Even Bill Gates would tell you that some of the hardest — and most necessary — moments in the life of a business are the ones when you stop, take a breath, and ask yourself some questions: is this strategy working properly, just as he did in 1996 when he “redirected Microsoft to become an Internet-focused company”. Can I make adjustments to be more profitable?
It’s almost an antithetical move for entrepreneurs, who are supposed to be confident in their strategies even in the face of setbacks. But once you’ve been speeding down the road for a while, it makes a great deal of sense to pull over to the side and recheck your roadmap. After all, if you headed off to a ski vacation in Tahoe, but you hear the highway is snowed in, you’ll have to find a different route to get there.
That’s what we’re doing here at DBNR right now. We knew there would be challenges like these:
Speed. Cities and municipalities are razing dilapidated properties more quickly than in the past. We had one property in Indianapolis that we had no illusions about — in the initial photographs we received, there were tarps on the roof — but it was demolished last week without us being notified. As the economy improves, cities are moving faster than in the past to rehabilitate “blighted” neighborhoods.
Lack of motivation. We were highly altruistic going into this project, hoping to put people who hadn’t had the opportunity to have homes previously into properties that they themselves would fix up. We’ve spent hours on the phone talking to people who are supposed to call back, but they didn’t because they were apparently wrapped up in March Madness. On one property in Detroit, I’ve talked to 15 people and we still don’t have anybody who is willing to do what it takes — small though that might be — to get in there. Why is that?
So what do we do? Every entrepreneur knows that out of challenge comes opportunity and we have found one we like a lot. Over the last several months we’ve built relationships with other bulk REO investors and told them our story. Turns out we’re not the only ones encountering these issues. What a surprise! One investor even told us how he’s changed his business to adapt.
Mike from Pleasanton, CA told us that now, instead of purchasing “C” class property, he purchases property that doesn’t need nearly as much rehab. He then hires a local contractor to rehab and then sell on a land contract just as we are doing. He’s found that using this method his hassles have gone way down. He has a greater number of sales, his default rate is lower and since he “cherry picks” the properties he buys he gets to weed out the nightmares. Yes, his properties cost more, but overall he says it’s worth it.
How do we take advantage of this? We think we’re no more than 30-60 days away from getting additional investors on board. In addition to being able to purchase more property, we’ll be able to test various adjustments to our model to improve performance, including Mike’s. We’re building relationships with real estate professionals and contractors in Chicago to be able to test this “light rehab” model as soon as we’re funded, and possibly on property we now own.
Every entrepreneur likes to hear and act on new ideas. We’re excited to evolve and adapt to challenges we face and we don’t have a problem adjusting our business when an opportunity presents itself. After all, there are many roads ahead you can take to get to your destination.
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