Fixing and Flipping Houses: A Business or a Job?

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Here’s an important question for you – is this fixing and flipping houses thing going to be your business or an odd job? In other words, are you going act like a business owner and hire employees to perform the work associated with rehabbing the house, or are you going to hire yourself to do everything?

I believe it should be every fix and flippers goal to work on their business, not in their business. My partner and I don’t demo, paint, lay tile, install appliances, light fixtures, ceiling fans, blinds or clean our fix and flip properties anymore. Our talented team of contractors does this work so we can focus on acquiring additional properties and raising more capital.

However, it’s difficult for anyone, regardless of the industry, to work on a business BEFORE they’ve worked in the business. Thorough knowledge of the processes and procedures required to get a home fixed up and ready to sell on the retail market is crucial. The best way to learn how to get a rehab done is to work for someone who knows how to get a rehab done.

After the market crashed in 2008, and I lost all my cash, I worked for an experienced investor and did everything on his rehab projects that didn’t involve wielding a sledgehammer, paintbrush or plumber’s wrench. I quickly learned:

  1. What materials cost and where to go to buy them.
  2. How long it takes to get jobs done.
  3. How to get the jobs done fast.
  4. How to get the jobs done inexpensively.

This may not be an option if you don’t know any real estate investors that need project management help. You can always do the work yourself without any guidance and learn the hard way. I recommend you seek out members here on BiggerPockets that can provide valuable tips and advice. Whatever method you choose, the goal should be to replace yourself with less expensive labor once you’ve learned how to get your rehabs done quickly and inexpensively. Then your focus can shift to finding and doing more deals.

But what if I like doing all the rehab work myself you ask? Fine, I say.

There’s nothing wrong with getting your hands dirty. I know several local rehabbers who take tremendous pride in their design and carpentry skills. They like working with cordless drills and paint rollers. I’ve even heard them say that swinging a hammer is a good workout. I say if you can reach your income goals by doing all the work yourself while simultaneously building muscle tone and cardiovascular strength it’s a win-win. Just remember, if you hire yourself as a project manager and laborer you only have yourself to blame if the rehab isn’t done on time or to budget.

 

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About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

15 Comments

  1. Great post Marty, it reminds of a book I read a couple years ago during a flight on my to California:

    “The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It”

    It points out that most small business are started by “technicians” who are skilled at something and who enjoy doing that thing. When these technicians strike out on their own, they tend to continue doing the work they are skilled at, and ignore the overarching aspects of business. Without clear goals and quantification benchmarks, they soon find themselves overworked, understaffed, and eventually broke.

    Worst of all, rather than owning a business, they own a job.

    The solution Gerber (the author) argues, is for every business owner to balance their business personalities. He argues that every business owner needs to simultaneously be wearing three distinct hats:
    – Entrepreneur, formulates the goals and steers the business in the direction needed to reach those goals.
    – Manager, makes sure operations and finances run smoothly and consistently
    – Technician, the worker-bee, the one who produces the product.

    Out of the three personalities, the entrepreneur is key. Without it, the technician will work himself to death or bankruptcy. As the business grows, the business owner will need to draw away from the technician work and manager work and delegate this work.

    In the end, Gerber suggests looking at franchises as a model.

    The reason they succeed is because they’re set up so that any unskilled person off the street could walk in, buy a franchise, run all operations in the franchise, and have a fairly good chance of success. (About 70% succeed at 5yrs)

    The product of a franchise is the business model, not food, hotel rooms, etc.

    In order to meet this level of success, franchise companies have clear operations manuals, procedures, consistent sales approaches, etc.

    Every detail of running the business is specified down to dress codes and wallpaper.

    I personally believe that at starting stages one should work IN the business for purposes of knowing what the activities entail. That way when it’s time to delegate one can write up a FAQ and know exactly how to direct the person who will be doing such activity.

    – Ricardo

    • The E-Myth is an excellent book and should be on every real estate investor’s shelf (or in their e-Reader). I like the idea of creating an organizational chart without me in it.

  2. Good reply Ricardo. And Marty, I posted a few days ago on a thread that I am having an extremely difficult time turning lose of the “hammer”. I sit in my office everyday in anticipation of measuring that board, running that new loop, or laying that tile. It is totally oposite of what I do on the JOB. But, I am at the point that the JOB dictates too much of LIFE. I am too old to be worried that some whipper snapper will critisize my descision on the JOB.
    So, I need to apply my managerial skills to my new passion and turn lose of the “hammer”. But, it is hard. I have quit smoking, dipping, and drinking Crown. I guess I can do this too.
    Don

  3. Hey Marty & Ricardo,

    I love articles like this because they keep me pointed the right direction as far as starting my business. I have a good friend who owns an HVAC company and he works IN his business, not on it, and keeps telling me how much money I could save if, once I buy a house to rehab, that I do the work myself. I KNOW he knows the holding costs, etc because he also has rentals…and STILL he tells me this…it would take me months to learn it all the hard way, and cost more more to fix what I screw up (come on, we KNOW it’s gonna happen) than what it would have cost me to hire someone.

    Don, my HVAC buddy could take a couple lessons from you…he still does ALL the work on his rentals too. And he’s retired from Lockheed. It’s not like he’s getting any younger. He needs to work ON his businesses too…and stop telling me to work in mine :)

    Thanks again for keeping this idea fresh in our minds.

    • Shane, it all really depends on what makes you or your friend happy. My Dad does all the work on his two rental properties, but he’s retired and enjoys being outdoors. Plus, he’s set financially. He reached his goals 10 years ago. Now he just does what he likes and hires someone to do the rest.

  4. Marty –

    There’s nothing like a little “on the job training” that teaches you how to run a business is there? It’s good to know what to do and also what not to do when you have your own business.

  5. Right there with you Marty. I think its just fine to do a bit of the rehab yourself when you first start, but not for long. I got my general contractors license when I first started flipping part time, but now I let the pros do it now while I am looking for other properties to flip. Time value of money is too great to be muddled in physical labor involved in the rehab.

    I’ve also found that a great GC will have super rehab ideas that will actually increase the value of the flip – and although you do pay them to oversee it all, this insight is invaluable. On several occasions, his recommendations have led to several thousand dollars in additional price when we we sell. Hire a great GC and keep your eye on looking for the next deal is what I say.

    • Mike, excellent point. Having a good team (contractor, Realtor) can make you money. Many do-it-yourselfers don’t understand how much value a contractor can add to the project.

  6. Marty, thank you for bringing this topic up. After 6 years of being hands on in every rehab, we just hired a General Contractor to run a rehab project. Whew! How difficult it is to let go of control! I guess you have to let go of something good to grab a hold of something great.

    • Jason, I’m surprised how many people have commented here about letting go of control. I had no trouble giving up the cordless drill. Maybe it’s because the average summertime temperature here in Phoenix is 110.

  7. Marty,

    Great article. I’m at the point where I’ve finally figured out how to get the numbers to a manageable level and I need to hire a “mini-me” to do all the stuff I do on a project. I hold the dumb end of the tape measure, hold up sheetrock, do a little mud and taping, and I do all of the painting and the flooring. The biggest problem is finding someone I can afford who is reliable.

    Anyway, thanks for reminding me of the next item on my “to-do” list.

    Tamara

  8. Marty, this is a great article and it is exactly what I was looking for. Do you recommend bringing in somebody and just having them be the permanent project manager for all the rehabs and if so would you pay this person a salary or a percentage of the profits of every deal? Do you think a GC or Project manager is entitled to 50% of the profits of the deal? Once again, great post.

  9. Thank you Marty!
    I agree 100%. I am right on page with having experts do what they do the best and in the shortest amount of time. It does take some research to find the right team that will not take you for a ride. But worth it, I would think when all the pieces of the puzzle fall into place.

    I am currently trying to figure out which other members of my team do I need. I have the realtor and the contractor. Any tips?

    Warren

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