We often hear people starting up a business and it a matter of years it is in debt and about to close down. We as consumers often wonder why? They had the best food! They had awesome customer service! So why did they go out of business?
They did NOT manage the books. Income verses outgoing. Most people think ” I am a business owner and that makes me money.” Running a business is hard work.
When running a restaurant you have to know food costs, meaning how much did that pack of chicken cost and how much did I sell each piece for. You have to know what days are slow days and adjust the employee schedule so not to have them standing around doing nothing, but collecting your money. You have to know how much per day you are paying for rent of the building, the power, water and so forth. When you learn all of this then you are on the road to having a successful business.
When buying and selling real estate its the same, keep the books and know those numbers.
I am a rental property owner and I have a few houses I will sale as ” For sale by owner” and I collect the interest from holding the note instead of the bank. Why sell this way? You make the interest and not the bank, if they do not pay it off, you get your house back and you can do it again.
How do I chose which house to sell? That was is easy, the one I consider a money pit.
What is a money pit?
That is a house that you have to constantly repair, so there is more outgoing than income.
For Instance: One of the properties was an inheritance so I did not have to pay for it, But I had to clean it out, she was a semi hoarder and did not clean house, it had to be painted and I had this one within city limits so I had to get all the permits and paying for the city inspections, paying property tax, etc.
I got it finished in 30 days and passed inspections, got it leased and within that year she moved.
It had to be totally redone! I made no money and was still in the red.
On the third tenant, and having to paint and clean the floors and haul off junk ( often I put stuff on the sidewalk with a sign ” free” and it all gets gone, sometimes not) I was burnt out, I never could make any money on this house so I sold it, as “for sale by owner,” and the lady that bought it has been there for 6 1/2 years, she has nearly paid it off.
What was the problem? The location. The area the house is in was becoming a lower class neighborhood.
Now, how am I getting ahead by selling this house?
I no longer pay the property taxes each year, I no longer have to keep the house up, if something breaks, she has to fix it.
And I have made money by selling, around $5,000 a year, so since I sold the house, I have made my money back in no time and from then on it will be all profit till its paid off.
My point is, you have to do the math to make a business work. Keep good books and you`ll be a successful business person.
By Andria Perry
Photo By Andria Perry