in advance - with reserves it works extremely well and actually lowers the time and cost of a value add.
We normally have a separate contract with target dates, goals, # of units completed etc. This is why the comp is so important, without that incentive….there is more reason to delay and take the eye of the ball. I see this happen a lot in projects fir this reason.
In our case we have a separate entity that can do interiors, siding and even new flat or pitched roofs.
If your company is in a true partnership and not just collecting fees it can be a highly successful venture. Many owners want this without realizing the importance of planning, paying and working closely with the team they hired to manage. - 4yJonathan SmallPro MemberInvestor · Suwanee, GA · Member since 2020 · 182 posts · 151 votes
I currently have about 21 units. I have plenty of experience, tears, laughs, and pain points managing contractors. It is very time consuming and can be frustrating. I have found to expect a contractor to go bad sooner or later. Even the best contractors seem to flake out over time.
With that being said, I manage the project with money. I will consider paying a draw for 25-50%. Then I'm not interested in no more draws until the job is 100% done. Many contractors are willing to leave 20% job undone if they already received 80% payment. I also would put in time bonuses. If they finish on time or early I pay more. If it goes over time I pay a different fee. I understand weather and lead time are out of their control so I'm will to make concessions in those areas.
I am expecting a GC to have similar problems with subs. When you are hiring a GC you are hiring people manager, problem solver, and people motivator. If they can manage people well then you have a winner. If they can't they you get a bunch of excuses.I have bought about 20 sfh this year. I have found success using a property manager to manage the contractors. Contractors that work for property management companies seem to do a better job since they dont have to look for much work. If they do a god job then property manager continues to use them. If they dont, they are cut off from a lot of business.
I also like the there is an incentive on the property manager to get the work done quickly and well. This will allow them to collect rent sooner than later. this will also allow them less headaches with tenants when work is done well.
PM me or reach out and I can share some tips on getting renovations done quickly, under budget, and quality work.
- Property Manager · Atlanta, GA · Member since 2021 · 15 posts · 24 votes4y
Mike, I apologize, I am slow to respond, I was out of my office this past week. I agree with everything Michael said and have one addition. Once a budget is in place and agreed upon, I have negotiated with clients to bonus back a small percentage of the savings when the project is completed. All other contractual obligations must be met to receive the bonus. This has worked well for me when I have been on both sides of the deal.
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