How much do you pay your project manager?

Question

Just a question on how much to pay your project manager per property?  or is it monthly base pay?  Thank you.

J Scott · Answer

To answer your second question first, the rehab payment should be completely separate from the listing commission.  Negotiate each separately, and decide if the person is the most qualified for each role.  So, would you typically pay 6% in commission on the listing side?  Would you use this agent if they weren't working for you in some other capacity?  If the answer to both questions is yes, then 6% is reasonable.  If the answer to either question is no, then you should probably rethink.

As far as whether 15% is a reasonable commission, that depends on what the anticipated profits are.  If it's a three month rehab that will net $10K in profit, the project manager will only make $1500 for three months of work.  If it's a one month rehab that will net $100K in profit, that's $15,000 for one month of work.  Neither of those seem very fair.

Figure out what a reasonable payment would be for the anticipated profit, and then structure the commission so that if the project manager meets their goals (on schedule, on budget, etc), they get a fair payment, if the project manager exceeds their goals (comes in ahead of schedule, under budget, etc) they get more than what's fair and if they fall behind on their goals (comes in behind schedule, over budget, etc), they get less than what's fair.

J Scott · Answer

I have a full-time project manager (employee) who earns a small monthly salary plus 15% commission on all investment profits...

Ryan Pyle · Answer

Wow, I'm shocked at these answers. How many rehabs do you guys do a year? I do about 12 (including a 15 unit apartment building and a 5 unit building in the last year) and don't have a project manager. I don't even know how I'd keep one busy. I barely spend any time at all on rehab...maybe an hour or so a week...mostly just showing my face at the job site. With that said, I have 2 excellent crews that have been with me for a long time. We do the exact same rehab to each house, so there are no major decisions to be made. My contractors are on all my accounts so I don't have to deal with materials. My contractors are licensed GC's. They sub out any major electrical, plumbing and HVAC work to licensed tradesmen that we always work with. They all give us "investor pricing" because of the repeat business and immediate payment.

Now with all that said I'm sure that a good PM could probably save me a few thousand per deal in rehab costs, so he'd at least pay for himself.

My only employee is a maintenance man that I pay $400/week. He does all the maintenance and repairs on my rental units (up to 62 units now). He also does the mowing and snow clearing at my flips.

J Scott · Answer

He's responsible for getting contractor bids, negotiating bids, managing day-to-day work at the sites, as well as ensuring that everything stays on-schedule and on-budget.  So, the work he does is quite fundamental to the business being successful.

I'm happy to say that this hasn't happened yet, but if it did, he would be working for free on that job.  He always has the option of a flat salary, but he likes the incentive model and is willing to take the risk.

That said, if I ever didn't make a profit on a project, I'd likely pay him anyway based on what my forecasted profit would have been.

Just don't tell him that...  :D

J Scott · Answer

I do about the same number of rehabs you do...about one per month, on average.

We use the same two crews on everything as well, but they don't include a GC and don't include some specialty trades, such as:

- Licensed Plumber
- Licensed Electrician
- Licensed HVAC
- Cabinet Supplier/Installer
- Roofer

So, we use our main crews for about 80% of the work, and then also have to schedule and manage these other specialty trades.  That's part of the reason having a PM is good for us.

Additionally, we provide all our own finishing materials, so having a PM makes the ordering of materials a good bit easier.

Lastly, I try to limit the amount of time I'm working in the RE business each week (I'm involved in some other businesses and have 2 babies at home), so having someone on-site means I can limit the time-sensitive work I would otherwise need to do.

I also hire out my PM to help other investors with their rehabs, so if we have a slow week or two (or three), I'll have him managing rehabs for other investors for a fee.  So, in essence, he's earning some money for the business as well.

J Scott · Answer

15% of the profit on the deal, not on the sale price.  So, if I make $20K profit on a deal, my PM makes $3000, regardless of whether it was a $10K rehab or a $50K rehab (it all averages out).

Also, my PM does a lot more than just project management.  For example, he's the one that drives to the property when an alarm goes off at 2am, he'll go to auctions and bid for me, he does some basic handyman work (hanging mini-blinds, replacing outlets, etc) and when we're staging a property, he gets to move the heavy furniture...  :D

Manolo D. · Answer

In another option mentioned from @J  Scotts post, and since 25k in Texas, with that figure, I say the rehab is pretty extensive. I would pay something like 3k with a 500 bonus for being on time and on budget, a 500 max penalty if it goes the other way around. I wouldn't go with % profit if it is was our first deal, and I do not know what your costs will be outside the rehab. I always separate skills like J mentioned, if s/he is not right for the job, don't hire him/her for it, pay each separate too.

Dan Clark · Answer

I'm 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) 1,000sf 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 the flip's profit would be a fair payment for a project managers services. Is this correct?

This RE agent also wants to be my seller and expects 6% commission on the sale. 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 on the sale?

Greg P. · Answer

Ryan, how did you find your crews at a reasonable price since they're licensed?  From what I found licensed contractors are 30% or more higher priced then just subing everything out.  Thanks.

Richard S. · Answer

Thanks J Scott, the small salary covers the running around and the 15% from total profit. Almost sounds like a mobile secretaries position. (no pun)What if the home has an unmistakable unforseen issue that create a flat line for the profit margin? or is ther other incentives? lease turnovers? deep equity maintenance?   Ned you saying 50k annually for PM?

How much do you pay your project manager?

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