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Build A Business Instead Of Being A Contractor
If you have slowly been growing your portfolio of real estate assets or number of flips, sooner or later, you will come to a crossroad of whether to turn this into a serious business or just maintain it as a hobby for side income.
When you treat real estate as a hobby, you would usually take on various fixing task yourself in order to save on expenses. The prospect of hiring contractors and managing them can be a daunting challenge for those who have never had experience managing third parties.
It’s a dilemma that most people can understand. Contractors have fixed costs. And when you don’t have a predictable flow of business coming in, you would be taking on a huge risk should you start hiring. This is a big reason why many investors refuse to take the leap into full-time real estating.
Saving $500 by painting a house yourself can look really attractive. Shopping for cheap furniture ad great value seem like a no-brainer. And taking on the whole project yourself can make you feel macho.
But surely you must know and recognise that in order to take on real estate as a serious business, you will have to start hiring people in order to grow your business.
If your goal is to make a living flipping houses, then your focus has to be on getting more deals done to generate more revenue. You will also have to spend a lot of time on sourcing financing avenues and get really knowledgeable about creative owner financing strategies.
To transform your hobby into a business, you need to treat it like one. You need to create systems and processes to ensure operating efficiency. You need to market your stuff properly and make create strategic partnerships on a bigger level. You have to effectively become a manager instead of a worker.
If you have to spend 8 weeks trying to rehab a house by yourself, imagine the hours you have to put in and opportunity costs you have to incur. Yes you might be able to save $10,000 on contracting expenses. But that would be a small headache if you can use that time to close more deals and put them in the pipeline.
In the world of the freelancer, the focus is always on few projects and high margins. But as a business, your focus is better put on more projects and lower margins. Even with smaller profits per project, the high volume of deals will make you richer than taking a hands-on approach like a freelancer.
In fact, the more deals you do, the more experienced you get, and the more proficient you get on scaling your business. Before you know it, you could be more than capable in flipping 5 houses within 8 weeks. That’s not a radical number plucked out from the air. There are many professional flippers in the industry who can do more than 5 within that time frame.
That $10,000 you might have saved will look negligible in this case. And we haven’t even touched on the economies of scale you will exploit once you grow you numbers.
If you have already taken the decision to hire people to help you, avoid the biggest mistake people make when starting out. And that is to hire based on price.
In the world of real estate, price is always a very big problem owners have to tackle everyday. Haggling is part and parcel of the game in this business. But the one thing you must absolutely avoid is to hire unskilled workers just because they are cheaper.
Professional contactors for example, might charge a higher price. But they have better workmanship, more likely to be on time, more dependable to hit the ground running, and more likely to take responsibility when things go wrong. They might even be more pro-active in offering suggestions so as you get more value out of your projects.
From the amount of time you can save by having the confidence to leave your houses to qualified contractors to do the job, you could be closing more deals on the back end.
Many players in the real estate game are unable to really flourish on their work because they get themselves too attached to the ins and outs of rehabbing.
Don’t get into that trap. Outsource all the work and focus on building a business that operates with a system in place. Focus your time on closing more deals. You will be financially better off in the long term. Your business will also be worth more should you intend to flip the whole business instead of just a house.