This topic is a bit of a follow up to my topic Getting Your Real Estate Education from a few weeks ago. I was writing about whether or not you should pay to get an education in real estate and I mentioned DIY. Doing It Yourself has been done for thousands of years but only recently been popularized as DIY. We now can get everything we need for that remodel in a single enormous store rather than multiple stores. We have Youtube.com and can instantly download the knowhow to repair the leaky drain or fix a washing machine of a particular model. A DIYer can save hundreds or thousands of dollars DIYing it. It all seems so great.
So, Let’s DIY It!
When you are starting out on your path to a real estate empire your entire realm might be a $40,000 dilapidated property. You can spend your free time fixing up that mess and sell it for, maybe, $120,000. That’s 200% profit! Why doesn’t everybody flip houses? You might just jump in and buy it. It is your first one, after all, and you plan to get a lot of education from this property, so you aren’t worried if you don’t quite make that 200%. Once you get started, you realize that you have to purchase a whole lot of materials. You are paying retail prices for these materials. You have to buy 10% more than you need for many items to account for waste. You need to buy tools you never thought you would need. You spend time going back and forth to the hardware store (my record is 5 times in one day).
You start to realize that you really don’t have all that much free time. Your day job got busier and your kid just took up soccer. Your spouse sometimes wonders why you aren’t at home in the evenings and weekends and maybe it would have been better if you didn’t buy that house in the first place.
You helplessly watch as the money you set away for this project dwindle. Now you have $60,000 tied up in the project and you begin to wonder what it is costing you to own this dump that no one is living in. It’s getting harder and harder to drag yourself out to that house. You get out the utility receipts and start to make a tally. Property taxes, insurance, utilities all are adding up. You now have done this DIY thing for a month and you realize that it will probably take you another five to ten months to get it done at this rate. You haven’t done this before, so you really can’t be more precise than that. There are always uncertainties but when you are new, they are much bigger.
You find out that this place is costing you $800 per month to hold and you recall that it will cost 6% to sell it with your agent. You did know that but conveniently forgot when you were doing the numbers in your head before.
I sincerely hope that you will sell the place for a profit, but there is a distinct possibility you will break even, or even sell for a loss. If this is your first property you might start to have thoughts of “Money can’t be made in flipping,” or “Others are much better / smarter than I am.” These thoughts are the real danger. You had a bad experience, but it didn’t sink you, and you will do better next time. The worst part wasn’t even the money. It was the almost a year you spent on this thing.
Next time, you might think about hiring out some of the labor.
Don’t Do It Yourself. Like that acronym? Me neither. Recall my twelfth article, the one about time, money, and health. You can trade one for the other or some combination but none of them come without some expense. Spend time and money in the gym and improve your health. Sacrifice some health and time for hard labor putting on a roof and you can save money. Well, that’s what you did with your flip house.
You did save a bunch of money and a DIYer can save a truckload doing the work him/herself. I am a big proponent of DIYing and enjoy planning and doing it on my own house. The big problem is in scalability. If you can DIY one house per year to flip you are never going to become financially free. Once you start having more than one house at a time, you cannot physically work on both at once.
The smart move is to do your figures as if you were purchasing the labor. Make sure it works, then do some of the work that you enjoy to save money, if you must. But be sure to reevaluate what your goal is. If your goal is to be swinging a hammer at age 60, then this is the right track. If you want to have 60 people swinging 60 hammers on 60 of your properties at age 60, then consider having the labor done by a pro. Use your time to find the right one.