Epic Real Estate Investing - Management Advice That Will Save You Millions | HTH 007 | 480

Episode Date: September 26, 2018

Find out why you shouldn't shift from being an investor to being a contractor! On today's episode, Matt Theriault and Matt share management advice that can save you millions over your investing career. Learn what you should do and what you should hire out, the pros and cons of being a contractor, and the advantages of being an investor rather than a contractor. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Yes, hello. Flipping houses, it can make you rich.

Holding them, however, will make you wealthy. This is the Hold That House show. I am Matt Terrio, and over there is Mr. Matt Andrews. That's me. And before we begin, I've got a great show for you today, but before we get there, we've got a free gift for you. I love free gifts. Don't you? Yes.

It's the best kind. Go to hold that house.com and download the four-hour work month, the 10 commandments to managing property managers. Really, it's the key ingredient to financial independence through real estate that they're not telling you about. No one wants to take the time up to tell you about this and talk to you about this. They're so interested in leading you or redirecting you in some other way. and trying to, I don't know, ultimately sell you something. And, you know, that's why no one talks about it. But it's probably the one thing that really done right will secure your financial independence right now and well into the future.

And you can get that for free at hold that house.com. Hold that house. I was off there. That's all right. I got a little, the cheeseball gene kicked in there. Nice. I like it. Anyway, today we're going to talk about management.

a different type of management, though. We're talking about project management and particularly some advice that will save you millions. Maybe not in just one project. I guess it depends on what type of property you're doing. Sure. But certainly it doesn't take long

for the savings to add up to equate to a million inside of a real estate investing career, perhaps in your first year even. Absolutely. And Matt is rather an expert on kind of both sides of this, whether you're managing your projects yourself

or you've hired a comment. contractor to manage it for you. There are definitely pros and cons to both sides. Absolutely. And my experience pretty much is I managed property or excuse me project managers. But Matt's been on both sides of the world. He's done rehab even though he admits that he's very dangerous with a hammer. It's dangerous to himself. I'm dangerous with even like a screwdriver. Right. For sure. But he's done both. So he's got some pros and cons and some tips here, some great advice that will save you millions over your investing career. So Matt, where are we beginning? Awesome. Awesome. Well, you know, we've talked in the past about knowing what your strengths are and knowing what your weaknesses are.

Right. You know, and go to the things that you're good at, do those things, and hire out the things that you're not good at. Right. You know, so the first step in this process of deciding, you know, should you manage your own rehab and renovation project or hire a contractor is really going back and being honest with yourself and saying, look, am I good at this? You know? So when I started out, like I told you before, I was not honest with myself. I didn't take a hard look at my skills. and I tried to swing the hammer myself.

I tried to, you know, put in fans. I tried to fix a water heater, which I told you about ended up in an entire house being flooded, you know, it cost me 10 times more to redo it, you know, than it would have had I done it right the first time. So, you know, first it's being honest with yourself. So what I want to do is break down the pros and cons of managing a renovation and a rehab yourself versus a contractor. And let's just break down what's good and what's bad. you guys are listening to this and kind of take an inventory of these pros and cons, put yourself in this position so that you can be deciding, am I good at this? Should I be doing this? Or is this

even the best use of my time, even if I could do it, like we've talked about before too? So we'll jump right into, let's talk about managing a project yourself, being the project manager. Okay, so you found a great property. You know it's going to be a fantastic buy and hold property. You know it's going to be a great double-digit cap rate. It's going to bring you good cash flow for years to come because What do we do on this podcast? Hold that house, right? So you know it's going to be a great, great rental house. But first you got to fix it up.

You got to make it a rent-ready house, right? So should you do it yourself or hire the contractor? Well, here are the cons to being the project manager, at least the way I see them. Because I've done that and I've done it quite a few times. And here's what I didn't like about it. Managing subcontractors, you know, meaning you're basically the contractor. If you're taking on the project, you have become the contractor, right? Like it or not, you're the G.C of that project now.

And that means you have to manage subcontractors. So your plumbers, your electricians, your cement guy, your wall guy, your roofers, your landscapers, I mean, your painters, your flooring guys, you know, whoever you're hiring to do these different things because each of these guys is going to have their own expertise. So you've got to bring all these guys together and you've got to manage them. So every subcontractor has got, you know, a different personality, right? So that's, you know, potentially good or bad, you know, depending on their personality and how you work with them. So that process is it's a management intensive process, you know, and you've managed, I know you work mostly with contractors, but you've also managed some subs, right?

Sure. No, I remember it was actually my very first deal ever. We took a single family residence converted it into a fourplex and we had to deal with the city. And what I found, not so much managing the personalities and making sure everybody got there on time, but to get. your approval through each step of the process with the city, things had to go in a certain sequence. Like the plumber couldn't do this until the electrician did this. And the electrician couldn't do this until the, you know, the flooring guy did this or whatever it might be. And that was such a nightmare. Yeah, that's hard to do. Right. I mean, that's very hard to do. And that's part of managing subs. So you're not just managing sometimes personalities. And, you know, when you're dealing with subcontractors, you're not always dealing with the same caliber of person that you would as a GC who's running their own business. This is somebody who kind of, is running a business within a business.

And a lot of these guys could be, you know, hand-to-mouth kind of guys and hard to deal with. Right. You know, so one of the good things about GCs is that they're good at dealing with that. That's kind of one of their jobs, right? But dealing with that as a project manager can be difficult. And then like you said, Matt, can be really hard to stay on schedule, right? And get things going in the right way. If, you know, you've got city inspectors checking things out, things have to be done at the right time or the right place.

Just for, you know, doing a rehab project the right way, you have to have things go at the right way. time. You can't put, you know, flooring in before you paint and then you paint all over the floor, you know, so there's things that need to happen at the right time. And scheduling those subcontractors can be a nightmare sometimes, just getting them to come at the right time and then getting them not to be mad at each other when they're working on top of each other, that type of thing. It's tough. And everyone's seen, you know, flip this house and you've seen contractors probably arguing with one another, you know, well, that's what it's like sometimes to deal with subs. So that's tough. So it's hard to stay on schedule. When it's hard to stay on schedule,

it's also hard to stay on, fill in the blank. Budget. Budget. Yeah, right, exactly. So when you fall off schedule, money is flying out of your pocket at that point, right? So it's hard to stay on budget. It takes a tremendous amount of time, you know, for you to manage that project. I mean, that could end up being a full-time job for you.

And the reason it is is because, number one, you're not just stroking one check or a few checks to one source who's then paying a bunch of different people. You're now the guy who's paying all these different people. So the plumber wants to check over here for the first half and the roofer wants to check over here because he's done and this guy wants to check it. And so now you're just sometimes you could feel like just like a check writing machine. Right. You know, especially if you don't have that CPA or that bookkeeper in place like we talked about on a previous episode. Easy to lose track.

Easy to lose track. Super time consuming. Just paying all these providers. Getting multiple quotes, you know, like versus bringing in a contractor who's got it all kind of set. You got to, I mean, I like to bring in. If I'm managing a project and I'm somewhere where I don't have. have my trusted providers. I want to bring in three people. I want three plumbers to give me three quotes. I want three roofers to bring in three quotes. Just the process of getting quotes

can take weeks sometimes, especially if you're looking at every system. So, you know, those are really the cons and probably the biggest con, and I'm sure you can kind of tell where I'm falling in this equation. The biggest con to being a project manager is it can drive you nuts. It can really drive you nuts sometimes. I'm going a little baddie just listening to you. Yeah, right, exactly. You went slightly nuts just then. Yeah, exactly. So all of those things can be very, very difficult. So those would be the cons for managing the project. So there's some pros to this. There are some pros.

Okay. Let's turn it around. There's one small pro. No, there's a couple. Well, one, you could save money

hiring your own subcontractors. Okay. So if you're bringing in and getting multiple quotes like we talked about, you're able to kind of choose the best one and choose the best price. There's a chance that you could cut your cost down over what you would pay a general contractor to do the same thing. You could save money on materials.

You know, if you're making the runs to Home Depot or if you're making, you know, HD supplies bringing the stuff or whatever your system is for getting materials, if you're controlling that the whole time, you could save money on materials. Now, you could also argue you'll lose that time waiting in line at Home Depot and walking around trying to find everything. You'll lose that in time, but you know, you could save money on materials. That could happen. And, you know, it's, you can ensure it's done the way that you want it done.

You know, so if you're managing the project, you've hired all the contractors, you're buying all of the materials. You know, you went and bought the kitchen countertops. Well, you're not going to walk in one day and the wrong kitchen countertops are going to be put on. You bought them. You brought them there. So you know that's going to be done right. So it does give you an element of control and it lets you ensure that it's going to be done the way you want it done, assuming you know how to manage it and do it.

Right. Right. So that would be, you know, the pros. There are some money savings there and there are some elements of control that you wouldn't normally have. We'll be back with more right after this. Do you have doubts about your current? plan for retirement actually panning out, imagine revolutionizing your retirement plan so that it pays you right now and in retirement. Change one thing one time and that revolution can be yours.

That's bad news for Wall Street. But great news for you. We are Turnkey Allies and we'd like to offer you free information that will show you how one simple tweak can cause your retirement plan to pay you right now. And in retirement, and it's yours for free. For the secret your financial planner doesn't want you to know, go to turnkeyallies.com. That's turnkeyallies.com. So those are the big pros and cons of managing the project yourself. So let's take a look now at the pros and cons of contractors.

We'll look at the cons first, right? And this is something, I mean, you'll have a lot to say about this because you work with a ton of contractors all over the place. So, you know, contractor cons. It can be more expensive, right, than managing the sub yourself, buying all the materials yourself. There's going to be a markup in there for that type of thing. And a good contractor should have a markup in there for the work they're doing, right? So it many times could be more expensive It gives you

Kind of like we talked about before It gives you less control over the product So you know there could be some judgment calls that you're not there for That that contractor just has to make to keep the project moving Maybe not the same decisions you would have made But again you weren't having to be involved in that process And for not being involved in it You know

You can lose a little bit of control over it basically So the other piece and this is one of the toughest pieces And this is really something that you're really good at Matt I know contractors don't like to be managed, micromanaged, right? But sometimes they need to be micromanaged. Right. Okay, that can create a budding of heads between you and that contractor, right? So, you know, that could be ugly and time consuming.

If you have to fire a contractor, you know, like let's just say they're not doing the job the right way. And you have to let them go halfway through a project. That can be really messy, really ugly. Have you ever dealt with a situation like that? Yeah, I'm just afraid of what they're going to do on their way out. Right. Yeah, exactly. What are they taken with them or what are they going to destroy on their way out?

Sure. Try to put a lien on the property and all kinds of things like that. It would be very tender and delicate in that dismissal. Exactly, exactly. So, you know, if you just fire a subcontractor, hey, that plumber's gone. Maybe you get another plumber and that's not the big of a deal. But if you're firing the person who was controlling the entire project for you halfway through, that can obviously, you know, be a really time-consuming and tough thing to do.

So those are the cons. but it's not all cons. Here's another one. Oh, okay. They lie. Oh, no. Yes, contractors lie. Yeah, that was the first thing that came down in mind.

I was like, gosh, can't just be straight with me. Just telling us. And not all of them, but boy, that's not uncommon in that field. You know, so just we talked about a few weeks back of, you know, you don't want to be Mr. cynical or Mr. pessimism. Sure. You know, but, you know, you don't want to be Mr. gullible either. Exactly.

You don't want to have the, you know, you don't want to be too trusting. Absolutely. You're going to watch your stuff. And that's one place. We've talked about it many times where this is one of the big places where you can lose money in real estate. Absolutely. So you got to watch them. And you know what I do to kind of help me gain perspective on those kinds of things?

You know, when somebody's not doing what they're supposed to do and I want to be the nice guy, but I need to hold them to it. I start to think about what they're really doing. And what they're doing in my mind now and the way I think about this is you are steers. feeling my daughter's future. And that's what I think about. I think I'm paying you too much for doing something that you're not doing well. You know, if it's not enough that you don't take pride in your work, if it's not enough that you're disrespecting me,

if that's not enough for me, then I think about, hey, this is, you know, my daughter's inheritance. Or this is my daughter's wedding I'm going to pay for someday. And you're taking money away from my little girl or something like that. Then I stop caring about their feelings and I start caring more about the feelings of the people who is really going to affect. Right. You know, so that's my little hack.

I like it. You know, and so instead of worrying about their feelings, I think about, what do I want for my daughter? Okay. You're standing in the way of me getting what I want from my little girl. That's good. My perspective totally changes at that point. That's a good tip for all the softies out there. It is.

And I'm one of them, so. I am too. That's why I needed something like that, you know, like. I want to borrow that. Exactly. And I used to say, you're stealing money from my daughter's child, you know, for my daughter's college. Then I thought, I'm not sure if I'm going to have her going to college by the time for this college age.

But anyway, that's another story for another day. So, yeah, let's look at the contractor pros because there's definitely some good pros. Definitely. You and I both use contractors for the majority of our projects. We're not out there managing all of them ourselves, right? So why do we like that? Number one, they are responsible for scheduling and maintaining the budget, hopefully. Right.

But certainly the scheduling piece that we talked about. That's one of the hardest pieces of being a contractor is just getting all these different pieces to work together so that the, you know, roughed in plumbing is ready for the drywall, which is then ready for the electric. You know, just everything needs to be done the right way. And a good contractor is a master of scheduling. Just an absolute master of knowing,

hey, I get the plumber in this day. He's out on Tuesday, Wednesday morning, the flooring's in, you know, that type of thing. And a good contractor is super, super organized. So that's a warning sign for those of you hiring a contractor. If they don't seem organized, or if they can't meet you on time, the first time you get together,

chances are they're definitely not going to be on time when they're handling 15 subs underneath them. It would be almost impossible, right? So a contractor has to be hyper-organized. So they're responsible for schedule and maintaining budget and a good contractor will. They hire and deal with the subs, kind of like we already said,

which is a really, really big piece of it. They take, you know, when you have a good contractor in, it takes less of your active time on the project. So, you know, if you were doing all of the projects, all the rehabs that you handle, Matt. If you were the project manager on all those projects, like, how would that work? That would just, my business would stop. Yeah.

Yeah. Because I can't handle it all at once, right? Right. And well, I can't. Maybe one, maybe two at a time, maybe if you were managing them. Right. But it's what would suffer by me trying to manage two or three at a time. Right.

It's the other parts of my business that would collapse. And I would rather deal with the occasional hiccup with dealing with a property manager. You can have a lot of them. if you get the wrong one. But once you find the right one, there's still hiccups. And I'd rather take my time to deal with those occasional little problems

than take all of my time to make sure that there weren't any hiccups. Sure. Absolutely. Absolutely. So it is about time. And again, we've said this on a lot of the podcast. It's about properly valuing your time.

Right. You know? And so a good contractor who's managing the process the way they're supposed to really freeze up your time. It lets you use that active time to do more of what you're good at, which is finding more properties to buy and fix. up and rent and cash flow on. So that's big. And then another one that I really like, I think is a big contractor pro is they're responsible for their screw ups. You know, if I hire a bunch of subs

and I go get a bunch of materials and I bring it there and they mess up something, fat chance I'm going to get that subcontractor to go buy more materials. I might ask them to. Right. They might even want to, but many of those subcontractors won't be in a position to do that, right? If a contractor messes something up, they got to bite the bullet and they got to take care of it. You know, and I know one of my early rehabs, and I had, you know, an older guy who was my kind of my general handyman, did a lot of my rehabs, you know, when I figured out that I wasn't good at that and I brought in a pro, he did my first few rehabs for me. He was awesome.

His name was Herb. And he's retired now and he should be retired because he worked hard and he's awesome, you know. But he, you know, he came in and his work was really good. He took a lot of pride in his work. but he would have to hire some people in to help him sometimes and they weren't always the same quality you know and so I bought this nice new marble countertop you know and they brought it there and everything

and they were putting it in this kitchen this kitchen was going to be beautiful and one of his subcontractor well I'll back up I was outside the house and I just and I never heard Herb raise his voice and Herb was just laying into this guy and I'm just like what the world is going on like I've never even heard Herb says anything to me and he's just like I can't believe it blah blah blah I thought something terrible happened And I opened up the door

I walk inside They had cut this marble The wrong size Right there on the spot Right? And that cost a lot of money And Herb knew It wasn't going to be my money

It was going to be his money And I was like Herb, what happened? Everything okay? And he's like, oh yeah, everything's okay We're just going back to Home Depot And I'm going to go spend a few hundred dollars Of my own money Like that and just looked at the guy

That cut it kind of just glared at him And they left and they went And they took care of it Because it was his screw up Now, if that was my screw up, I just have to go pay for it, right? So there is some liability that the contractor accepts for correcting his own mistakes. That you would have to pay for yourself if you did it or if you hubbed out the work to somebody who couldn't pay for it or who didn't have the integrity to pay for it. That money would just be lost.

So that's a big piece of it too. So, you know, there are pros and cons to both of these equations. Ultimately, I think it does come down to what are you good at? And what is a good use of your time? Right. And is it going to meet your goal? You know, you might actually be somewhat handy. It could manage some of these projects, right?

Or could at least manage the subs to do this. But is that the best use of your time? It's not, right? And so that's what each of us as investors have to look at and say, what am I good at? What can I do capably? Now, out of what I can do capably, what should I be doing? And the answer for me, for most of these questions is it's not a good idea for me to be rehab and properties. Right.

I'm not good at it. If I was good at it, I still should not. be rehabbing properties because I can make more money and make more good things happen if I subbed out to somebody. So for me, the right decision is easy. I want to get a good, competent contractor. I want to use them over and over again because they've got a great process. And I want them to take that from my active time and my active bandwidth like we talk about so that I can go make money and buy more houses and get more cash flow, right? You know, at the end of the day, I mean, people get into real estate,

not too many people get into real estate because they love real estate. They get into real estate because of the income potential. Right. And you can just look on a piece of paper if that's why you are in this business and you look at what a contractor makes

and then you look what an investor makes, there's your answer right there. That's where you saved your millions. You should be doing investor work, not contractor work. Exactly. And that's the huge difference. I mean, if you like being a contractor,

if you like that type of work and you get joy and fulfillment and satisfaction out of that, maybe you can't put a price on that. But for most of you, you got into investing into real estate because you want the income, you want the money. And you are paid more money,

dare I say exponentially more money for investor work than you are contractor work. Absolutely. And that's where the millions are saved. Sure. And you can save that pretty darn fast. And then after you've saved it, now you start making it and it's just,

it gets pretty sickening. It does. We were just talking about how, less we are to do what we do. Absolutely. Yeah. Absolutely. No, we are. And it's easy to take it for granted, too. It is. You know, you got to stop back and look at it and say, man. You know, we have some pretty good skills and I'm glad that we're using them the way we are. Amen to that. For sure. For sure. All right. Well, that's it for today. Flipping houses, it can make you rich. It can. And I guess being a contractor, that can make you rich. But holding those houses

will make you wealthy. We'll be back next week. And until then, remember, don't wait to buy real estate. real estate and wait. Hold that house! Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business. It's excuses. But don't let a lack of funding

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