Rehabbing properties and managing contractors is a fast game
If you can’t figure out your head from your bottom, you will lose your shirt or worse yet your shirt will be ripped off your back while rehabbing your first house. First and foremost we must become experts at locating and prescreening contractors, quality mature adult contractors. If this is done right, the probability of the rest of your rehabbing project being a success increases ten-fold. When you work with competent people you are able to utilize your time and leverage your ability while rehabbing.
To truly become an expert in real estate rehabbing one must have a reference point to every aspect of the house in order to manage the rehab effectively and efficiently. Having a reference point to find out essential knowledge, terms and definitions, contractor management, and most importantly labor and material cost will protect against bad and/or stupid decisions during the course of your real estate rehabbing career. Remember, the goal for us as successful real estate rehabbing investors is to understand and manage the rehab process, not to teach ourselves to install toilets so that you can save $50 in labor on each job. That’s right, by no means do I want people to do work themselves, I want them to understand how to do the work so they can manage others to make them money.
Would Donald Trump be where he is today if he actually installed the toilets in his high rise development projects so he could save on some $$$ on labor cost, of course not. Donald Trump is smarter than that, so let’s hope you are too.
You will not buy, renovate, and sell 100 properties a year by doing the job yourself to save a couple of bucks. The more rehabs you can manage, (notice the key word manage) the more money you will make. So let me ask you, do you want more money? Or do you want more work? Obviously more money, it’s all about working smarter not harder!
In my first year we bought and sold 30 properties; the second year we multiplied that by two, plus some, and reached 70 projects. By our third year we had bought and sold 104 properties!! What was the change you ask? The change occurred with the creation of systems, working smarter not harder, understanding the three key components that we had to leverage in order to meet out goals. Understanding the value of time, utilizing each decision on rehabbing to leverage your money, and investing in continual education is the key to your real estate rehabbing success.
Remember real estate investing is for anyone who is willing to learn, however, if you learn the wrong strategies or focus on areas that do not make you money you will never make it. It’s true, the first million is always the hardest, after that it becomes easy to replicate the steps and decisions that worked and avoid the ones that didn’t work. Once we know where our time is best spent, then every decision is optimized and your ROI (Return on Investment) is always high.
The first key component is time. If I hired an immature and inexperienced contractor then it would inevitably cost me more time per project. The more time per project, the fewer projects I could complete, the fewer completed projects translates into fewer dollars earned each year. I don’t know about you, but if I am going to be working, then I want each hour of my time to be worth as much as possible. By understanding that I should not be installing a toilet, I took the first step of respecting my time and more importantly increasing what I was worth per hour. This is where our systematic approach took hold. If I could design a system for everything in the rehab process, and then outsource and/or manage this system, then I could create more time throughout my day. This seems like common sense, yet look around and observe how many investors are getting dirty at their own job sites!
The second key component is to leverage money. By investing and leveraging your money in rehabs, you can watch it grow exponentially. More importantly, if you are aware of the smart choices on where to spend your money and how it will return to you on your rehabs then you can outlay one dollar in order to get two, three, four or even more in return. When we talk about installing overhead microwaves and standardizing dishwashers in all of your single family kitchens, we know that those features will help sell your property in a shorter holding time while demanding the top price in your marketplace.
We refer to houses as products, that’s because our business is to provide the American Dream. I want to be product conscious at every stage and in every market. I will not install granite counter tops in my product that will only market for $169,000 once completed. This is not a smart choice for my money. I do not want to put in four dollars in order to get one dollar in return. If you do not pay attention to the after repaired value of the house you are renovating and proceed to over-fix your property, then you will not be leveraging your money appropriately. Fix to your neighborhood standards, and always ask yourself how much money this particular decision, material, or feature will return in dollar value when you begin to market the house for sale. This is how you effectively leverage your money on every decision you make in the rehab process.
Finally, the third component I want each and every one of you to utilize and leverage in your real estate rehabbing career and specifically your rehab projects is knowledge. The knowledge that we are providing to you throughout our teachings and throughout this article is to be leveraged. When you manage and oversee your first contractor, you are leveraging this knowledge. When you identify specific materials, create, and standardized the scope of work I teach you to use and then hand it off to a general contractor to implement and fulfill, you are leveraging this knowledge. When you clearly explain the value of getting all the contractors vendors and materials delivered to each job site, while also showing the contractor how much time he can save, you are leveraging this knowledge. Finally, when showing the contractor that if he can save his time and complete your job quicker, ultimately he makes more money, you are once again, leveraging this knowledge.
There is a clear pattern for success. Leverage the information I share with you, implement the systems, and begin to routinely take action and you will find that success and luck have nothing in common. By leveraging the knowledge acquired from your investment in real estate education, you will see that luck is not something that happens randomly but rather it’s the acquisition of knowledge, followed with proven and true systems that are put into motion with routine, consistent action. Luck is merely when preparation meets opportunity! With that said, I wish each and every one of you good luck in your real estate rehabbing endeavors.
Paul Esajian is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.