Exploring Differences: Project Manager vs. General Contractor

In this enlightening episode of Donny Coram's podcast, we delve deep into the intriguing world of construction. Donny Coram, the renowned Foreclosure Deals Coach, hosts an engaging conversation exploring the fundamental differences between a project manager and a general contractor. 🎙️

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Transcript

0:00

What's up deal hunters. It's Donnie Coram on this episode. We're going to talk about the difference between hiring a project manager versus hiring a general contractor. You're going to love this one. Stay tuned. Welcome to the foreclosure deals coach podcast. The real estate market is shifting. The time is now. The foreclosure deals coach podcast is your home for the mindset tactics and tools needed to break through your limiting beliefs and find freedom by investing in foreclosure deals. Don't buy a house. Get into this right now. And now your host, the foreclosure deals coach, Donnie Coram. Hello, hello, hello, and welcome back to the foreclosure deals coach podcast. I am your host and foreclosure deals coach. And on this episode, we're going to talk about the difference between the project manager construction model and the general contractor construction model. And compare a little bit of pros and cons between the two of them. Now, as we get into this, as always, we start with a mindset piece because it's how you think about real estate investing. That's ultimately going to impact how you act as a real estate investor. So the mindset piece today comes from Steve jobs, where he says the secret to my success is that we have gone to exceptional lengths to hire the best people. And I, and I have to tell you guys, I really believe that real estate investing is unquestionably a people business. We talk about it as if it's about money, because there's a lot of money involved with the buying of the property and the fixing of the property. A lot of checks are getting written, but ultimately the money means nothing. If you're not surrounded by. The best people in the industry. I have worked extensively to build my team that services, my clients, to make sure they have access to the best resources in finding great deals through the local market in analyzing those deals in funding, those deals in fixing the deals that. Ultimately selling those deals at a minimum of a 25, 000 profit. So I really believe what Steve is saying here. I hope that you've got your mindset right and hiring the right people to get this done. But now we got to hop into a debate here. Okay. Let's go back in time just a little bit about 2019, 2020, when my wife and I decided to really ramp up our flipping business. Obviously we knew that we were going to have to bring in construction resources to get the work done. Well, when you imagine doing a flip, your first instinct is to hire a general contractor. After all, this is somebody who usually you would think takes their business very seriously. They have to carry a great deal of liability insurance. They have to take a test. Et cetera, et cetera. So for the early stages, when we really ramped up our flipping business, we focused on hiring general contractors because we figured it was going to be less management overall for our system. I wish I could tell you that's how things ended up, but the reality was that as costs went up in remodeling, the general contractor. Who's model generally charges in three areas. That's how they profitize a general contracting business. And the first area that general contractors make money on is for the project management itself. And this is logical. This is the part we really wanted to get rid of subcontractors, construction workers. They speak a very specific language as a dialogue that happens at the construction level that most people in their day jobs. Are simply not privy to. Okay. So if you don't speak construction, you generally want to bring in a general contractor because they are communicating with the subcontractors, but if they're charging for the management fee, which I would expect, right, then they're adding on a charge for the labor, this in and of itself was not a problem before. Okay, you expected to pay a markup on labor and when labor was being sold at a normal rate, that was okay to have a bit of a markup today. Labor is at all time highs. Why? Because a lot of people aren't working at the pace that they used to work in our town here. We were first having to compete with the builders who are hiring all of the subcontractors. To build at a very astounding rate. This town that I'm growing in is going through a growth cycle right now. And honestly, that describes a lot of towns across the U S right now, the builders have a lot of access to the subcontractor resource, and they're paying a premium because they're making a premium in this market. New builds have gone up to really high rates. So they had taken up all the subcontractors building has started to slow down in recent years with the interest rates being as high as they are. But it didn't completely stop, but what replaced building was now that there was a bunch of hailstorms here locally in our market. And now the hailstorms have created a lot of damage and the subcontractors are now very busy tending to insurance claim business, which also. Tends to pay extremely well. Okay. It's not that we want to pay a lower rate to what subcontractors are worth. It's that you have to understand the market and where the subcontractors are getting their pay. So, you know how to properly compete with that model. The reality of the times back then was that with labor at all time, highs and parts going up in cost, anything oil based, remember when wood. Just, just basically two by fours had nearly quadrupled in value. When you had both sides going up to very high levels, it was very difficult to pay the general contractor and additional markup on top of those fees that we're paying already. So we came up with a new model, which is not super innovative. A lot of high end flippers have gone this route, but basically it involves bringing in an internal. Project manager. So the pros of hiring a general contractor right out of the gate is that it should be virtually zero management. You're paying a premium for everything. So the general contractor should take the project, roam up the ball and finish it at a higher cost. If you have the margin to do that. Wonderful. Like, and there's certain markets and certain houses where there's just plenty of margin. You've got plenty of room and you can share some of that margin with the GC at your own expense to make the job easier. But in the market that we're in right now, which is now running a little bit flat, we're not seeing the huge increases in value that we've seen. I had one property that between the time that we bought the home and the time that we sold it went up by 75, 000. Right. Which is awesome from a financial standpoint, but we were simply not in that market anymore. So what's the solution? Well, it certainly is not that there are no deals out there and to stop being a real estate investor and find a different way to make a living. I can tell you that a lot of people, when the prices of stuff went up, they got out of the game and they got the mindset. There's simply not enough deals out there. I'm going to look for greener pastures during that time. I really capitalize. Yes, we were making less margin per deal, but we were able to do a lot more deals because the market got a lot less competitive. The key was being able to settle, if you will, on a reasonable profit. On the deals, whereas in the height of the market, people were expecting to make investors were expecting to make 50, 60, 80, 000 on a flip. And then these darn flipping shows came on the scene, right? And they're showing these backend numbers and these numbers look wonderful for a TV show, but they weren't really founded in the reality of the market that we're in right now. Okay. So by moderating the profit expectations and this new model, we're going to discuss hiring in a project manager. We were able to remediate some of the costs and reduce some of the profitability so we can ultimately scale by doing more deals. And that's where you have us today. So enter the project. Management model. In this model, you're hiring somebody to manage your subcontractors on your behalf. This person is generally paid a flat fee to monitor the progress of the subcontractor and see to it that the work is getting done on schedule, on budget, And within the timeframe that you wanted with the quality that you'd need to sell the property in the end, project managers are a little bit harder to find the general contractors, GCs, get their license and with that license, they're marketing themselves as a construction company, right? You've got Joe Schmoes. Construction company. There's a billion of those in the yellow pages. You can Google for that, but when you're looking for a project manager, you're talking to an entirely different set of people, a lot of product managers. I would err even to say most product managers have not passed or even want to pass the general contractor's licensing. Cause that's not their business. What they're doing is they're servicing the needs of the clientele. We want to remodel any number of projects, right? Whether you're doing a full remodel or you want to do a higher end kitchen remodel, you've got options as a consumer, you can go out there and try to tough it out while you manage your day job as a dentist or whatever it is you do by day. Or you can find somebody who speaks construction and pay them a flat fee to manage the project for you. I can tell you this, as a sole proprietor doing one deal, it's going to be very difficult to find and harder still to retain a project manager. Obviously you're only paying a lot of flat projects and you're only doing one project at a time. So during the gaps in your projects, they're going to be looking for additional work, right? But with my system, with my coaching group, we've gotten together and I'm introducing project managers to the coaching group continually as options. And because they're getting continual business, they're available to do these remodeling contracts, right? As I'm just a funnel, if you will, that's bringing those product managers in, you want to find somebody. Who speaks construction, who will work on a flat fee basis or a percentage model. But in my experience, the flat fee is what I'm targeting and it is very market dependent. It is very scope dependent, but on a typical remodel, when I can offer volume, I'm expecting to pay between 1, 500 and 2, 500 as my project management fee to give the product to somebody else who's going to manage the subcontractors. On your behalf, this is not to say they're going to do the work themselves. You're not looking for somebody to necessarily pick up a hammer or a paint brush, though an ideal project manager has the skillset where it's just easier to just get it done. They can hop in and just get it done. Generally speaking, I want somebody. Who speaks construction and has the leadership skills to manage a subcontractor base. Now I have the benefits. I'm doing so much business right here in my local market that I have most of the subcontractors that we need available to me already, whether it's a demolition crew, a drywall contractor, a painting crew. Uh, framer, whatever, because I've done so many deals with my clients, I have the subs I generally want to use. I'm just filling in the gap with a person who's going to be the day to day interface with that subcontractor team. And ultimately is going to tell me if the work is completed to the level of quality that satisfies the project manager because they're representing me. And when I get that green light from the project manager, I know at that point that it's. Okay. To pay the subcontractor for the work that's been completed. Okay. So the project manager model offers a couple of benefits. Number one, it is far more cost effective than hiring the GC, especially in a highly competitive construction market, like where I'm based. If you're in a space where general contractors are sitting around twiddling their thumbs, you might do better just to hire the GC and get the product management built in. But if you're like my market, you're going to find it's more cost effective and. Easier to hire the PM. You're going to get a better rate on that. Okay. The other benefit to the product manager model is that it takes less of your day to day time. Guys, you really have to value your time. The remodeling space on your first one. All of my clients are super gung ho, and you're going to be as well. You're going to want to do all of it yourself because this is a new endeavor and it's fun and you're enjoying the process. And I love that. I love when I get a new client and they're enthusiastic about the. Process of getting an ugly house to pretty, and I too love the end result. I love to see it and feel that end property when it's done, but I can tell you in a very short period of time, that becomes the drudgery of this business. Okay. Trying to deal with figuring out the small, my new details that every remodel has is going to take so much of your precious time that it can make a deal that should have been super profitable. Based on your time investment and lower the profitability on that deal. Because you are spending a lot of time managing subcontractors. You want to dial this position in early on and maintain a relationship with a solid project manager very early in your investing career. It's going to pay dividends for the entire time that you're out there. So find a product manager and work with them multiple ways to locate your project manager. For me, I put an ad on Indeed. I have an ad running. Constantly. So I'm always screening people in the project management space. So you can talk to people continually and find out who's going to be a good fit. Who can work effectively with you. If you can only offer them one job, you're going to have a hard time. Recruiting and retaining top talent. So join an investment group, work with other people who are also doing deals or join my coaching program. And I'll solve that problem for you right out of the gate and introduce you. To my product managers, you're also going to save on labor and parts because the product manager is not marking up anything, but rather just managing, paying the subs at what they would have charged anyway, for the business, some subcontractors only work for general contractors because they're getting enough business from that, that they can just do that. But most subcontractors are happy to quote unquote, moonlight and do side jobs. And that's really what we're looking for, especially when you're doing one off jobs, you don't have enough business to take on a painting contractor and keep them busy year round. But if you can get the guy who's moonlighting and when he's done doing his jobs for the, uh, builder that he's working for, he can move over and help you out with your project. That subcontract relationship is going to be managed by your project manager. Okay. So get your subs always be looking for people who can do the work, but make sure you're keeping a Rolodex of them. So you can hand your subcontractors over to your project manager and allow them to manage the project more effectively on your behalf. The other area we're going to save some money on this is the markup on parts. When a GC buys parts, part of their profit margin is they add on a percentage, generally 15 to 20%, in addition to what they spent on the actual parts, and that goes to your bottom line. Again, when there's a ton of profitability in the market, that might be okay, but there isn't right now margins are slim. The market's trending flat right now. We've got to find a way to cut costs. And one of the great ways we can cut costs is by allowing a product manager to buy the parts directly. You're paying for the parts of the homeowner. Obviously, but the product manners defining what your materials take off list is going to be. And the output of the product manager is three parts. Number one, it's the scope of work defining exactly what it is. We're going to default. We're going to do on the property, right? Number two is materials take off list, which is going to tell us what materials we need to buy to make sure we have. Everything we need to complete the project. Now, obviously you start tearing into the walls. You're going to find things you could not have predicted. You're going to have additional material costs halfway through the job. That's a normal part of the process. And there's no doubt about it, but by defining your scope of working materials costs, the final thing the product manager is going to do is the project schedule. See, there's an order of operations that each remodel has to go through. It generally starts at demo, right. And ends at trim. And finishes, but in between there's an order you've got to follow by having a product manager who understands the remodeling process, you can prevent, you know, not having the right order, which is going to cost you money and time as you have to backtrack to get the project done. A good product manager has experienced knows the order of operations and is going to bring in your trades and materials as needed. In order. So the project stays on schedule and goes in order, preventing any unnecessary backtracking along the way, guys, by really following this product manager model, which has become more critical in the tighter market that we're in right now, you can find yourself consistently doing deals in your market. At profit and in timeframes can allow you on a solopreneur operation to do three to four flips per year consistently with my coaching program. I offer that at a minimum profit of 25, 000 and can help you to do those deals on a consistent basis and get a predictable outcome. So that's the difference between the GC model and the product manager model. You're really want to adopt this, this mindset, which is why we start with a. Set B's and know that if you hire the best people on your team, you're going to make an otherwise very complicated process, very simple. And as a result of doing so, you're going to make more money and less time and really enjoy the process of becoming a deal Hunter and full time. Real estate investor. Before we wrap up here, guys, I just want to extend my heartfelt gratitude to each and every one of you who joined me on this episode of the foreclosure deals, coach podcast, your time and attention mean the world to me. If you've gained valuable insights today, I encourage you to hit that subscribe button below. So you don't miss out on our upcoming episodes and the wealth of knowledge that we share each week. Right here on the show. And guess what your journey doesn't stop here. I invite you to be a part of my community of deal hunters, where you can join us on Facebook by clicking the link below or search for foreclosure deals coach in the groups on Facebook. Let's connect, learn, and succeed together with that. This is Donnie Coram, your foreclosure deals coach. Thank you yet again for tuning in and reminding you now and always don't buy a house. Bye. Thank you for tuning into the Foreclosure Deals Coach Podcast. If you like what you heard here today, remember new episodes are uploaded weekly. Subscribe wherever you listen to your podcasts. Do you want more of the Foreclosure Deals Coach? Are you ready to learn the mindset, tactics, and tools required to There you go. if so, click the link below to schedule a one on one coaching call today with Donnie Coram, the Foreclosure Deals Coach, to determine if coaching is right for you. And remember, don't buy a house, buy a deal. www. ForeclosureDealsCoach. com