Is it worth hiring a Project Manager for a fix and flip?

Buying & Selling Real Estate
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Is it worth hiring a Project Manager for a fix and flip?

Janetta C.
Member since 2020 · 31 posts · 3 votes

Hey Guys!

I'm ready to enter the world of investing and met with a contractor today who offered to be the project manager for my first fix and flip. His fees include an initial 10K project manager fee then 10% fee after selling of the flip. As the project manager he would secure all permits and inspections, hire the crew for rehab and manage them, stage the home for listing, and can guarantee completion within 4 months (120 days or less). If he does not finish before to the agreed upon date he would pay $1,000 a week for every week the project was extended. I thought this was a bit expensive but considering my background is in healthcare and I'm new to investing I thought this arrangement could be a good deal. We discussed using a hard money lender for financing and thus the 120 days for completion timeline. I'll be investing in the Richmond, Virginia market. Any thoughts on this arrangement would be greatly appreciated.

Thanks!

Moe

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Taylor L.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y

Have you talked with Pete DeWorken (the Fixer Upper Coach)? He might be able to help you out here, at least to give a second opinion on rehab numbers. While you're at it I would also get a thorough debriefing from your friend on how their project went and things they would do differently.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y

    Can he provide references? Do you have a good understanding of the Richmond market/do you live here? How did you arrive at your rehab cost estimate?

    1Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Taylor L. Yes, he can provide references, I’ve seen some of his work, and a close friend has worked with him on several projects. I live in Richmond so I’m familiar with the areas we discussed. The rehab cost would be determined based on the type of property purchased. However Since construction is so foreign to me I would need to receive price quotes from other contractors for comparison to assess pricing.

    0Reply
  • Sean Howell
    Member since 2018 · 52 posts · 40 votes
    6y

    10k + 10%? Man that seems pretty steep. The real question is do you have the time to manage it yourself? And if you do, would that be a good use of your time? 

    For me personally it was good for me to manage projects myself as I was able to both save money and learn a whole lot. I also had some extra time so it was worth it. For someone who has a job where they may not have the time during the day to check on the work being done, hiring a project manager may be necessary. Have you shopped around to see what the going rate in your area for this sort of service would be?

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Sean Howell I don’t have the free time to do it myself because I work a FT job. I’m definitely the type of person that likes to be hands on and learn but with working I’m not able to be available during the day so having someone manage the project sounds nice but I agree the pricing seems a bit much.

    He was the first person I spoke too but plan to get at least two other quotes before deciding what to do.

    0Reply
  • Sean Howell
    Member since 2018 · 52 posts · 40 votes
    6y

    Yeah I'd definitely shop around and see what else is out there

    1Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y

    Have you talked with Pete DeWorken (the Fixer Upper Coach)? He might be able to help you out here, at least to give a second opinion on rehab numbers. While you're at it I would also get a thorough debriefing from your friend on how their project went and things they would do differently.

    4Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Taylor L. I have not hit will reach out, thank you! And great advice I will talk with my friend to get more details on his experience.

    0Reply
  • Tom Hacku
    Richmond, VA · Member since 2017 · 82 posts · 55 votes
    6y

    @Janetta C. I talked to Pete DeWorken recently and he seems super knowledgable and a great person to have in your back pocket for rehab cost estimates and scope of work. While he said he does not provide a contractor, once you get an accurate and fair estimate you can use those numbers as you are searching for one. Definitely reach out to him (fixeruppercoach.com) and obviously there is a fee for service, but I can imagine way less than 10k and 10%

    1Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    10% of what?  Gross sale price?  Profit?   

    1Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Tom Hacku Thank You! I’m going to check him out. I definitely want to do my research and assess pricing especially being new and the first flip.

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Darius Ogloza I wasn’t completely sure about that so asked for an email to outline fees and what’s included. It sounded like it would be 10% of the final sale price which I thought was a bit much, but maybe I misunderstood.

    0Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y
    Originally posted by @Janetta C.:

    @Darius Ogloza I wasn’t completely sure about that so asked for an email to outline fees and what’s included. It sounded like it would be 10% of the final sale price which I thought was a bit much, but maybe I misunderstood.

    Man no way would I hire this guy then. If he wants a cut of the gross he needs to have actual skin in the game. 10% of the gross after you account for all costs (including transaction and holding costs) will be a huge, huge portion of your profit. Get involved with the Richmond REIA and other networking groups, ask for referrals, and you'll get some.

    As a busy pro also be aware that there are other options for you in the real estate space.

    1Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Taylor L. I thought that sounded a bit excessive and the primary reason I posted the question on BP.

    I will look into joining some groups to network. Do you have any particular suggestions for other ways to get involved with real estate besides wholesaling and being an agent? I’m open to exploring all options.

    0Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y
    Originally posted by @Janetta C.:

    @Taylor L. I thought that sounded a bit excessive and the primary reason I posted the question on BP.

    I will look into joining some groups to network. Do you have any particular suggestions for other ways to get involved with real estate besides wholesaling and being an agent? I’m open to exploring all options.

    It all depends on your goals. What are your goals? Not your goals in real estate, but what results do you want to produce in your life? That's what should really drive the decision. Then, what assets do you have available to you? Not just money, but time and network as well.

    My opinion is the best options for busy pros are syndication, turnkeys, lending, notes, and triple net properties. There are absolutely busy pros who have success with flips and so forth, but there are many who end up breaking even and/or earn very low return on time. Plus it's not a passive investment, which is what most busy pros want anyway.

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Taylor L. Thank you for this insight! I’m going to further assess my long term and short term goals and available options.

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    I spoke with the contractor again and he clarified he charges 10k up front then 10% on the end on the net not gross, so I had the information mixed up.

    0Reply
  • Sean Howell
    Member since 2018 · 52 posts · 40 votes
    6y

    I'm guessing this isn't including any materials correct? I guess at this point it just depends how much work he's doing for the 10k +10%. Obviously if he's adding a whole extra wing to the house this may be a good price. But if he's doing the standard kitchen, paint, floors, bathrooms you may be able to do a little better..who knows? I'd still shop around.

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Sean Howell Correct no materials just managing the rehab and contractors. I’m definitely going to continue to shop around and talk with people so I can compare and decide if working with him is even worth it.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y



    @Moe Williams

    Here's what I would recommend: 1st, find out the cost of hiring a GC in your market.  Say, for example, $60/hour + 10% mark-up on labor and materials.    

    2nd, calculate the total project cost for which the GC would be responsible.  Say, for example, $35,000.  

    3rd, figure what percentage of his time the PM is going to spend on your project (as opposed to other projects)  Say, for example, 25% of his total work time or 40 hrs/month.  

    Then , fill in the blanks.  At 4 months, you would pay out $9,600 for the PM's time and another $3,500 on the labor and materials for a total of $13,100.      

    Use these calculations - tailored to your market - as a benchmark

    0Reply
  • Zachary Ray
    Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
    6y

    If you believe this will truly be a great deal and the margins still look great even after he is paid out then maybe it could work. Who knows a 50-50 partner could be more costly since you are handling a lot of the other issues. 

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Darius Ogloza Thank you for this advice!

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    @Zachary Ray True, I’m not sure if it will be worth it but I plan to look around and get other quotes then make the final decision when I’m ready to purchase.

    1Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    This is what I do in my market (central Indiana)......with my out of state partners...

    0Reply
  • Janetta C.
    OP
    Member since 2020 · 31 posts · 3 votes
    6y

    Hi @Kerry Noble Jr Are you working as the project manager/GC finding subcontractors to make sure the project is completed? I’m curious to know the details of what you do.

    0Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    @Janetta C.....depends on how big the project is.....if its huge, ill just find a GC and manage him.....if its a quick flip.....yes ill manage the subs......

    1Reply
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