One of the employees that you will consider hiring within your real estate investment business, will be a project manager.
If you do not have a lot of experience managing projects or with construction, a project manager will be an invaluable team member to your business.
If you have extensive construction knowledge and experience as a project manager, this hire may be less useful initially, until you grow and scale.
No matter the circumstance, your project manager will be a vital team member for all of your rehabs.
The risks in being a value add real estate investor comes when you rehab properties.
The more organized, systematic and experience you can have within your rehab projects, the better chance you have to mitigate your risk, limit your losses and increase your profit per job.
What Is the Project Managers Responsibilities on Your Real Estate Investment Projects
The project manager for your rehabs will be in charge of ensuring that your projects run smoothly and to improve communication between contractors and management. The project managers role will begin after you sign a contract and your due diligence period starts. Here are some of the systems that your project manager will monitor and put together to ensure a successful project:
1) Scope of Work - The first task your project manager will be a part of is the creation of the scope of work. The scope of work is the document that will drive your project and allow you to create other documents needed for the project. Once the property has been put under contract and the due diligence period has begun, the project manager will finalize the scope of work (or all tasks) associated with the job.
2) Material List - The scope of work will lay out all of the tasks associated with the job and your material list will consist of all material needed to complete these tasks. To create our material list, our project manager will reference a material list catalog we created to help streamline this process and limit design choices. This material list will help us develop an accurate budget for the job and ensure we have all material accounted for prior to the project start date. One of the documents that we use to order our materials is our vendor material list.
3) Budget - From the scope of work and material list that are created for the project, we will now be able to assemble a project budget indicating exactly how much the renovations will cost us for both material and labor. This number is the number that allows us to limit our losses and mitigate our risk because we now have an accurate number of the price tag for the repairs. To be safe our project managers like to add a 10% contingency to projects to account for any change orders that may come up in the project. This number allows us to forecast the total profit that will be accumulated from the project.
4) Schedule - The project manager will be responsible for putting together a detailed schedule of the project. This schedule will be broken down by phases to account for all the tasks that were created from the scope of work. The schedule will tell us start and completion dates for each phase of the project along with a projected final completion date. The schedule will be used to hold all subs and contractors accountable throughout the project. It will also be used to schedule and coordinate sub-contractors for specific phases on the project.
5) Hiring Sub-contractors - Once the project manager is notified that we have the property under contract, he will begin getting estimates from all subs for specific phases that we will not self-perform. The project manager will know which phases will require sub-contractors from our pre-acquisition task list that was created prior to putting the property under contract. The property manager will be in charge of getting estimates from 3-5 different contractors for this specific scope of work. He will hire subcontractors based on price, reputation and prior work.
6) Managing the Project - This is probably the only task that you thought a project manager would be a part of, the actual management of the project when the rehab is taking place. The project manager will be tasked with ensuring material is readily available for contractors to begin work, making sure contractors are on time and coordinating sub-contractors to start and finish work. Now that the project has begun they will work off of the budget and schedule and make sure the project runs smoothly and the required profit will be made.
7) Final Walk through Inspection - Once the project is complete, the project manager will put together a punch list document to determine any additional repairs that are needed on the project. He will ensure that everything is up to code, material was installed properly and nothing was missed. Punch list items are usually completed by our self-perform crew but if you just work with subcontractors, your project manager will be tasked with contacting and scheduling subs to come make necessary adjustments.
How Can A Project Manager Help My Real Estate Investing Business?
At this point it should be pretty self-explanatory how beneficial a project manager can be to your real estate investment business. The construction department consists of about 35-40% of your business activity, so to be able to delegate and streamline this aspect of your business is crucial. As stated previously the most risk you take on from adding value to a property is the rehab & your project manager’s role is to mitigate that risk through organization and project planning.
Unless you will be taking this role on as the owner and you have an extensive background and experience in this role then in my opinion this is one of the first employees you should consider hiring. If you do not have the money to hire a project manager, then work with a general contractor to take on this role. As you can see that there is a lot of responsibility on the project manager, so he will need to be compensated accordingly. We discuss payment a little later.
Delegating this aspect of your business will relieve of a lot of day to day headaches and allow to you focus on other income generating tasks - such as finding & funding deals. The more time you have to spend on these activities the faster you will be able to scale and the more revenue you will be able to generate.
How Do I Compensate My Project Manager?
This is a tricky topic because how important this role is to the success of your business. If you actually hire a project manager as an employee then you will pay this individual a salary. Depending on where you are in your business, how many deals you do a year and how many projects this individual managers you can also offer a commission. This commission will be based off of the profit that is made on every single project he/she manages. For simple math, we tend to base our commissions off of 5% of the total profit. The project manager will be paid his/her commission once the property is under contract to sell. Once the property is under contract to sell, the profit on the project will be verified and the property manager will get around 5% of that number
Since this position is so important to your company, make sure that you compensate appropriately, especially if you have a good project manager. We also suggest that you sit down with your project manager and make sure that he agrees with the compensation that he is receiving and how you arrived at your fee per project. The more open you are with your employees, the better response you will receive.
Wrapping Up | Real Estate Investing Project Manager
We hope by now, you can begin to understand how important your project manager can be to your business and also what tasks he will be expected to take on. Everybody operates their business a little differently; these are just the tasks that we chose to delegate to our project manager. With some hard work and planning you will begin to streamline one of the most important departments in your real estate investing business and will reap tremendous benefits.
In the comment section below, let us know how you chose to manage your projects and what techniques & strategies you use to streamline this aspect of your business.
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