I’ve gotten a lot of questions recently about what parts of the rehab work I’ll be doing myself, and why the hell am I planning to hire the expensive contractors vs. just picking up day laborers to do the easy stuff or doing it myself. The answer is obvious (to me, at least), and is at the heart of what I’m trying to accomplish. You see, my goal isn’t to focus my time and energy on rehabbing houses; my goal is to focus my time and energy on building a business.
While the business I’m trying to build may involve flipping/renting 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 my case, the business is all about rehabbing and selling houses. But my job is has nothing to do with rehabbing and selling houses. My job has to do with creating systems and processes to allow my business to rehab and sell more houses.
For example, I could — as some have suggested — spend 3 months doing all the rehab work myself on my first house, and probably save $10,000 in contractor costs. If I 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. But, what if instead I took those three months, and focused my 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 I spent those three months streamlining my process around buying, rehabbing and selling houses, and got to the point where I could do it 20 times in three months? That’s an extra $400,000 in profit, or about $800/hour. In fact, if I only focused my energies on replicating and scaling, there is no limit to the potential growth of my business.
Likewise, I could — as many have suggested — 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 I do this, I run into the same trap. Those guys would require a lot more oversight, and babysitting contractors is just another $10/hour job. I’d rather hire the guy who costs twice as much, because I know I can trust him to get the job done on-schedule, on-budget and with a high degree of quality; that frees me up to focus on replicating and scaling the business.
If in the time I save by not having to babysit contractors I’m able to pick up one more house, that expensive guy has paid for himself many times over. And if I 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 my own rehab work (i.e., being my own General Contractor) is no different than trying to be my own lawyer or be my own CPA. While I guess I could give it a try, I’d instead rather let my lawyer do what he’s good at, let my CPA do what he’s good at, and let my contractors do what they’re good at.
Meanwhile, I’ll 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 me and for the great team of people I have helping me. Isn’t that the goal?