Delegating rehab to local property management company--good idea?

Question

Hello all,

So I'm about to rehab a duplex that I recently bought and am considering my options. I'm an out-of-state investor and so managing the rehab and contractors myself would be a little tricky.

Instead, I'm thinking about delegating the rehab to my property management company (ERA Real Property solutions). They already have an entire process worked out which involves getting pictures, scope of work, and multiple bids from different contractors and picking the one that looks cheapest/best.

I was recommended to them by several other investors. And so far I'm pretty content with their property management services. And I figure with all their experience and network of contractors they could be a good option for the rehab. Though on the other hand, they use a 10% markup system so I can't help but wonder how much they'll actually be motivated to do a cost-effective rehab.

Does anyone here have any experience with ERA realty and their rehab work? And if so, would you recommend for/against them?

And does anyone recommend for/against having a PM company handle your rehab in general?

Thanks in advance!

Jacob

Mitch Deminski · Answer

As a PM here in Columbus for 20 years let me share what PM's struggle with when it comes to rehabs.  Each property has a different grade and each investor has a different expectation.  Many investors go cheap so some PM's automatically default to "just get it rent ready".   I'm not saying ERA is doing this but the finished product should be what the individual investor requests and approves.

I'm am also a fellow investor for 23 years and I try to make MY houses the best one on the street.  I attract more tenants, better tenants, higher rents and they stay longer. We approach our owners with the strategy of maximizing rents by suggesting the LVT or backsplash but the discussion does and should go back to the budget.  What will make the biggest impact while doing the job correctly as Zac McKenzie stated ( Zac I haven't seen you for awhile and I know you owe me a beer!).The average occupancy in Columbus Ohio is 16 months and our company, Solutions for Real Estate, average is over 3 years so I know it works.  We as investors lose our butts with vacancies so why not do some things that make them want to stay!?  I understand and respect that not all owners want to spend the money to make theirs the best on the street. If you have green shag carpet, your going to get green shag people.  If you cut too many corners, your going to attract the tenants that think that's acceptable and I'm here to tell you, that's not a long term tenant. At the end of day you, the investor, must drive the scope of the work to be done.  I don't like spending money on a my properties and as a PM, we don't like spending investors money.   It's short-term thinking if we try to do a cash grab on every turn.  We as PM's educate what we have proven more often than not.

Donnie at ERA is a good guy and I've known him for years.  This is your investment, your property, so drive the process of getting what you want in these rehabs.  Thanks

Allen Tracy · Answer

Same as what @Cuong D Nguyen said.  I just finished a rehab with ERA a few weeks ago and I was very happy with it but you have to chase them a bit for updates.  They don't give you a timeline unless you ask and I had no idea the rehab was even done until I saw a flyer advertising the unit for rent.  They charge 10% on top of the bid but from all of the other investors I've talked to ERA is really good at getting low bids.  Their scope of work will always be bare minimum though.  They do just enough rehab to get the rent they think they can get but you can spend a few hundred dollars more here and there to make the place nicer which usually (not always) makes the tenant treat the property better.  Also if you plan on refinancing or selling you'll have to suggest getting quotes on additional work.

The wood floors weren't in good shape and the tiles in the kitchen and bathroom were terrible but they didn't have anything for those in their scope.  I ended up adding LVP to the entire place which almost doubled the bid but I plan on refinancing so it was worth it.  The bathtub didn't look good and the shower surround was old and yellow, they were just going to clean them.  The basement floors looked terrible, and the kitchen cabinets looked really old.  I ask them to reglaze the tub, replace the shower surround, paint the basement floor, and paint the kitchen cabinets.   Lots of little things like that.

Either way they get good work done, they get it done decently fast if it's just all cosmetic, and I feel that it's totally worth it as an out of state investor.

Cuong D Nguyen · Answer

Hi Jacob,

I'm using ERA Realty as my property management as well and they just finish rehabbing one of my property and I'm quite please with the result. I know that they charge a 10% up fee but their bids are usually lower than the quotes you get from other contractors. The quality of the work won't be too notch but it's acceptable for rental grade. The last thing is make sure you give them a detailed scope of work because they will ONLY do what do you tell them. I hope this help you out, hope to connect with a fellow Columbus investor.

Zac Mckenzie · Answer

Hi Jacob,

While I do not have experience with ERA and cannot speak to their abilities as constriction project managers. I do have experience renovating duplexes in Columbus for clients and for our own holding group. At this point it seams that most of the duplex's are at least 100 years old and are in need of a major rebuilds of all the systems or have already received system updates that in a lot of cases are very suspect. Depending on your long term plan with the property you may want to investigate further into what this property not only needs right now but what it might need in the years to come. My grandpa always said "You never have the time or money to fix it right once but you will always find the time and money to fix it right twice" and its always cheaper to do it right the first time. Be cautious of the cheapest bids as they usually result in the cheapest work. Columbus can be strict with permitting and inspections so make sure you have someone competent managing that relationship as well, if you step out of line they can put the breaks on a project quick. Make sure you use the city building and zoning department as a check and balance with your contractors. After all they are there to verify life safety of future residents first and foremost and that should be aligned with your goals as well. All that said you'r making a smart move by investing in Columbus it's a great place to live and own properties just make sure that the decisions your making now are aligned with your long term goals.

Marc Rice · Answer

@Jacob Diaz

ERA has affordable contractors that most people really like, and for the small 10% fee it’s worth it. I’d try to get a boot on the ground who can keep track of the timeline and verify scope of work.

Nathan Fisher · Answer

I do the same thing as ERA. Property managers build relationships with contractors over years. We'll get better pricing, and we know our contractors will actually get the job done.

Ian Walsh · Answer

If the management company has a strong track record, good process and seem quite competent then it would make sense to me to proceed with them.  I personally have done that and it worked out fine.

Dave Poeppelmeier · Answer

You are paying for the convenience. Yes, any PM is going to have their mark-up, but they need their cut because they are dedicating their manpower/hours to bidding, communication with you, supervision, etc. But if you are out of town and don't plan on interviewing tradespeople, coming in town occasionally, pricing materials, etc, you should let your PM run the rehab. But if the increased rent and overall improvements to the property make sense on paper then go for it. It sounds like this is a solid PM for rental-grade work from everyone else in this thread. I agree, get EVERYTHING in the Scope of Work, and specify what finish you want regarding paint, floors, etc. If it doesn't work out well, then lesson learned and try someone else next time. Best of luck!

Drew Sygit · Answer

Who is more likely to screw you?

1) Your PMC that wants your continued business?

2) A contractor you found on your own that will be "one and done" on your property?

Mitch Deminski · Answer

To drive the point home, we track owner turns and I've only seen one owner do a good job.  He was local and an investor who's been doing it 25 years.  Here's what we see.

1.  Our Average turn is 18 days.  Our current days for owners is 74!  I 've seen it as high as 200 days.   If you think your saving money, you not.  That's 2 extra months of no rent, utilities your paying, and possible vandalism.

2.  How do you know everything is being addressed.  Oh yea send out the property management company to check on your guy.  We charge for that.  It's funny when an owner then asks us to meet the contractor to fix everything.  As a PM, we are reeeeal motivated to do that!

3.  The final work is subpar.  I would say 95% of these we end up finishing the project.

What people don't tell you is speed aligns your budget.  From the time it goes empty until the tenant moves in needs to be managed like your hair is on fire!

Hope this helps!

Delegating rehab to local property management company--good idea?

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