Using Property Manager for Rehab

Rehabbing & House Flipping
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Using Property Manager for Rehab

Michael Wyatt
Lender · Boston, MA · Member since 2021 · 125 posts · 64 votes

I am looking into the possibility of having a property management company who I am using to source deals and manage them once rent ready.  Curious if it's the standard for a PM to take the entire lump sum of the rehab up front and distribute to their guys as work is completed?  Rather than I fund it on a draw schedule.  Seems to eliminate the need for a rehab loan.  The problem is it becomes a huge up front cost to close and have to fund the rehab right away.  

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  • Kevin IveyPro Member
    Flipper/Rehabber · Marysville, WA · Member since 2020 · 216 posts · 126 votes
    5mo

    We are rehabbing half a duplex as we turn it over with the PM company. 20k project half down half at completion.  Last turn of different unit 7k same half and half

    I would be very uneasy paying 100% up front.

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  • Jeff Roth
    Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 461 posts · 250 votes
    5mo

    Hi Michael from Boston, MA-

    Great question! You asked about using your property manager to do the rehab work and manage once rent ready. You asked if they should be paid in draws or in a lump sum.

    You always want to put out as little money as possible out each time and mostly when work is completed. This insures work is done to your standards and to code.

    Two additional thoughts: one, consider hiring a property inspector to review the work before you pay each time and confirm permits have been pulled and cleared before paying and, two, think about getting a surety bond between you and the property manager should the work go uncompleted or not to satisfaction. 

    To Your Success!

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5mo

    If the PMC is a trusted one to handle this on top of all the other properties they manage, yes that works. Depending on the ability of the PM, this could work out great or maybe a nightmare. You really need to check what their capabilities are and check references. Also, do not send them the lump sum, you need to spread it out like you would a contractor. One thing goes wrong or you have an issue with the PM doing the management due to delays, or anything else you are left with no money and taking the PMC to court to get it back. One draw for one phase done, and so on. 

    The McKernan Group4.954 Reviews
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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    5mo

    I would NOT pay anyone the full amount of a rehab upfront, EVER! We will only pay 25%, at the MAX. You are asking for trouble. We are a PMC and require $0 upfront. As bills come in, we ask the owners to fund the account. We are probably the exception to the rule.

    [email protected]239-339-3969
    Bartomeo Property Management4.7150 Reviews
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  • Bo SmithPro Member
    Hinton, WV · Member since 2026 · 1k+ posts · 373 votes
    5mo

    I'd be careful with that model. Most PMs taking the full rehab amount upfront will hold onto it longer than they should and you lose control of the pace. You pay draws, they manage the vendor relationships and timing, and you stay in the loop. That's the standard for a reason.

    The upfront cost at closing is a real pain point, but financing rehab through a construction loan or a blanket line of credit on your portfolio solves that. You borrow the construction costs, close on the property, then pay the loan back when you refi. You're not putting it all from your pocket.

    The PM handling both sourcing and management can work if they're incentivized on both pieces and you've got a solid relationship. But I'd make sure the rehab plan is locked in before closing -- scope, timeline, budget. Then you can require draws tied to completion milestones. That way they can't pad the timeline and hold your money.

    How much are you putting into the rehab on each deal, and how many properties are you planning to rehab this year?

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  • Bo SmithPro Member
    Hinton, WV · Member since 2026 · 1k+ posts · 373 votes
    5mo

    This is a risky structure, and here's why: you lose control of cash flow during the rehab phase when cost overruns are most likely. The PM taking the full lump sum upfront means they have all your money and all the incentive to move slow (more billable hours) rather than fast (hitting timeline). You also don't know their contractor relationships, their pricing, or whether they're padding budgets.

    The standard draw schedule exists for a reason -- it protects you. You hold the money, approve the work, and pay as milestones complete. That accountability matters. PMs who source and manage their own rehabs often have kickbacks or preferred contractors they over-rely on. Not saying it's always the case, but the incentive structure is backwards.

    If you go this route, you need a crystal-clear scope of work in writing, a fixed price (not a range), milestone photos before payment, and ideally a penalty clause if they run over timeline. And honestly? I'd still get my own contractor to validate their bid before I hand over the money. It costs a few hundred bucks upfront but could save you thousands in overages.

    Is the PM pricing their bid higher than what you'd pay managing the rehab yourself with a contractor?

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