Recently I have begun to dabble in Real Estate Investing. The problem is I am so busy running my consulting business that I doubt I have time to be a Real Estate Investor.
My most valuable asset: Time
I don't have the experience or time to paint walls and to plunge toilets or any of the maintenance intensive tasks. The property manager tasks such as chasing down late rent or marketing vacant units would fall as a low priority compared to my high intensity tech contracts. Even the high level tasks I find fun such as scouting for properties, assessing their values and running the numbers will eventually be pushed to the side by server fires and negotiating the next big tech contract if I am not careful.
You're probably asking, "If you don't have time for that how on earth do you think you could make a good real estate investor?"
I AM NOT trying to become a Real Estate Investor. I AM going to start a Real Estate Investment Business.
I would not be surprised if some of you are scratching your head at that statement. It can be confusing if you have never started a business before. I have started many, the most successful being my consulting business. But even that is a massive failure which I will tell you about after this short story.
My successful/failure of a business:
When I was younger I made it my goal to become the Frank Lloyd Wright of Web Application Architecture. This means spending thousands of hours of study and practice to acquire some fairly unique skills I could exchange for a decent wage. As my career progressed I became better known and networked in. Because of this, eventually more deals would come my way. Because of the increase in demand I could increase my price until eventually I was priced so high that I was at the top of the market. But this is not a business, this is just a high paying job.
Because of the complex skill set required to do the job it is hard to hire others to do perform the work so I am freed to work 'on' growing the business instead of working 'in' the business. I have never managed to separate myself from the day to day operations of the business therefore severely limiting the amount the business can grow. If the consulting business is dependent on me being to do all of the work that the clients are paying for then the business can never grow beyond the amount of hours in my day. Today we are closer than ever before but we have not crossed that threshold yet.
When it comes to Real Estate I have a choice. Become a Real Estate Investor or start a Real Estate Investment business. Here is the difference:
Becoming A Real Estate Investor:
I go out, hit the pavement, and find some deals. I purchase a property, fix it up, and put a tenant in it. At this point I have one property. Then with less time than I had the first time, because I am now managing and maintaining the first property, I try to do it again. Maybe I succeed and get a second property. Then I try to do it again, but my progress slows because my attention is split between scouting for deals and the managing and maintaining 2 properties.
As my portfolio grows bigger I am spread thinner until I inevitably drop the ball and something bad happens. I miss family dinners, skip vacations, get fat because I don't have time to work out, all in the name of furthering my career as a Real Estate Investor.
Starting A Real Estate Investment Business:
I dig into finding my first property. As I do this I create a process for finding a deal. I document it, systematize it, and train one of my team to do it next time.
I find my first property and decide to fix it up. I create a process for hiring contractors, getting estimates, and managing contractors. I test the process on the first property. After it is done I tweak the process.
When it comes time to do it with the next property I use that opportunity to train one of my team to manage this process. During the 3rd, 4th and 5th rehabs my team member is learning new things and suggesting tweaks to the process that I can chose to include or not. By the 10th time they are training 2 more people to do it.
I create a process for managing tenants. I document the
process for onboarding new tenants. Instead of documenting which mediums I want them to market with, I enforce a process that gives my staff a quarterly budget to run marketing experiments then measure which has the greatest ROI for our marketing bucks.
I create processes that make the business run.
Processes Vs People:
One thing I learned from The E-Myth Real Estate Investor
by Michael E. Gerber, Than Merrill, and Paul Esajian is processes are scalable, people are not.
I am no exception to that rule. I am not scalable and therefore inserting myself into the business would limit the growth of my business. But my processes are scalable. Creating a set of simple systems my team can follow will allow us to grow and thrive.
What about the costs of hiring a team?
"But won't hiring a team be expensive?" Yes, it will. But I have a bit of an advantage. Since I chose to niche myself in a high demand market I can do a bit of arbitrage with my time. Before I start out, don't get the foolish idea that I am rich or anything, that is not what I am about to say at all. It's just cash flow.
Lets just say I make $X an hour (I bill a weekly retainer so even I am not sure how this equates out). I could spend 6 hours of my time painting or I could pay a professional that could do it in 3 hours at $X/3 per hour, one third of the rate I make per hour doing tech stuff. If you do the math the first option would cost 6 times as much as the second option. Obviously I am going to take the second option.
Seeing it in action:
In my history as a tech CTO one of the first things I like to do is to create a Living Operations Manual. Operations Manuals have long been used in business to communicate processes and procedures throughout the company.
The "Living" part is a recent addition. Instead of printing out a stodgy paper Operations Manual that quickly gathers dust and becomes obsolete I chose to use a wiki format. This allows my team to quickly submit suggestions and changes to my processes that I and my senior directors can choose to include or not.
Open Sourcing It:
As if drafting an operations manual for an entire Real Estate Investing Business wasn't crazy enough I am releasing it to the world free of charge open source style. Feel free to use it for your own business. Maybe you will have some suggested processes and be willing to share it with us. 'A rising tide raises all ships.'
A work in progress:
Please note this is a 'Living' work in progress. That means I am actively working on it. There are a lot of parts not added yet, areas that are just outlines, and basically cocktail napkin notes. Other areas are fairly fleshed out. I plan to continue adding to it as we learn those painful lessons. Basically what I am saying is if you click the link below don't expect a finished product.
Without further adieu please check out the initial draft of the [Schematical Properties Operations Manual](
If I have time I will do part 2 that explains how I plan to start with just only me doing all the work then as time goes on hand off the roles and responsibilities to other team members. Eventually dividing up the team in to departments further specializing the teams focus for increased efficiency or you can just read The E-Myth.
Until then best of luck to you in your ventures.