My husband told me that joke a long time ago – he’s been dabbling in this self-employment thing off and on for about 10 years. We started our rental real estate business, Good People Good Homes in 2008 when we bought our first apartment building. Steve got laid off from his last “real” job in 2009 and he’s been full-time self-employed ever since. He tells me he’ll never go back – and I believe him, because it’s been 6 years! We’re not rich, but we’re okay. Our bills are paid. I still work a “real” job and I work our business with every other spare moment.
That’s the reality of real estate entrepreneurship. Of any entrepreneurship, really. I just want to get that in front of people with this blog. It is possible to start a successful real estate business flipping houses, wholesaling properties, and owning rentals. But it’s a small business, and there are realities to running a small business that you need to know about, because most small businesses fail. If you get into this, I don’t want you to fail! I’m not writing about my reality to discourage you, I just want you to go into this with eyes wide open. I am absolutely thrilled with my life and the direction it’s taking – despite all the hard work and sacrifice it’s taken to come this far.
Being a real estate entrepreneur is running a small business.
Rental real estate is an almost fool-proof investment. Good thing – because Steve & I are a couple of fools! We jumped in with a vision that combined idealism with a profit motive. We would buy properties at a low enough price that we could fix them up and they would still cash flow as rentals. The rents would cover all the financing, taxes, insurance and operating costs, with profit left over. By fixing up dilapidated – in some cases abandoned – properties and installing good tenants we would be improving the neighborhoods. I still believe in this business model, but in 2008 we were pretty naïve. We’re learning as we grow.
I feel like we just dove in ass-backwards. In 2008 I was sure we were making a carefully researched and well-thought out move. We did our due diligence. We bought that first 6 unit building for a fair price and it did cash flow for us. Knowing what we know now we would have paid a lot less for that same building, but we did OK for a couple of beginners.
But now, 7 years later, I find I’m having to take remedial courses in running a business, because I never learned how to run a business – all that record keeping, bookkeeping and accounting stuff. A notebook, pen, and Excel spreadsheet worked fine in the beginning, but now we’re getting big. We have multiple LLCs and multiple streams of income and expenses. We have a lot more rental units to keep track of. My husband is out there playing matchmaker between private sellers and investors, known in our industry as “wholesaling.” We’ve also flipped a couple of houses, one we sold outright, two are for sale in New Jersey, and two others are “rent-to-own” deals that are a whole other area of business. Many of these transactions involve other investor partners. Things got complicated, real quick.
So now I’m making the time to learn some basic accounting skills. This is not my forte, and it’s certainly not Steve’s. We are both right-brained creative visionary types. As soon as we are able, we’re going to hire a bookkeeper to do this for us, but in the meantime I’m it. Of the two of us I’m more organized, and I will feel more comfortable having a rudimentary understanding of our books before I hand them over to a third party.
If I could go back in time and give my 2008 self some advice I would tell her: set aside some time to learn the basics of running a small business, any business. Forget the glamor of real estate and those dreams of owning 400 units and just focus – for a minute - on what you consider the mundane boring stuff. Take some classes at the Small Business Development Center. Wilkes University has one locally http://wilkes.edu/sbdc , as does the University of Scranton http://scrantonsbdc.com/ . Here’s the link to the national site to find one near you: https://www.sba.gov/tools/local-assistance/sbdc
If I had done this back in 2008 and learned all this administrative crap then, I truly believe our business would be further ahead today. I think we wasted a lot of money and time due to our lack of skills in this area. Now that I’m finally buckling down on this, maybe I’ll be able to take a vacation week from my full-time job next year and actually go on vacation, not spend the week doing our taxes because the extension is about to run out!
Build your team. The real estate gurus stress this in all their seminars. You need a good bookkeeper, accountant, office assistant, real estate agent (or several), property manager, lawyer, title agent, maintenance supervisor, and a good General Contractor with a reliable crew to do what we do. THIS IS A HELL OF A LOT EASIER SAID THAN DONE!
First of all, when you start out a small business YOU are doing several of the above jobs yourself. I was the only bookkeeper, office assistant, and for many years the only property manager we had! Steve was the maintenance supervisor and the General Contractor, and unfortunately he still is much of the time.
Let’s go over that list, one by one, and I’ll give you the reality check as I see it:
Bookkeeper: We haven’t really tried to hire one yet. We did once when we were trying out a software system called Total Management, but the bookkeeper couldn’t figure it out. I don’t blame her – we couldn’t figure it out either. Here’s the thing about bookkeepers – you have to give them a somewhat understandable accounting of your income and expenses in order for them to do your books. It’s kind of like how you clean your house before the cleaning people come. I can pull crumpled receipts from Lowes out of my husband’s dirty jeans on the bedroom floor and nag him incessantly until he gives me his mileage for the day. A bookkeeper isn’t going to do that. When I, as a wife and business partner, have figured out a way to get a consistent expense report from my husband that someone who hasn’t been married to him for 12 years can understand, then I will hire a bookkeeper. Hopefully that will happen by January 1st of 2016.
Accountant: Unless you have a head for numbers and immense faith in Turbo Tax, you’ll need one of these from the get-go. Make sure it’s one who knows about real estate. Just like the bookkeeper, though, you have to give them something legible and understandable to work with. My accountant likes Quickbooks. I wish I knew how to use it! It’s on my list of things to learn, hopefully by the end of the year so I can start up January 1st. Until then, I’ve been giving them what I call “The Spreadsheets from Hell.” Again, a lot of cleaning the house before the cleaning people come.
Property Manager: UGH - DON’T GET ME STARTED! I’ve devoted several blogs to this already. Steve & I managed the properties all by ourselves for years. We had a friend helping us out for a little while – that friend is now taking the real estate classes along with Steve so she can do it for real. It became clear to us that if we want to grow our business, we have to farm this out. So we hired a management company under a licensed broker locally, which turned out to be a bad fit. They made the decision to end the contract with us two weeks ago, which saved us from having to make that decision. So… do we try the other broker (there really aren’t that many to choose from around here!) or do we do it ourselves until we come up with a better solution? I have a feeling I’m going to be building a management company from scratch. I’ll keep you posted!
Lawyer: We need to find a regular attorney that understands and supports what we are trying to do. We’ve worked with a few different lawyers to handle things that have come up, and they got the job done, but we haven’t found our lawyer yet. That’s another one of my short-term goals.
Title Agent: We’ve been lucky here, too. We use two local title agents who I will be happy to name in this blog – Betty Bilbow of Bilbow Abstract, and Candy Yanus of C & C Abstract Company.
Maintenance Supervisor: This has been the biggest problem yet. Steve became our maintenance supervisor himself way back in the beginning when we got screwed by contractors who ran off with our $10,000 deposit. It was the first of many hard lessons about the construction trade around here. We’ve had a few good people who have done good work for us in all these years, but Steve still has to supervise. We’ve tried three times to put someone else into that role, and they’ve all washed out quickly.
A General Contractor with a Reliable Crew. We’re still in search of one of these, too! The last guy we hired convinced us he had the crew to handle several of our projects, and he left several undone, while cashing our deposit checks. Guess this guy will end up helping me try out a new lawyer!
It’s a long, hard road, kids. Again, I’m not writing this to discourage anyone. I just want you to go into it with eyes wide open, and be prepared for the challenges.