Short answer: If the numbers make sense to do it, then absolutely yes!
If you're flipping your first or even second home then the thought of having someone to help you has probably crossed your mind. Someone to show you what to do, how to get started, and more importantly how to stay on budget so you make a profit. Many people assume the perfect someone can only be a friend, relative, agent or spouse. However, it can also be an experienced project manager. A person who's done it before and can provide you the know-how to make your flip your best one yet.
In this article, we'll discuss what a project manager for a flip does, when it's right to hire a project manager for a flip, especially in Los Angeles, and the benefit it brings.
What is a Project Manager?
A project manager is the go-to person on a construction site to manage the process from beginning to end. They help create the initial budget, coordinate ordering and delivery of materials, assist in monitoring the day-to-day work on the job site, and keep your handymen or construction workers happy. Essentially, they do all the things on a job site that you would do, without you having to actually be present.
How Much Do Project Managers Charge
Project managers typically get paid in one of three ways.
The first is on an hourly basis. This is a common approach for construction project managers who work for major construction firms, and help develop skyscrapers, stadiums, and other large projects. The hourly salary can range anywhere from $35 to $100 per hour depending on the project manager's certifications and years with the company.
The second compensation model for project managers is to charge a percentage of the projected budget. For example, if the projected construction budget is $400,000, a project manager may charge anywhere between 5 - 10% of that, or between $20,000 and $40,000. This model is also quite popular among large construction companies and certain luxury home developers.
The third and final way that project managers can get paid is on a flat fee basis. This fee ranges anywhere between $2,500 to $10,000 depending on the size of the project, and the project manager's own personal preferences. For flippers that are on a budget, finding a project manager able and willing to charge a flat fee can be an effective way
When to Hire a Project Manager
While in an ideal world everyone would love the idea of having a project manager to flip their property for them, the size of the flip, and the potential profit you could make, will largely determine when and if you should bring on a project manager.
Let's take an example.
If you are acquiring a property for $650,000, and the ARV is $785,000, your budget may look something like this:
Buyer's Closing Costs
In this scenario, hiring a project manager for a $8,000 flat fee, would definitely not make financial sense. Such a fee would be almost 40 percent of your profit, and a huge no-no.
On the other hand, let's say your flip looks like this:
Buyer's Closing Costs
In this financial scenario, a $8,000 project management fee is roughly 11% of the projected profit, and a very financially sensible line item, given the remaining $60,000 in net profit.
Benefits of Hiring a Project Manager for Your Flip
There are many benefits other than monetary that a project manager can bring, especially if it is your first flip.
Save Time: For flippers that are just getting started and still working a full-time job, time is money. You can't necessarily afford to oversee a project full-time and continue to work. Only by working with a project manager are you able to save a lot of time and do both.
Shortcut to Experience: Even if you plan to keep an active role in your flip, working with a project manager can provide you an excellent shortcut to gain experience. For many it takes years, thousands of dollars in losses, and many more mistakes to gain the experience that experienced project managers have.
Run Multiple Projects: The third major benefit of working with a project manager on your flip is you are able to run multiple flips or projects at once. Multiple projects means you open yourself up to take more opportunities which in turn enables you to scale your business even faster.
How to Pick the Right Project Manager for Your Flip
Handing off your flip to someone else can be scary. How exactly do you know that this person won't take your money and run; that they'll do their job correctly; and won't
Experienced - Ideally, you'll want someone who has done a flip a flip more than once before and knows the in-and-outs of sticking to a small budget, without compromising the look of a property. In other words, someone who knows how to make a $35,000 flip, look like a million-dollar home.
Trustworthy - It goes without saying you'll want a project manager that is trustworthy. The best way to spot a trustworthy project manager begins with your conversation with them. How honest and open are they in their communications. What guarantees can they make you? What licensing board do they belong to that provides some level of accountability for you?
Excellent Communication Skills - The perfect project manager excels in communicating with and managing the many different, and sometimes conflicting personalities that come in the real estate business. They know how to keep your contractor, inspector, and architect happy, overcoming any interpersonal obstacles without blowing up.
Is Hiring a Project Manager Right For You
At the end of the day, flipping a property is not as easy as they make it look on TV. More often then not, things don't go as you planned, you end up going over budget, and the project's timelines is delayed. These are just a few of the reasons a flip can flop.
If there's enough room in your flip's budget to bring on a project manager, there's really no reason to not bring a project manager.
If you're interested in learning more about our flip project management services here in Los Angeles and Southern California, check out our Flip-It-For-You Program™ here.