RE Investing: DIY or hire a pro?
By Brad Thomason, CPA
A client referred a friend to us. He was contemplating the purchase and fix up of a three-plex. We reviewed his project and pointed out a few things to keep in mind. We also quoted him a fee to have our project management team run it so he didn’t have to. He was not experienced in real estate nor construction.
He did not engage us for the project, but instead did it himself. Our client later reported back that he had spent several hundred hours lining up contractors, driving back and forth to the site and generally worrying himself sick for several months. He also spent about $30k more on the renovation than our projections had indicated.
In the end, we could have saved him a lot of the headache and most of the wasted time. Not to mention our fee would have been a fraction of what he overpaid to complete the work.
Obviously this is a self-serving post. Since we are in the business, of course you would expect me to take this side of it. But here’s the thing. Remember the old Zig Ziglar advice about finding a need and filling it? We are in the business because there’s a need. A need which was around long before we ever got involved.
Real estate investors can have their deals go sour by overpaying for services they need, and by buying stuff they don’t. Our client’s friend apparently did some of both.
Professional managers know what things cost and know what’s necessary versus silly. At least the good ones do. There are things that are perfectly reasonable items to spend money on at your residence, which would be a flat out waste at an investment property. Contractors and tradesmen routinely ask for more than the going rate, for the simple reason that if they don’t ask, a potential customer can’t say yes. Frequently we smile at the first quote and say, “try again.” Ninety percent of the time, they do.
The other day I was having breakfast at Waffle House with one of our team members. There was nothing on that table that either one of us couldn’t have cooked ourselves at home. It’s just that it was more convenient to let them handle it, because we had more pressing matters to attend to.
Real estate investing is not rocket science. Nor is the work that is often necessary to set up optimal deals and move through the mechanical aspects of getting the project done. But it’s not something we come out of the womb knowing, and like all education, it can end up being expensive. As our client’s friend found out. Knowing what to watch out for, who to call and what to say no to, don’t come to a person in a single download. They only accumulate after a period of years, often as the result of doing the wrong thing. Hopefully seeing someone else do the wrong thing, but in truth, some of it from stepping in the hole yourself.
But even if you do know how to do it, there’s still the matter of how it fits into the other things you need to do. I don’t go to Waffle House because I’m incapable of cooking eggs and bacon. Funny thing about most investors we know is that the ones who have the capital in the first place got it by being pretty good at something else.
So here’s my advice: Stay at work. Do the thing you are good at and keep making money. Write the check to a pro for the stuff they are good at. You’ll most likely come out better in the end. And you won’t get your shoes scuffed up, nor paint in your hair.