What is fair compensation for a project manager.

Question

What would you guys consider fair for an "employee" who handles all the hiring/inspections on a rehab, never uses a brush or lifts a hammer.    Lets assume this guy handles 4-5 at a time and takes longer than an owner would to complete the flip but a reasonable amount of time for an employee to do it.      He isn't a GC or has any special training.    He just was at the right place at the right time.

Lets say out of the 5 flips,

2 of them are light rehabs (minor repairs of a day or two and lets say carpet) 3500ish , 2 of them are 3-4 days of repairs with carpet/paint, 5-7k.

The last being an involved flip costing 25k or so taking over a month.

Currently we pay based on gross net, debating if it should be based on something else.

Chad Clanton · Answer

Hi @Dan Clark, with the caveat that I am not an attorney and this is not legal advice, I feel like there may be a conflict of interest floating around in there somewhere. Remember, comping is pretty much all about keeping up with or beating the Joneses, and if your realtor just happens to make 15% of the $5/ft tile you chose for the kitchen based on his comp-related suggestions instead of that $2.50/ft tile you thought looked better, that works out pretty well on his end, but is he representing you as an agent at that point, or your PM, and can he properly represent you as both?

For example, I own both Golden Canopy Inspections and Golden Canopy Construction & Remodeling. One is a home inspection company I run as a licensed and insured home inspector, the other is a construction and project management company with its own appropriate licensing and insurance. In the early phase of discussion with any new client who, say, wants a roof inspection or any other inspection likely to incur work, I tell them in clear and certain terms that I do both inspections and construction, but I will not work on any property I've inspected, or inspect any property on which we've worked. Furthermore, if I'm doing the aforementioned roof inspection for which I've been contracted as a licensed inspector, even if 10 minutes in they decide to put on a new roof, my construction company will not do that roof. While it would be easy and profitable to do so, it would be ethically and legally wrong. Instead, I accept my (significantly lower) inspection fee, provide my written report, and thank them for their business.

To summarize my thoughts on your question, think about how each role, not person, represents you, and can they do that without the potential for one role to shortchange the other. I can't and won't inspect your house, give you a 30 page report of things that are wrong, and then offer to do all the work to fix it. Those are my thoughts on it, anyhow; I hope they help. Perhaps a realtor can pitch in from his or her perspective. Either way, good luck and happy investing!

Leigh C · Answer

I ended up doing a 5% for the PM.    Last year he made 72k where the average retail store manager in the area makes 36k a year.     He managed at our peak inventory 12 properties at once (somewhat poorly but he recovered quickly).      He never had more than 2 in depth flips at one time.

As for hiring a realtor to do it.    I strongly urge you to have more checks and balances.   I also don't believe legally they can actually take the job, and if the broker found out there could be other issues.    Way outside the scope of a realtor/broker license.

Steven Mitchell · Answer

@Leigh C yes now rereading my post i can see what you mean.  I meant the same as you....we are teaching our PM's the industry.  I also agree with how you are paying yours, by comparing his job to something comparable in the area and then settling on a percentage.

Leigh C · Answer

@Steven Mitchell      We are teaching our PMs more so than they are teaching us.    Least in my situation.

@Nathan Bendler   Entire state, and we have dealt with properties in 3 dozen other states too.    S florida is our weakest market which is why I recently moved down to the keys.     Now that I'm here i realized the margins people are willing to work down here are extremely tight.   My best guess, they simply are bored and want to keep their money doing something.

Steven Mitchell · Answer

we came up with our PM fee by taking our number of flips per year.  taking the profit. taking what we thought was a fair salary, and turning it into a percentage of profits.  For example if we made 100$ in year 1 and the PM could handle that volume working 40 hours a week and 10$ was fair compensation, we turned it into 10%.  That way the PM's interests are aligned with your own, and thats making as many dollars on the rehabs quickly.

Also it may be rough comparing your percentage to other PM's because the profit equation may be different.  For example, we take out hard money costs whereas another flipper here in town does not soooooo, the profit is a much different number.

I give her phat bonuses because she's amazing and really makes the machine run.

Also, think of your PM job as you learning the rehabbing process inside and outside so you can eventually do them yourself without being employed.  Its an extremely expensive education you are getting.

Nathan Bendler · Answer

surely you dont do that many in the keys, how far north do you go ?

Leigh C · Answer

@Nathan Bendler

I wish you lived in florida

Nathan Bendler · Answer

Leigh C,

I am way behind now, but i will still respond. I see this as ongoing knowledge anyway. If I didnt have to handle the assesment of the property and come up with a fix budget, if i didnt have to find properties. If all i had to do was handle the remodel, no physical work, and the kind of volume you are talking, i would do it for 5% easy, and twice on sunday.

Dan Clark · Answer

I am interested in a rehab in the San Antonio, TX market. The project manager is ALSO my RE agent. The home is a small, old (1940) 1,000 sf sfh. This home needs approximately $25,000 in rehab. From what I have read by previous posters on this thread I think a 15% take on profit to be a fair payment for project management. Is this correct?

This RE agent also wants to be my seller and expects the typical 6% commission. IF it is true that 15% of profits is a FAIR payment for a PM, then is it also fair for this RE agent to receive a 6% commission?  Or is this too sweet of a deal for them?

Paul Timmins · Answer

@Leigh C

Consider 3 pays, one base one if he comes in on time and one if he comes in on budget.

Paul

What is fair compensation for a project manager.

Most Popular Reply