Should I hire a project manager or trust the general contractor?

Rehabbing & House Flipping
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Should I hire a project manager or trust the general contractor?

Azita S.
Real Estate Investor · Milwaukee, WI · Member since 2014 · 39 posts · 2 votes

My local market is very expensive and out of my price range for investment, so I've been investing in other markets. I bought my first two investment properties in Phoenix AZ two years ago.  Both needed only minor work which the property manager took care of and everything went very smooth.

Last year I started looking into Milwaukee  WI market, made a visit in September, have made offers on foreclosure properties since late September and finally got a property in Shorewood under contract.  This will be my first rehab.  I've been listening to the Podcast and reading threads on BP, but still feel a bit nervous since I won't be on site to oversee the rehab and hope to find a mentor on BP or get advice on the forum to get my first rehab done.

My agent has recommended XX general contractors LLC stating that he's done a lot of high end rehabs for his clients and I googled the company and found city council minutes for licence renewal meetings both in 2012 and 2014 to find the real estate agent is listed as the agent for the XX general contractors LLC. He'd already told me he and his team do rehabs and rental management for out of state investors, but was not transparent about his involvement with XX general contractors LLC which makes me not trust him. Am I being paranoid? or would you not trust the agent and the contractor?

Should I hire a project manager ( ideally a local investor colleague) and a general contractor to do the rehab?  I can visit the site once or twice at the most.  or should I just find a general contractor (hopefully a referral from BP colleagues) and manage the project via phone and emails? 

I should say I'm very excited and anxious about this project.  Obviously it's keeping me up late.  It's 1:20 am and I have to be at work at 7:00 am!

I'm looking forward to all your advice and hopefully making  more colleague connections in Milwaukee WI metro area.   I know I'll be learning a lot in the next couple of months!

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Robert Taylor
Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
11y

A lot of great info and ideas directly related to your OP question there, regarding the project manager question, I'll focus on some important issues involved because it is in Shorewood and these are truly important issues.

I lived right over the Shorewood/City of Milwaukee border on the east side of MKE for years and know a fair amount of people who have and now live in their own homes there, a few people who've owned rentals or lived in half of a duplex and ONE person who rehabbed and flipped there and made some profit, not sure how much.

Shorewood, more than ANY other suburb in the entire metro area, is from what I've heard over 10+ years of doing this and other RE investing related stuff, TIGHT about what goes on with any property in the village and NOT a place where you want to be employing any contractor who's going to be cutting any corners or anything like that. In fact, ANY contractor doing a job in Shorewood MUST be licensed by Shorewood, besides being state licensed. 

Now, every day on cragislist, etc here you have hundreds of people, crews, etc running around who aren't even state licensed and getting work daily and from what I've heard many times, if you want to do a rehab there and roll one or more of those crews in, chances are very good the inspectors will come down on you like a ton of bricks! 

I'd say a MAJOR issue for you, or even your #1 issue prior to any work being done is to introduce yourself to the inspectors (its a relatively small village, can't be many of them) and I mean IN PERSON. I've heard multiple stories from very credible people of someone, like even a long time homeowner, getting a new roof and not getting a permit, not hiring a locally licensed contractor (its a pretty nominal fee and just requires WI license I believe) or doing something else wrong and they'll be all over them QUICK! I mention the "in person" part as well and I'm NOT saying to hide or obfuscate the fact that you're from AZ at all, but I'd see that part as raising a HUGE red flag for the handful of inspectors they likely have.

Now, I NEVER advocate anyone rehab in WI and not pull ALL needed permits in any city here, besides problems with the municipality, you're leaving yourself open to massive liability for many years after you think that house is sold and long gone of anything goes wrong, like an electrical fire in a house where unpermitted wiring was done. (and in WI, basically any electrical or plumbing work needs a permit, which can ONLY be pulled by state licensed master plumber/electrician)

This may sound crazy or draconian, but I can understand where they are coming from. Shorewood is small, ranges from middle class to high end huge mansions close to Lake Michigan and I'll bet 90+% of the housing stock is pre-1970, a lot of it going back to the 1920's or earlier. So, they've got a fancy area that's been pretty well kept, why risk it? I've also heard that as long as they're happy with what you're doing, they're just fine to work with as well, but don't be surprised if they ask for more work to be done on who knows what and or maybe require higher end supplies to be used, who knows!

So, please don't take this like I just told you that you're doomed to several months of hell here, not at all. I think it all comes down to getting off on the right foot with them and letting them know that you're NOT one of the corner cutters, or people who rehabs an entire home with zero permits and from everything I've heard they'll be fine to work with, but if its the opposite, then get ready for all sorts of issues or having the whole thing "red tagged" which means ALL work stops NOW, or the cops show up!

The good part is, that Shorewood is a "hot" area and if you turn out a high quality rehab, you'll likely have buyers ready to look on day one that it is on the market!

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    Yep, I got it thanks @Bill S. !

    Azita, obviously you're dealing with the same type of rules there, so you're on the same page then and as long as you play by their rules, you shouldn't have any problems but don't be shocked if they want you to do some extra work here or there, depending on just how "deep" your rehab work goes. As I think I said before, I've never personally done anything in Shorewood just by chance, but from multiple people who I think are pretty credible, yes they are tight there and can be tough about meeting their standards, but as long as they know someone's not trying to cut corners or pull any fast ones, they're fine to work with on things and Shorewood always has buyers looking!

    Good luck Azita!

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  • Dan C.
    Milwaukee, WI · Member since 2013 · 384 posts · 109 votes
    11y

    @Azita S. I have a rental in Shorewood - sounds like Portland is pretty similar in how much they scrutinize things, so it won't be anything you're not accustomed to.  Like @Robert Taylor stated, it really is a hot area.  Put it this way - the absolute easiest task for me of all I do as a landlord is renting out a vacant apartment in Shorewood.  And the pool of potential tenants is first rate - you can have the highest standards when screening tenants.  

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  • Azita S.
    OP
    Real Estate Investor · Milwaukee, WI · Member since 2014 · 39 posts · 2 votes
    11y

    @Dan C. 

     I plan on rehabbing and selling this house to raise capital to hopefully buy a multifamily in Shorewood next.  

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  • J SouthPro Member
    Nashville, TN · Member since 2015 · 2 posts · 0 votes
    11y

    Two ideas, but hopefully this is sold by now:

    1) This might be like finding a needle in a haystack, but what if you partnered with a GC who will fund the rehab in exchange for splitting the profits?  Finding a GC who will do this would require one with decent financial resources to carry those expenses until sale and lights a fire under them to get the project finished quickly.  You could even offer a bonus structure that gives them a larger cut the quicker the project sells, giving them a greater incentive to make improvements buyers will want and to get it done.  You could still have a pre-construction meeting to agree on estimated repairs, costs, timeline, profit split, etc. and an agreement that they keep a mechanic's lien to cover their costs regardless if they do or don't finish the job.

    2) If Shorewood is a hot market, buyers might be willing to do some DIY for a discount.  If this project suits itself to the following, fund the major repairs with licensed specialists (roof, plumbing, electrical, heating), then sell to a DIY couple looking for a "fixer-upper" for 85-90% of "after repair value".  They can make the finishes their own, they won't value their time spent managing the cosmetics (they'll only consider their material costs), and they'll think they got a deal.  The potential reduced holding time & cost and aggravation to get the final product just right, might generate same or higher profit for your time invested.

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  • Lelith Walker
    Investor · New York City, NY · Member since 2013 · 263 posts · 141 votes
    10y

    I am doing a remote rehab in Georgia, and if I were you I would get out of the deal or find people who you trust.  Its better to get a good team before you take the deal.  Listen to your guts.  I didn't listen to mine and I am paying for it dearly.  A lot of things did not go as planned at all.  If 35th is what they told you know that it can turn into 70th.  Dates to complete can be pushed back into the next year.  I am dealing with this now. 

    If you are going to have a realtor sell or rent the house out for you then you do not need a project manager.  If you are going to try and rent or sell it yourself remotely, then I would get an experienced project manager that is going to be available to assist you and has good reliable contacts. 

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