4 Common Reasons Your Business Is Struggling
By JD Esajian on September 29, 2017
Making money in real estate is far from a sure thing. As abundant as the possibilities for success are, it doesn’t happen simply because you want it. The investor from your favorite TV show most likely had a patch in their career where they contemplated doing something else. The investor you hear every month at your networking club had to live lean for a few months until their business started to pop. There are countless examples of investors having trouble finding their way and having the success they desire. What usually turns their business around is the ability to recognize their mistakes or where they may need to improve. Without someone telling you what you are doing wrong self-evaluation can be difficult. If your business is struggling or you are not having the success you desire you should start by evaluating these for aspects of your business.
- Risk vs. reward. The first question you should ask yourself is whether you are taking too much unnecessary risk. There is a natural tendency when your pipeline gets lean to reach for deals deep down you know you shouldn’t. Instead of waiting for a better deal to come along you jump at the next best opportunity. By doing so you put yourself in a position to miss out on a better deal down the road. There is nothing wrong with jumping at an opportunity but the risk must be worth the reward. If you fill your business with risky deals eventually one of them will be a headache. All it takes is one bad deal to have a trickledown effect on the rest of your business. You may be forced to pull cash out of a property to compensate for the loss and the next thing you know a strong cash flowing property is now only average. You may not have the capital to make the right decisions for your business which leads to more problems. Finding the right balance between risk and reward is never easy but look at your last six deals and see if they met, or exceeded, your expectations.
- Education. The relative ease of entry in the real estate business is a blessing and a curse. Anybody can make an offer on a property and start building a portfolio. As great as this is it can also lead to trouble if you are not careful. Just how well do you really know the business? Were you circling around the business for years before you jumped in or was your first offer spontaneous? Did you read books & go to seminars or is your source of education your buddy in the cubicle next to you? A second reason your business may be struggling is a due to a lack of education. You may be able to get lucky on a deal or two but eventually you will get exposed if you don’t know what you are doing. The market will catch up with you and you will not know how to recover. You don’t need to be an expert in every aspect of the business but you should have a basic core of education behind you. Without education you will invest in poor markets, make bad decisions and not be able to properly run a team. You are much better off investing in yourself and improving your education than investing blindly and hoping for the best.
- Deal evaluation. One of the cool parts of watching your favorite investor on TV is their ability to quickly evaluate a deal and spit out numbers. What you don’t see is all the legwork and research they do to get to that point. Even for seasoned investors it takes more than a couple of minutes to evaluate a deal and put the numbers together. It is not an exaggeration to say that the numbers are everything in real estate. If you don’t know the numbers, where they come from and how one influences the other you will run into trouble. Start by understanding some of the basic business formulas. Break down the cost of repairs, carrying costs and after repair estimates. Understand the cost of due diligence on every property and what makes a good investment. Every property you look at will not make a great investment. You may personally love a property but if the numbers of the deal don’t make sense you need to walk away.
- Business analytics. The goal of any business is to make a profit. As obvious as this may be not everyone follows it. Simply put your expenses cannot exceed your income. There are many businesses, and investors, who generate income but do not know how to make a profit. They don’t know how to manage expenses and run a business. Regardless of how many deals you close you need to treat your investing like a business. This means staying on top of every aspect of it. There should be nothing that falls through the cracks that you don’t know about. If you have a team that works with you it is important to know how to manage them. Your contractor, real estate agent and attorney all play a huge role in your success. The interaction you have with them can make or break your business. If you are having trouble in your business it may be with how you are running it.
There is a fine line between success and disappointment in any business. Fortunately, in real estate you can turn things around in short notice. Evaluate where you are in these four key areas and go from there.