Welcome to Part 4 of “Making More Money,” our series on earning more revenue from your properties. In our last article, we looked at how managing maintenance for your clients can bring you greater financial rewards. In this post, we focus on managing capital improvements for your clients and how it can provide you with substantial returns. Note that capital improvements involve time, effort, and money, so research your market thoroughly before starting any such projects.
One of the biggest moneymaking opportunities for the entrepreneurial property manager is supervising capital improvements. These projects go beyond the routine repairing of appliances and repainting of windows and doors, and include everything from building a laundry room or a new parking lot to a property renovation like upgrading a kitchen or bathroom.
In addition to boosting your property’s worth and curb appeal, every time you manage a capital improvement project, it provides a valuable service to your clients. It spares them the time, effort, and inevitable challenges that come with such projects. By using your own maintenance staff whenever possible to save costs, selecting and supervising subcontractors, and driving the job to timely completion, you can collect a project management fee from your client — or save your company money.
When managing such a project, you fulfill the role of the general contractor (GC), overseeing the various tradespeople it takes to do the job. Often, your fee depends on the size of the project, which can be measured by how much it will cost and the time it will take to complete it. In short, the bigger the project, the greater the potential reward.
Example: Replacing HVAC units in a condominium community
In this example, we’ll replace the heating ventilation and air conditioning (HVAC) units in 10 condominiums in a community. For this job, as the GC, you’ll supervise a team of outside HVAC engineers, and the cost of the job will total $120,000.*
*All monetary figures in this series are estimates based on interviews with property managers working in the 2015 Boston market. Your costs and revenue will vary based on your location, your suppliers, your contractors and subcontractors, and other factors.
Let’s assume your fee for managing the community is $300 per month. If you charge a reasonable 8 percent to oversee the HVAC project, you’ll earn a fee of $9,600 – that’s 2.5 times the annual revenue you would earn from managing the property! (Typical project management fees range from 5 to 10 percent, according to David Last, a developer and the principal at Last2Development in Boston, Mass.)
In this example, the payout is substantial because it applies to a six-figure project, and the rewards you earn from other capital improvement projects will depend on their scale, cost, schedule, and other factors.
If you’re new to managing capital improvement projects
What’s the best way to boost your knowledge in managing these projects? Start by learning from other experienced managers, and then eventually progress to tackling these jobs yourself. You can build your knowledge by:
- Asking a senior property manager at your firm to let you assist with capital improvement projects
- Shadowing experienced GCs as they oversee the work of the various tradespeople on a job
- Joining a local property management association and networking to find mentors
- Visiting the American Institute of Architects online, which has links to a wealth of resources about putting together contracts, finding continuing education in your area, and understanding how the building industry works
- Taking free webinars or classes (for a fee) from the Construction Specifications Institute
You don’t have to formally study construction engineering to become a project management pro, but anything you can do to boost your mechanical know-how is a plus. Many vocational or technical high schools offer continuing education classes that can help.
Managing contractors — the specialists in the trades
Why do reliable and talented contractors like builders, electricians, carpenters, and plumbers charge such high hourly wages? Because they bring specialized skills to the table, and most firms can’t afford to have them on staff. For certain projects, especially major renovations, a couple of handymen or handywomen simply aren’t enough.
What’s the best way to find dependable contractors? Like specialists in fields such as medicine, law, and auto repair, the answer is by word of mouth. When you find great tradespeople, don’t let them go! Build a relationship with them so you can ensure reliable execution and smooth handling of the surprises that inevitably pop up during construction projects.
Tradespeople like carpenters, plumbers, and HVAC engineers are often referred to as “contractors.” But for simplicity’s sake, and to distinguish these people from general contractors (GCs), who plan, schedule, and supervise the work of the various workers on a project, we’ll refer to them as subcontractors.
Navigating insurance for GCs & subcontractors
All reputable subcontractors are fully insured and licensed in their trades, but it pays to tap into the services of an experienced insurance agent to review their documentation and help you sort through all the complexities associated with insurance coverage and liability. If you skip this step, you could lose a lot of money if a subcontractor makes a mistake or gets injured while working on your property.
Here are the main types of insurance coverage for subcontractors you’ll want to cover with your insurance agent:
- Certificates of insurance — Insist on a certificate of insurance from all subcontractors. The certificate must name both your company and your client’s company as additionally insured should anything go wrong. It’s also important to require GCs, if you hire them, and subcontractors to carry general liability coverage to protect you and your client if their work causes a problem, like a leak, that could result in thousands of dollars in damages.
- Workers compensation coverage — Always make sure subcontractors carry workers compensation insurance in case one of their employees gets hurt. If a subcontractor doesn’t have workers compensation or excludes anyone from the policy (the owner of such a company may exclude himself or herself from the policy to save money), you expose yourself and your client to liability should the uncovered worker get injured.
- Additional coverage — Consider additional policies such as professional liability coverage for certain specialists (engineers, designer/builders, and architects, for example) and automobile liability coverage for workers who drive vehicles as part of the project.
Again, capital improvements are excellent ways to boost the value and revenue-generating abilities of your or your clients’ properties, but before beginning any property renovation or rejuvenation project, first make sure to do your research to determine what your market will bear.
In the next article in our series, we spotlight one of the most cost-effective ways to boost property value and/or monthly rents: carving out storage space from your buildings.Read more on Maintenance & Improvements