Rehab Management Rate/Fee?

Question

Hey fellow members, I have a question that I wanted to bounce off you guys since I see that many members successfully manage out of state rehabs. I'm currently in the midst of a rehab in Florida while living in NY. My cousin who happens to be a real estate salesperson in the tampa area has been handling things for me in a sense of contractor meetings, scheduling subs, getting quotes etc... While we never discussed a rate or fee there was always an intention that she would be paid for her time. How do you typically handle this? Hourly or Percentage based? and What is the norm or shall I say typical for this sort of thing compensation wise?

Many thanks in advance!

Andrea Proeber · Answer

Caution:

Contracting for repair, maintenance, remodeling, or improvement by any person licensed under part I of chapter 475 (real estate agent) while acting as the owner’s agent pursuant to that license, where all work requiring a contractor is performed by a contractor who has a current, valid certificate or registration issued under this part to perform such work, and where the aggregate contract for labor, materials, and all other items is less than $5,000; however, this exemption does not apply:

(a) If the maintenance, repair, remodeling, or improvement is a part of a larger or major operation, whether undertaken by the same or a different contractor, or in which a division of the operation is made in contracts of amounts less than $5,000 for the purpose of evading this part or otherwise.

For the sake of your cousin's license, either make her a part owner (sharing the gross profit as her compensation) or get a GC on the job asap.

Just a helpful hint to keep a fellow real estate agent out of jail.

J Scott · Answer

There is no "standard" fee for this.  Some people pay hourly; some pay per property; some pay a percentage of the profit.  It depends on the specifics of the deal, the relationship between the parties and what each party thinks is fair.

I would suggest sitting down with her and having a discussion about it -- something you probably should have done earlier, but better late than never...

Marc Winter · Answer

That's one way to have one less guest at Thanksgiving dinner--don't discuss fees/payment with your relative for their time/effort on your behalf.  Real estate + money + relatives + lack of communication = big badda booom.

Would recommend next time get all this stuff down in writing up front AND I personally would not use a relative or close friend.  But that's just me speaking from 30+ years in the trenches.  You might have better luck.

J Scott · Answer

For single-family buy and hold, I will calculate the profit potential as if it were a flip, and then pay my PM 15% of that projected project.

Mike K. · Answer

@J Scott - Thanks - Does that number (%) remain the same when doing a rehab for a buy and hold rental?

J Scott · Answer

My property managers get 15% of gross profits and monthly salary (amount depends on location and how much we expect the gross profits to be).

Mike K. · Answer

@Marc Winter - thanks for the response.  I've been working with relatives for years, worked with my old man for 22 yrs and pretty much the same with another cousin here in NY with our woodworking/construction business so I completely understand what you mean and where you are coming from but we've never experienced any issues in all those years even if we've had disagreements.  We've all be pretty good with keeping business decisions about business and family about family.  In my opinion losing a relationship with a family member or even a friend over a few bucks isn't worth it.

I guess I would think about it differently if I've had bad experiences in the past or if I thought that we would be way off on our numbers when having to wrap up the project and make payment.

With that said, I get the hesitation and its duly noted with good reason.  Thanks again for the input.  Appreciate your time.

Stay well.

Mike K. · Answer

@J Scott - thanks for the reply.  I know that not much is standard in any industry, I was basically looking to see what others have done since I had something in my mind as well.  My cousin and I spoke about it today and are having an open dialogue about it.  We both admit that things should have been discussed earlier but since this was completely new waters for the both of us neither of us really knew how much involvement was going to be required.  We want it to be fair for the both of us and we both understand that.  Moving forward (and I mean on other projects) we would have a better understanding of what is involved so we can come to some sort of agreement ahead of time before we get started.  Once again, appreciate your time and your advice.  Stay well.

Mike K. · Answer

Thanks for the reply @Aaron Osgood.

She isn't picking finishes although I have been running some items by her for her opinion since she's involved in that market.  She is keeping track of subcontractors and payments (I've given her blank checks) and there isn't a true general contractor in a sense.  We are acting as our own GC, with her being my eyes and ears on the ground.  She has found most if not all of the subs that we are using and she has had some help from the guys at the company that she works with as they are active investors as well and do a lot of rehab work so we are getting good numbers from the subs.  We are both taking phone calls although she does probably get more then me since she is/was the subs main point of contact.  I would basically review the quotes, follow up with the subs via phone calls to make sure the scope is the same for all subs and what I was looking for.  She handles more scheduling items then I do and she is also taking in some deliveries for me with regards to fixtures and things.  The rehab is coming in at about 20k in total which includes appliances.  Mostly cosmetic items in my opinion (new flooring, painting cabinetry, fresh paint, electrical and plumbing fixtures) etc and one bathroom is having a completely new tub, shower body (+ finishes) cement board walls, waterproofing and tile work.  I should mention that its a 2 bedroom / 2 bathroom condo, approx. 1,200 SF.

I was thinking around 15% +/- as well, I just didn't want her to be insulted since we never really discussed the matter.  My other rehabs that I've done have been here in NY, where I handle pretty much everything so I wasn't quite sure what it was worth and what others have experienced/paid out in the past.

Thanks again for your input!

Rehab Management Rate/Fee?

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