Leveraging Your Time

Turnover rates

Retail stores have ways of tracking what is selling. One is dollars / sq. foot. You look at the items in one area over a certain amount of time. Take the amount of sales in that time and divide by the square feet of floor space they take up. Then compare to other items in other parts of the store. This way you can get an idea of what is making you the most money.

Another tracking statistic is turnover rate which has more application to real estate investing. Let’s say you have two products and product A has a $1 profit and product B has a $2 profit. Which is better? It is not necessarily B.

What if you only sell one of B a week and you sell 100 of A a week. So on a weekly basis, Product B has a turnover rate of 1 and product A has a turnover rate of 100. A is far outperforming B even though you make less per sale.

Banking and Finance have similar concepts and since their “product” is money, it involves how often do they reuse or re-lend their money but that is a whole other discussion so we will leave it at that.

Turnover in Real Estate

Many people who start investing in real estate have some connection to it, such as being a plumber, a contractor, or an electrician for example. They figure they will save money by doing as much of the work themselves as possible.

That is fine if you are looking to just supplement an income, but isn’t good if you are trying to grow this into a business so you don’t have to work everyday.

An Example of Turnover

Let’s say that it normally takes you 4 months to rehab a house when you are trying to do a lot of the work yourself. (Sometimes these types of projects take a year or two instead of 4 months. Then you have to factor in carrying costs as well.)

Let’s also assume you usually make $30,000 profit on a rehab.

Now, if you were to hire other people to do the work, who weren’t doing it nights and weekends, but full time, they would get the work done a lot faster. We will assume the rehab will be done in a month and a half and the extra cost is $10,000 so your profit is only $20,000.

Conclusion on Turnover and Leverage

So in one case you take 4 months which means you could do 3 rehabs in a year and you make $30,000 profit on each for a total of $120,000.

In the other case, it takes 1.5 months which means you can do 8 rehabs in a year and make a profit of $20,000 on each for a total of $160,000 in profit.

So by hiring other people and leveraging their services for time, you can make more money and grow faster if that is what you want.

The numbers will vary, but you get the concept. Be aware of time and do some calculations to see if it makes sense to do some tasks yourself and what you will hire others to do.

 

First Purchase & First Contractor

Fear! It can be incredibly difficult to make your first real estate investment. You don’t want to screw up and lose a lot of money. One key to this is finding a good contractor or contractors.

General Contractor

For your first time unless you have knowledge of building you will probably want to hire a general contractor who then hires and oversees all the subcontractors. Sometimes it is more expensive this way and other times good general contractors can actually save you money. But to start, use them and then get to know some plumbers and electricians and maybe to some of the subcontracting yourself.

How to Estimate Repairs Before Making an Offer

To put in a bid, you need to have a general idea how much a renovation will cost. You also need to make repairs that are appropriate for the neighborhood. You can put top of the line everything into a house in a blue collar neighborhood and lose your shirt and never get the value back out. Or you can put really cheap appliances and fixtures in a nicer neighborhood and have no one want to buy the house.

REIAs

One way you can find contractors is to look up REIA on line. It stands for Real Estate Investment Association. Most cities have one. Go to their meetings and ask around for suggestions for good contractors.

Contractor as Consultant

When you find a house you think is a good buy, ask 2 contractors to meet you there (not at the same time) and go through the house with you. Tell them you will pay them for their time. It might be $100 to $200. But consider it paying for education. Your cost could be much much higher if you estimate wrong and buy at the wrong price.

Have them go through and tell you what they think should be done to fix up the house and what it will cost. You want prices for different things, not just a total price. You also need a list of what will be done. Most likely they will make different suggestions so you won’t really be able to compare their two proposals in a direct comparison. But you will get a good idea of the ball park number for repairs. You can then make your offer.

If the contract is accepted, you might then bring in a third contractor to give his ideas and a price. What you then want to do is figure out what features you like that all three have given you. Combine them into a list of features / repairs that you want and ask them for a price on this list. They shouldn’t have a problem doing this because it probably isn’t that different from what they gave you to start with.

Then choose one and sign an agreement with him to do the work. You do not have to pay this one for his time. The other two you should pay for their time since they are busy and could have been doing something else and have taken the time to educate you some. As you gain more experience you can still get 2 or 3 quotes but you won’t have to pay for their time usually because you have more experience and can tell them more specifically what you are looking for.

 

Contractors

So if you are going to rehab a house, you need contractors. First you might want to read the segment on rehabbing.

 

Paint and Carpet

For a simple job, that people call paint and carpet, you would just go in and paint the house and either clean or replace the carpet and refinish any hardwood floors if they need it.

If you are going to get a carpet cleaning done, you should go for steam carpet cleaning. It is more effective. Otherwise, check around and get several prices for replacing the carpet.

 

Continue reading Contractors

Rehab

Have you ever rehabbed a house before? It can be a way to make a lot of money because you are increasing the value of the house and should get a premium for this. But beware about your choice of what to buy depending on what you have done before.

Experienced

If you are a contractor, electrician or something like that and work on houses anyway you are in pretty good shape. You should be able to estimate how much the job should cost fairly accurately. Your problem is going to be you want to do it all yourself. Remember that time is money. It is quite likely that you will make more money buy having some of the work done by other people you know in the business which will allow you to fix it up faster and sell it faster and get on to the next one.

Inexperienced

If you aren’t a contractor but fairly intelligent, you can learn what you need to know. For the first one you do, find a house that needs minor repairs. You don’t want to learn on a really complex one. Work up to it. You will be glad you did. Otherwise you could completely misjudge, take a bath on the first one and never want anything to do with real estate again.

Also, do you want to have the house inspected? If you don’t know what to look for, that might be a good idea, but if someone else puts in a contract without an inspection clause, you probably won’t get it. You also won’t know how to bid because you won’t know how much repairs are going to be.

How to get around this problem?

Have several contractors come in and bid the job before putting in the offer. You will be amazed because the prices will be quite different most likely. There will be a learning curve and a cost associated with it. Offer to pay the contractors for their time to come in and give you advice as well as a quote.

Get 3 of them and walk through with them and have them tell you what they think the property needs. This will vary as well. Take notes as you walk through. You will learn a lot, especially comparing what the 3 of them say. Based on what they say, figure out what you want done and then tell them what you want them to give a price for. Otherwise, each of their quotes will be for doing different work and you won’t be able to compare them.

Use that to figure out how to put in a bid on the house.