A Better Business Philosophy
When starting out in flipping houses, one of the first questions you’ll likely ask yourself is, “What parts of the rehab work I’ll be doing myself, and what parts of the work will I be hiring out to contractors?”
For those who decide to use professional contractors to get the work done, invariably they will eventually think to themselves, “Why the hell am I planning to hire expensive contractors instead of just doing it myself (or hiring cheap day-labor), and saving thousands of dollars?!?!”
While there is no right or wrong answer to the question of “do-it-yourself vs hire-it-out,” I would like to give you some perspective on what it takes to turn house flipping from a hobby into a serious business…which will ultimately allow you to make serious money!
For the house flipper whose goal is to make a substantial part of his living from flipping houses, the goal can’t be to focus lots of time and energy on rehabbing houses; the goal should be to focus lots of time and energy on building a business. While that business may involve flipping houses, that little fact is relatively unimportant. A lot of business owners believe that what the business does should impact what they do; they confuse their business with their job. That’s not how the successful business owners think.
Successful business owners realize that their goal is to create systems and processes around doing something profitable. Those systems and processes can then be used to replicate and scale that profitable effort over and over and over again.
In this case, the business is all about rehabbing and selling houses. But your job as business owner has nothing to do with rehabbing and selling houses. Your job has to do with creating systems and processes to allow your business to rehab and sell more houses.
For example, you could spend 3 months doing all the rehab work yourself on your first house, and probably save $10,000 in contractor costs. If you spent 40 hours a week for those 3 months working on this particular rehab, that extra $10,000 would equal about $20/hour in extra profit in your pocket. But, what if instead you took those three months, and focused your time on finding 5 more houses, each of which generated $20,000 in profit?
That’s an extra $100,000 in profit over that time period, or more than $200/hour!
That’s not bad, but…
What if you spent those three months streamlining my process around buying, rehabbing and selling houses, and got to the point where you could do it 20 times in three months? That’s an extra $400,000 in profit, or about $800/hour. In fact, if you only focused your energies on replicating and scaling, there is no limit to the potential growth of your flipping business.
Likewise, you could save a few hundred bucks here and there by hiring unskilled labor (those guys down at Home Depot who work their butts off, but need to be told what to do). If you do this, you run into the same trap. Those guys would require a lot more oversight, and babysitting contractors is just another $10/hour job. Wouldn’t you rather hire the guy who costs twice as much, because you know you can trust him to get the job done on-schedule, on-budget and with a high degree of quality; that frees you up to focus on replicating and scaling your business.
If in the time you save by not having to babysit contractors you’re able to pick up one more house, that expensive guy has paid for himself many times over. And if you spend that time figuring out how to continuously buy more houses, that expensive guy has now become invaluable.
By the way, while rehabbing 50 or 80 or even 100 houses a year might seem far-fetched, there are a lot of people who are successfully doing it. But they don’t do it by spending time caulking showers, laying tile, or any other $10/hour task. They do it by focusing on the processes that allow them to replicate and scale. Everything from having vast network of supporting team members (Attorneys, CPAs, Agents, Brokers, Contractors, etc) to having well documented systems for getting the work done (things like creating a list of materials used in every house and training contractors how to replicate the same finishing touches in every house).
Doing your own rehab work (i.e., being your own General Contractor) is no different than trying to be your own lawyer or be your own CPA. While you could give it a try, you’d probably rather let your lawyer do what he’s good at, let your CPA do what he’s good at, and let your contractors do what they’re good at.
Meanwhile, you can focus on figuring out ways to help all of them work faster, smarter, and more efficiently, which will ultimately lead to being able to rehab more houses and make more money for both you and for the great team of people you have helping you. And isn’t that the goal?