PM is own repair team & General Contractor, pros/cons
Rental Property Investor · USA · Member since 2019 · 5 posts · 0 votes
PM is own repair team & General Contractor, pros/cons
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Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
6yOriginally posted by @Josh C.:
Agree with @James Wise
Not way to get decent quality at a fair price unless it’s in house. With how busy the construction industry is right now everyone wants retail prices weather doing a nice 400k suburban home or a 40k rental. Only way to keep down costs. Plus when you get the 12 month warranty from your PM company you know they will actually fix the problem instead of some 3rd party contractor you don’t know and isn’t incentivized to come back and fix the issue. But yes you have to trust them and vet them.
Funny thing about real estate sales and management is how much the investors cry about repair costs. They cry about repair costs more than any other aspect of the business. If you follow these forums you see thread after thread where investors are crying about this repair cost or that repair cost and accusing their PMs of taking advantage of them by over charging for this repair or that repair. Reason I think it's funny is anyone with actual experience on the sales and management side of the business knows that the repairs / maintenance side of the company is the most difficult aspect of the company to run and it comes with the lowest profit margins.
Keeping this part in house isn't done by the management company as the primary revenue generator. It's done as it's the only feasible way to keep the rest of the operation moving smoothly. Believe me folks if your management company could simply outsource all of it while snagging a small fee for coordinating it they would. However everyone who can swing a hammer is calling themselves a contractor and that just isn't the case so it takes a lot of work and over site to ensure these jobs get done right 100% of the time.
12 Replies
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes6y
Originally posted by @Ben Simpson:
The PM company I use in Indianapolis employs a team of repairmen and handymen, and also will act as General Contractor when specialists are needed.
I'd love to hear back: is this common?, and what investors think about the pros and cons.
My experience with this specific team so far:
- pro: speed. the jobs are estimated and completed quickly
- pro: cost. the PM says the costs are very competitive.
- con: trust, all of the above pros are just what the PM company claims, I have very little checks in place. Things are not exorbitant when I look at the bills, but there is no third-party involved.
- con: bids, there are no bids, just a quote from the PM
- con: examination, the Property Manager wants me talking to him, so I don't speak with the repairmen to validate information
A PM really needs to take everything under their umbrella to assure quality of work. Most investors who are green have no understanding as to how the construction industry works with these low value rental properties. It's very hard to ensure random contractors bidding against on another are doing the job to the appropriate standards. Most everyone comes around to this realization after they have been in the industry awhile.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
Is it common? No, but it's becoming more common.
The more the PM controls, the more you need to screen them before hiring and the more you need to monitor them. If they are honest and a good business person, they'll be a great benefit to you. If they are lazy, inept, or corrupt, then it gives them more opportunities to make your life suck.
The DIY Landlord Book4.7248 Reviews - Los Angeles, CA · Member since 2019 · 148 posts · 127 votes6y
@Ben Simpson I don't think this is a common model. However, my Indy contractor is also my PM (or you could say my Indy PM is also my contractor) and I consider him a partner. I have no doubt I could work twice as hard and find a better price on this or that but also know that the pains and potential problems that would come with vetting and working with a collection of new vendors that may or may not be reliable or do good work are not worth it to me. If there is mutual trust between you and you PM to the point that you consider each other partners, I would stick with it. If you are feeling that you are being taken advantage of, by all means, start shopping around. Best of luck to you!
- 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
As long as the pricing is fair and they do good work, I wouldn't care who does it. A lot of PM have specific companies that they deal with which is essentially their own team of repair people, they just don't work exclusively for the PM.
- 6yJosh C.Pro MemberProperty Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
Agree with @James Wise
Not way to get decent quality at a fair price unless it’s in house. With how busy the construction industry is right now everyone wants retail prices weather doing a nice 400k suburban home or a 40k rental. Only way to keep down costs. Plus when you get the 12 month warranty from your PM company you know they will actually fix the problem instead of some 3rd party contractor you don’t know and isn’t incentivized to come back and fix the issue. But yes you have to trust them and vet them.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes6y
Originally posted by @Josh C.:
Agree with @James Wise
Not way to get decent quality at a fair price unless it’s in house. With how busy the construction industry is right now everyone wants retail prices weather doing a nice 400k suburban home or a 40k rental. Only way to keep down costs. Plus when you get the 12 month warranty from your PM company you know they will actually fix the problem instead of some 3rd party contractor you don’t know and isn’t incentivized to come back and fix the issue. But yes you have to trust them and vet them.
Funny thing about real estate sales and management is how much the investors cry about repair costs. They cry about repair costs more than any other aspect of the business. If you follow these forums you see thread after thread where investors are crying about this repair cost or that repair cost and accusing their PMs of taking advantage of them by over charging for this repair or that repair. Reason I think it's funny is anyone with actual experience on the sales and management side of the business knows that the repairs / maintenance side of the company is the most difficult aspect of the company to run and it comes with the lowest profit margins.
Keeping this part in house isn't done by the management company as the primary revenue generator. It's done as it's the only feasible way to keep the rest of the operation moving smoothly. Believe me folks if your management company could simply outsource all of it while snagging a small fee for coordinating it they would. However everyone who can swing a hammer is calling themselves a contractor and that just isn't the case so it takes a lot of work and over site to ensure these jobs get done right 100% of the time.
- Rental Property Investor · USA · Member since 2019 · 5 posts · 0 votes6y
Thanks all, good perspectives. I like the PM, and to shore up the trust I'll probably setup independent checks on the properties and work done. Send a local friend out to inspect twice a year and interview the residents if the work listed was performed.
Assuming it goes fine, I think that basic checking will add trust and keep the PM relationship positive.
The PM doesn't want me to contact the residents directly, feeling that it would confuse their lines of communication, but I think that I can handle this by arranging my buddy's visits through the PM, and having them present themselves to the residents as third-party inspectors instead of my personal associates.
- Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes6y
@Ben Simpson, regardless who the contractor works for or pricing they get pales in comparison to the contract. Protect yourself with a solid contract and the rest doesn't matter as much.
- Liquidated Damages: Avoid any contractor who won't include LD's in their contract. This is the 'line in the sand' for a completion date before they start to pay you for the delays.
- 3rd Party Inspector: If you're out-of-town, hire a local independent inspector! Pay the few hundred dollars to have them provide you with bi-weekly reports, confirm the contractors schedule.
- Visit Yourself!: Nothing holds a contractor more accountable than visiting the site personally. It's worth at least 2-3 trips out to make sure everything is on-track for schedule and quality. 1 planned and 1 surprised.
- Retention: Hold back 10% from all billings, this is used to motivate them to complete the final punch list.
- Schedule of Values: To avoid paying ahead of schedule, have them provide a schedule of values. They will bill against this each month and it's how you can judge whether they're paying ahead of schedule.
- Set Scope: Make sure you spend the time upfront to set a really good scope. The more you change scope, the more you get billed. Installing a single outlet preconstruction costs $35, during construction that's a $75 out. Why? Because they've got you by the... Spend the time to set scope in a lot of details so there are no exceptions for them to 'miss' during budgets. Put these drawings/specs as an addendum in your contract and reference them. Beware: poor drawings/specs can also go against you if there are a lot of gaps.
I have no issues hiring a PM with a contractor and understand how the game works. That doesn't mean you shouldn't educate and protect yourself. Real estate is about risk mitigation; mitigate your risk by burdening the contractor to hold them accountable financially for what they sold you on.
- Rental Property Investor · USA · Member since 2019 · 5 posts · 0 votes6y
Hi all, updating you on the actions and results!
Short version: I gave a local friend some cash to interview residents and take a few pictures. We found some issues with prior repairs, and the PM explained why the occurred and took care of them. I plan to do this twice a year.
Longer version:
- My local friend was presented as an "independent inspector" to residents, based on my PM's advice, in order to prevent residents from feeling that they could bypass the PM and talk directly to me through my friend.
- The PMs gave notification to the residents of the visit. Maybe next time I'll do a surprise visit but for now this works just fine for me, I don't see any outweighing advantages to the surprise visit.
- I gave my friend a list of about 4 things to check per property (photo or ask resident about history), 4 properties. Small list, got the most important stuff. I'm going to do it with more.
- The PM's crew never takes videos like I request, only 90% of the time takes pictures. My friend tried to take videos and let me know that the files were too big to text, so she did pictures instead. Good feedback I hadn't heard before, I'll have to think about how to solve.
- Most of the findings were good, but I did find a few bad things:
- A kitchen drawer was repaired as reported, but it's a very ugly job and not very effective.
- A shed had 2 plywood panels replaced, but they were not painted. Not okay, paint was in the quote, the PM is having it painted.
- A door installed by the PM is not secure, the PM agreed to fix this as a warranty issue. The resident had already reported the issue. If I hadn't called it out as a warranty issue I believe I would have paid a second time for this repair.
- When I phrased the visit as "third party inspection" instead of "I want my friend to come check on things", all the pieces fell into place more easily. Using the right language really helped.
In summary, I'm feeling like the PM knows I'm not lazy and that mistakes might be caught and called out. This strengthens our relationship, so I'm happy with the current status.
Thanks all for your feedback.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes6y
So the PM will do the work in house and is also a GC . Well those guys are not sitting around , they have to be paid . They wont get competing estimates since they are also contractors
- 6yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
Sounds like you have a property maintenance company, not a property management company.
- 6ySteve RozenbergPro MemberSpecialist · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
I think it is important in any business relationship that you set the expectations with the company that you are doing business with and understanding and establishing what you can expect of them and what their fees are before you go into any business with them. Sometimes slowing down to get it done right with the right partner is actually speeding up
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