At the end of every deal, my wife and I write up a little summary of what we did well, what we did poorly and what we can do better on the next deal (I learned this tip from a fellow BiggerPockets blogger, Michael Zuber). After looking over our last deal, one thing was painfully (literally) obvious, we did TOO MUCH work. Let me give you a little more context. A few months ago, a local realtor in our market contacted me regarding this REO property ( see pic –> ).
I recalled seeing this property last year, when it was being sold as a short sale. Knowing the condition of the property, I immediately put an offer on it. After going a little back-and-forth on the price, my offer was accepted.
In order to get the property at the discount I was requesting, we needed to purchase the property “as is.” This is pretty common practice, especially when buying REOs. However, what was different about this deal compared to others I’ve done was the amount of rehab needed.
Typically, our rehabs are very light and rarely exceed $4K total. If they require more work than that, we’ll usually pass. However, after inspecting the property myself, I realized the majority of the work was cosmetic and could be completed by me, if needed.
So we decided to take on the bear of a project.
Prior to closing escrow, we had our usual contractors and handyman provide us with quotes, so we knew exactly how much everything was going to cost us from day one. After looking over all the quotes, the total was going to be around $9K. Here’s the problem – I saw that number and I said the following to myself:
Why pay someone else when WE can do it for SO much cheaper?
You can probably guess what happened next – we worked ourselves to the bone! Every weekend (even a few times during the week) for about a month, my wife and I were driving the two hours up to our property to paint, re-patch drywall, install toilets, hang light fixtures, etc. Normally, I don’t mind getting my nails dirty on our rehabs, but this project took the cake.
Here are a few fun facts about this rehab that are not totally related to this post, but were kind of interesting:
* The kitchen was inside the garage
* My handyman likes Pizza (he left boxes everywhere)
* Fans with two only blades can still cool a room down
* A squatter named “Dopey” lived in the property for a brief time
Ok, now back to the post.
After reviewing the summary of this project, we gave ourselves a “C” on this project. There are a lot of things we could have done better to make this a smoother project that conformed to our business model. Here are few nuggets of wisdom we learned from this experience:
- Talent – Doing the work ourselves saved us money, BUT everything took longer than expected. Since we are not full-time contractors, we often found ourselves running to the hardware store several times a day to buy the right tools and materials to complete a given task.
- Greed – The irony of this whole story is that we DID budget $8K for our repair costs. The only reason we decided to do the work ourselves was to shave off costs from our bottom line.
- TIME – I have a full-time job in a non-real estate related industry. I typically work 50-60 hours per week. Working on houses in the hot sun on my weekend is NOT the way I want to spend my free time.
Looking back on this crazy project, the overarching lesson we learned was that the return on our time was best spent working ON the business, not IN it. What I mean by this is that our core set of skills is NOT pretending to be contractors, or even managing properties for that matter. Our core set of skills is working our day jobs and earning the capital needed to fund our deals. Our time outside of our W-2 jobs should be spent networking with RE agents, raising private capital, managing contractors and building systems to minimize our workload.
In the end, the property was still a great deal. However, if I could do it over, I would have rather stuck to our initial business plan which was to focus on our core skills and outsource non-core skills to capable parties.
Readers, what about you? What are a few things you do to work on your business, not in it?Working ON Your Business, Not IN It: A Painful Lesson from My Last Deal by Arthur Garcia