Hobbies are expensive. I used to really be into wakeboarding. In 2005, I bought a $60,000 wakeboard boat and over $1,000 in wakeboard equipment. A single roundtrip to the lake cost me over $100 in gas. In just my third outing in the new boat I tore my ACL while attempting a simple trick on my new wakeboard. Since I had private health insurance and a large deductible the knee surgery cost me $5,000. It took me a year to recover from surgery and I used the boat about 5 more times after that. Last year, I sold the boat for $20,000 less than I paid for it. It reminds me of a popular saying, “the two happiest days in a boat owner’s life is the day they buy it and the day they sell it.”
Are you treating your real estate investment business like a hobby? In many ways I did. Although I studied my local real estate market, networked with other real estate professionals and spent thousands on real estate education programs, I never really operated as a business. Here’s why:
- I didn’t have a business plan.
- I didn’t adopt an exit strategy for the business.
- I never used or understood important financial tools like balance sheets and cash flow statements.
- I had employees but no organizational chart or training system.
If I had done these things would that have prevented my real estate investment business from collapsing? Probably not. I’m certain Bear Stearns, Countrywide, GM, AIG, and Indy Mac Bank operated like a business and they still went belly up. My point is that if you operate like a real business your chances of success are increased exponentially. You will:
- Work more efficiently because you have a plan.
- Be more aware of shifts in the real estate market.
- Attract more sophisticated investors.
- Retain, motivate and inspire better employees.
To write a business plan, I suggest Business Plan Pro software and the book, The Plan-As-You-Go Business Plan, by Tim Berry. You can use Quickbooks for help preparing financial statements. For help reading them I suggest Warren Buffett’s book, Warren Buffett and the Interpretation of Financial Statements. Finally, when building a staff and creating systems I highly recommend The E-Myth by Michael Gerber.