Questions: Part 1 of 4

In an earlier post, we talked about answering some questions that a coworker had asked us about our business.  In this four part series, we will do our level best to answer these questions.  Our hope with all of this is that our answers will move past mere information and into the realm of helping you accomplish whatever it is that you are after.

So, the first question the coworker asked was:
Why do this?  (He was really asking,  "Why do this day job thing if you renovate and sell houses?  Or, why not renovate and sell houses exclusively?")

So, this is partially a Mick Jagger question.  

In one of the Stones books out there (either Blown Away by A.E. Hotchner, or Life by bandmate Keith Richards), it was reported that Mick kept attending classes at the prestigious London School of Economics while Keith and some of their other early bandmates pounded out music rehearsals and craftwork at their miserable little flat in Edith Grove.  Mick was, in essence, keeping the back door open just in case the front door of music failed to open fully.  Eventually he left LSE and focused on the Stones, but he waited until things were well under way, and the Stones success was all but guaranteed, before pulling that trigger.  

This is something that Martin Fridson points out that is common to the elite.  In his (almost tongue-in-cheek) book, How to Be a Billionaire (which is more a compendium of biographical sketches than a real "How To" book), Martin talks that almost all of his subjects exhibit this trait of having a back door, a way out, just in case things don't work out as planned.  We see and hear many, many stories of men and women that put all of their resources on black 33 or red 19 at the roulette wheel of life, and succeed or fail in spectacular fashion, however, according to Fridson, this is the exception not the rule.  More big wheels make sure that they have a spare or two in the trunk just in case.

Mick Jagger was not poor by any means.  His family was middle class, but he was still engaged in this pursuit to break out of an average existence prison.  He wanted something beyond the walls and razor wire of convention and used his heartfelt fascination with music as a vehicle to carry himself and his mates outside of those middle-class walls.  Be that as it may, he still kept a little powder dry and made sure that he went to the London School of Economics until the Stones had moved past maybe.

We aren't saying that we are Mick Jagger, like Mick Jagger, or even close to rockstar or billionaire fodder.  (We own a minivan, for pete's sake.)  But we are saying that having an escape hatch is a great position to be in.  Also, if we did not have a minivan full of kids, we just might do this full-time.  However, with a minivan full of kids, we find it prudent to meet our goals before even considering deep-sixing the day jobs.  In addition, why would we give up a great salary, fantastic benefits, amazing perks, and challenges we love in order to solely focus on one business that we also love, but is sporadic in returns -at least for the time being?  It doesn't make sense.  Then there is the time thing.

Let's be honest, here.  The proceeds from renovating a home can make a day job, even with a great salary, look like peanuts.  We talk about this sometimes -but usually only amongst ourselves.  Name another part time gig that can put thousands of dollars in your pockets while staying out of jail.  Most houses can take ten to twenty hours of our time because our methodology is to normally hire others to do all the work.  This blog takes up more time than some of the houses we have done.  Our profits are less than they could conceivably be in the end if we did the work, but the greater value to us is time.  

So, with that being said, let's say that we turn a profit of $6,000 on a house full of problems.    That $6,000 can represent $300 to $600 per hour of our time.  That's if the house sucks and we aren't doing well.  Remember, we have day jobs, so this is after-hours or on the weekend.  And, if it is during the week,  we are not exaggerating in the least when we say that we have signed documents at 30,000+ feet in the air on our way to an outing for our day gig.  Five minutes and domestic wifi on a domestic flight, and boom!  The house is closed and our proceeds are transferred by our lawyer to our account.  Or, we have used our lunch hours, or a Saturday morning breakfast, to get together and meet with our realtor.  We have met our contractor in the parking lot of our day job and handed over checks.  We have called our lawyer on normal breaks in the day.  And so on.  

The other thing here is another rock and roll analogy (although admittedly weak).  The drummer from Def Leppard had a Porsche or a C4 Corvette (we've heard both versions).  A few days after Christmas in the mid-eighties (December 31st, 1984) he was out with his girlfriend at the time, supposedly passing another car at high speeds late at night, missed a curve, and lost an arm in the ensuing crash.  (He's still with Def Leppard, by the way.)  He was left High and Dry (excuse the earlier, less pop-inspired reference).  The car and the inexperience, or over-confident driving, take your pick, is like the use of debt in doing renovation deals.  Debt is fine and everyone always tells you, "Don't worry.  I know what I am doing."  But then the economy throws a cyclical curve at the drivers.  This is a curve we should know is coming if we understand economics at all, and many people will tell you, their neighbor, and one another, "You know, we are due for a correction.  There's a bubble out there," and yet keep on with their high speed, over-confident ways.  Debt for us is like a formula one car in the hands of our seventeen year old son.  Or in our hands for that matter; a bad idea.  

We know so many people personally that have retained their appendages, but have lost their homes, bank accounts and cars, just because they were sure that they were on the fast-track and had complete control of their financial automobile, when that economic hard left turn popped up in the middle of the night.  Their success in other areas of their lives gave them a cockiness that they thought extended to all areas of their lives.  Even the areas that they mistakenly thought that they controlled.  These are the guys and gals who are the smartest people in the room.  We would rather say that we don't know what we don't know.  

So, our rule is no debt.  If we want to grow beyond our resources, we may consider taking on limited partners, but there again, that is like putting on slicks in a rain-soaked environment.  Your hind end is going to be all over the road, and you may be at risk of losing it -albeit at a potentially slower rate than debt.  

So to answer this question succinctly;  we don't take on debt and thereby limited our growth, we want to leave a back door open just in case the front door doesn't work, and this is truly a part time, evening and weekend gig for us at this point.  

Now ask us about our intentions...