I previously wrote a piece titled, “4 Reasons DIY is Dead (An Argument for Outsourcing Everything.” What amounted to a polarizing article was meant to explain why performing the labor in your real estate business is a terrible idea.
I still love that article and agree with my original position, but I wanted to clarify and expand on it.
It’s extremely valuable to know how to DIY—but extremely low value to do.
Avoid Costly Repairs
If you’ve never worked on a house before, how confident can you be when you walk into one without knowing the scope of work? I had a friend who asked me about a flip he was doing that apparently had all the baseboard installed wrong so it needed to be replaced. He was incredibly anxious about this because he had no idea what baseboard was. To him, it sounded expensive, but he just didn’t know better.
For anyone else that doesn’t know, baseboard is the small strip of floor trim that brings together the walls and the floor. It’s super cheap and super easy to install or replace. If my friend didn’t have me as a sounding board, then you can imagine how easily he could have gotten ripped off.
This is the same old stereotype of the person who knows nothing about cars and gets told they need blinker fluid or muffler bearings. If you don’t know better, you are at the mercy of blindly trusting your contractor, which is not a situation I recommend putting yourself in.
Understanding how a house is put together, what the materials look like at the hardware store, how difficult things are to complete, and how long they take are all things that allow you to make faster and better decisions when you’re doing rehabs. They also reduce the burden of stress, which may be the costliest part of real estate of all.
For my friends who need to learn more about house construction—but don’t have a project yet— may be wondering, “Alex, I want to learn how a house is built, but I don’t have one to practice on and I can’t quit my job and go into construction. What do you suggest?” Well, I’m glad you asked because I have the absolute perfect solution for this problem:
Volunteer for Habitat for Humanity
First, even if you’re a knucklehead who’s never picked up a hammer, they will likely be very happy to have you.
Second, you get to learn a ton about building homes, what things cost, and you can do it around experienced builders who won’t let you mess anything up too badly.
Third, you get to meet a ton of people and build some potentially great long-term relationships. Many of the people who volunteer at Habitat are full-time builders that have contracting businesses.
Fourth, there is no downside risk to this at all. There is nothing you can do that will cost you money. It’s a purely upside endeavor—and those are rare.
Fifth, and most importantly, you get to give back to the community. Many people claim this as a motivating reason for their real estate business. Well, if you only do it for profit then it’s not as generous as one might claim.
Manage Your Rental…for a Bit
These days I use a property manager for my entire portfolio, but when I started I self-managed my rentals. For single-family rental owners, this is a good experience to have. Understanding tenant onboarding, listening to their feedback and complaints, and dealing with a multitude of differing personalities are all things that are going to benefit your business immensely over time.
Even when you turn things over to a property manager, you’ll have a better relationship with them because you’ll have a deep understanding of what they have to deal with and what you’re asking of them. You’ll also be able to hire better property managers in the future because you’ll know what it entails.
One of the biggest problems new investors make is thinking they can buy any property anywhere in the country and just stick a property manager on it and it’ll run well. This, in my opinion, is peak arrogance. You should really know what you’re asking from a property manager before you assume they will just do their job no matter what you throw at them. Property management is a difficult job, especially for C and D class properties. And having some experience in doing so will create a much different dynamic with your manager.
Then, Turn Over Management Responsibilities
When is the correct time to turn things over to a property manager? My suggestion is to do so sooner rather than later. I turned my portfolio over at only two units, with about two-and-a-half years of self managing. Your personal timeline will vary and I think it depends on how much you genuinely enjoy having your hands in the business so closely.
Some people genuinely like fixing toilets and managing tenants. If this is you, then don’t feel compelled to outsource things so soon. Enjoying your business is priority No. 1 (in my opinion). If it adds stress to your life, have someone else do it. For most people I think they want real estate to create them freedom rather than just save a few bucks. Giving up 10 percent of gross profit for 90 percent stress reduction is maybe the best trade you can make in this business. Learning to manage the managers will provide the real freedom.
Scale Is the Solution to Every Problem
From an economics standpoint, I 100 percent stand by the point of the original article that DIY is the least efficient way to run your business. This is the whole premise of the book The E-Myth by Michael Gerber.
Working on the business and in the business is a different skill set. One of those skill sets scales and one of them doesn’t. The skills that scale are the ones you spend your time improving, and unscalable skills are the ones you outsource.
Do you DIY or source out? What would you recommend DIY’ing and what would you leave to the professionals?
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