What would you guys consider fair for an "employee" who handles all the hiring/inspections on a rehab, never uses a brush or lifts a hammer. Lets assume this guy handles 4-5 at a time and takes longer than an owner would to complete the flip but a reasonable amount of time for an employee to do it. He isn't a GC or has any special training. He just was at the right place at the right time.
Lets say out of the 5 flips,
2 of them are light rehabs (minor repairs of a day or two and lets say carpet) 3500ish , 2 of them are 3-4 days of repairs with carpet/paint, 5-7k.
The last being an involved flip costing 25k or so taking over a month.
Currently we pay based on gross net, debating if it should be based on something else.
If you are talking employee as you stated, then you need to pay a fair hourly wage or some sort of salary. Are you providing benefits? If this is an independent contractor managing your flips then 8%-10% is fair in most areas. Just be sure that your paperwork and contracts spell out what this person actually is or you could have tax issues down the line.
Consider 3 pays, one base one if he comes in on time and one if he comes in on budget.
Thanks for the help thus far...
So 10% of each flip equals out to about 2500 per flip on the average I'd guess. If he handles 40 flips a year we are talking 100k.
Should it matter that I can get 200 applications if i put this job on craigslist at 40k?
Just depends on what it's worth to you. If he worth 100k a year? I'm a PM by trade, and know their skillets and quality range greatly. A lot will depend just on how much you're asking him/her to do and be responsible for as well.
Some of the PMs I come across are over-paid, but generally you get what you pay for. So again, you just need to ask yourself, is this person a 100k a year PM? And if you did put this job up at 40k, would you find the type of employee you're looking for? In my line of work we wouldn't, and I personally wouldn't touch a PM gig for less than 90k, but IT tends to run higher than residential construction it seems.
Paying 2500 to have someone order carpet and a handyman for a day makes me uncomfortable. I realize the harder ones justify the wage but the easy ones don't balance the scales for my head. Then of course, if we take a beating on a hard flip and there isn't profit I can see why he would think the same.
Ultimately is a balance between what you're comfortable paying to obtain the right person for the job. It sounds like your person is more of a coordinator than an on-site PM. I'd consider a PM as more of a coordinate/GC dual role, ensuring materials arrive on time, contracts do the right work, and everything is coming out as you, the owner, wants. He's your advocate, and ultimately responsible for coming in on time and budget.
If you're trying the wage to performance (as in making a good profit on the flip) then it needs to balanced such that he makes good money when he does well, because he could make little to no money when he doesn't. There are a number of ways to structure how you pay him. Could be all commission, all base, or a combination thereof. Perhaps a livable wage base salary + performance bonuses would be the best solution.
im coming in a little late on this, but this is along the lines of a question i was going to ask. so i will continue it here. my question was going to be what might be considered the norm?
my situation right now is i do all the legwork. my realtor and i find the properties. we walk the properties and come up with a rehab price. the deal is given to the investor, and if he likes it he buys. he then deposits the rehab $ in my account, sometimes in increments if its a larger flip. the property gets sold. i get 10% of profits. only other $ i make on the deal is if i have time and do any of the physical work, then i can pay myself.
walking anywhere from 10 to 40 properties a week
arranging and making deals with suppliers and workers to keep costs down
taking responsibility for project getting done for the amount i quoted it to be
i wouldn't consider doing it for a nickel less than what i am right now, and often times that isn't enough.
So lets break this up a little bit. What is your "average" profit per flip and how many flips do you do a year (in theory).
My instincts tell me that 10% is only based on the volume/average profits you make. If you were to make, lets say double your current profits on each flip, would you be willing to make less, or still would you require 10%
What if you didn't find each deal and you only came in a week before the closing date and took the property forward from there. You seem to be providing an investor level contribution and I'm more looking at the Project manager aspect of it. In my opinion, the guy who finds the deal is worth typically the most.
I am 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) 1,000 sf 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 profit to be a fair payment for project management. Is this correct?
This RE agent also wants to be my seller and expects the typical 6% commission. 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? Or is this too sweet of a deal for them?
Hi @Dan Clark , with the caveat that I am not an attorney and this is not legal advice, I feel like there may be a conflict of interest floating around in there somewhere. Remember, comping is pretty much all about keeping up with or beating the Joneses, and if your realtor just happens to make 15% of the $5/ft tile you chose for the kitchen based on his comp-related suggestions instead of that $2.50/ft tile you thought looked better, that works out pretty well on his end, but is he representing you as an agent at that point, or your PM, and can he properly represent you as both?
For example, I own both Golden Canopy Inspections and Golden Canopy Construction & Remodeling. One is a home inspection company I run as a licensed and insured home inspector, the other is a construction and project management company with its own appropriate licensing and insurance. In the early phase of discussion with any new client who, say, wants a roof inspection or any other inspection likely to incur work, I tell them in clear and certain terms that I do both inspections and construction, but I will not work on any property I've inspected, or inspect any property on which we've worked. Furthermore, if I'm doing the aforementioned roof inspection for which I've been contracted as a licensed inspector, even if 10 minutes in they decide to put on a new roof, my construction company will not do that roof. While it would be easy and profitable to do so, it would be ethically and legally wrong. Instead, I accept my (significantly lower) inspection fee, provide my written report, and thank them for their business.
To summarize my thoughts on your question, think about how each role, not person, represents you, and can they do that without the potential for one role to shortchange the other. I can't and won't inspect your house, give you a 30 page report of things that are wrong, and then offer to do all the work to fix it. Those are my thoughts on it, anyhow; I hope they help. Perhaps a realtor can pitch in from his or her perspective. Either way, good luck and happy investing!
I ended up doing a 5% for the PM. Last year he made 72k where the average retail store manager in the area makes 36k a year. He managed at our peak inventory 12 properties at once (somewhat poorly but he recovered quickly). He never had more than 2 in depth flips at one time.
As for hiring a realtor to do it. I strongly urge you to have more checks and balances. I also don't believe legally they can actually take the job, and if the broker found out there could be other issues. Way outside the scope of a realtor/broker license.
I am way behind now, but i will still respond. I see this as ongoing knowledge anyway. If I didnt have to handle the assesment of the property and come up with a fix budget, if i didnt have to find properties. If all i had to do was handle the remodel, no physical work, and the kind of volume you are talking, i would do it for 5% easy, and twice on sunday.
I wish you lived in florida
surely you dont do that many in the keys, how far north do you go ?
we came up with our PM fee by taking our number of flips per year. taking the profit. taking what we thought was a fair salary, and turning it into a percentage of profits. For example if we made 100$ in year 1 and the PM could handle that volume working 40 hours a week and 10$ was fair compensation, we turned it into 10%. That way the PM's interests are aligned with your own, and thats making as many dollars on the rehabs quickly.
Also it may be rough comparing your percentage to other PM's because the profit equation may be different. For example, we take out hard money costs whereas another flipper here in town does not soooooo, the profit is a much different number.
I give her phat bonuses because she's amazing and really makes the machine run.
Also, think of your PM job as you learning the rehabbing process inside and outside so you can eventually do them yourself without being employed. Its an extremely expensive education you are getting.
@Steven Mitchell We are teaching our PMs more so than they are teaching us. Least in my situation.
@Nathan Bendler Entire state, and we have dealt with properties in 3 dozen other states too. S florida is our weakest market which is why I recently moved down to the keys. Now that I'm here i realized the margins people are willing to work down here are extremely tight. My best guess, they simply are bored and want to keep their money doing something.
@Leigh C yes now rereading my post i can see what you mean. I meant the same as you....we are teaching our PM's the industry. I also agree with how you are paying yours, by comparing his job to something comparable in the area and then settling on a percentage.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing