Treat Your Business like a Hobby

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.

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