Real Estate’s Return “The challenge is that 99.5% of the remodeling businesses are practices,” says Mark Richardson, president of Case Design/ Remodeling and Case Handyman Services, who often speaks to remodelers about exit strategies. “If someone wants to leave when they’re 60, they take away the heart of their business. They can either convert to a business not dependent on themselves or take profits that they don’t invest in the business and direct these toward other revenue streams, such as real estate.”
This is the route Steve Jordan discovered when he realized his business had no value without him. He says he was “scared to death” his company was going to go under when the “foreclosures stopped happening in California.” His company, Dirty Work Construction, took in $5 million a year remodeling foreclosures for banks and savings and loans from 1983 until 1995. Jordan ran 500 to 1,000 jobs per year and had perfected his systems. “The same color paint was on the inside of every house. Same landscaping, same dishwashers, ranges, carpet,” he says.
He began using profits to buy single-family houses, and to remodel and rent them. “I didn’t have an exit strategy,” he says. “It was survival.” He allowed Dirty Work to shrink; it still exists in name only. By 1996, his new company, Remodeling America, owned and rented about 40 houses in San Diego and the Orange County, Calif., area. He had one employee.
When prices got too high for buying what he calls “worse than fixer-uppers,” Jordan began selling. He studied the market and moved his business to Pensacola, Fla., where he says he will have 150 to 200 rental properties by spring 2006.
“If you buy one house every year for 10 years, you will have $1 million in net worth,” says the enthusiastic Jordan, who gives how-to workshops for Remodelers Advantage Roundtable. “I’m 63 years old, and I have no interest in retiring,” he says. “They’ll pull me out of one of my rental houses with my boots on.”
While Jordan’s properties appreciate in market value, they also depreciate, according to the federal government, so his annual depreciation covers the cash flow he receives from rentals. Also, because he’s reinvesting any money he makes on properties he sells, his tax payments are low. “It’s not what you make,” he says, “it’s what you get to keep.”
Remodelers are in a good position to buy property because they have some knowledge of real estate markets and have the manpower to reinvigorate homes in those markets.
Colin and Heather Bester took a slightly different turn toward real estate. They sold United Home Services after just five years in business. Their business broker counseled them to get pre-approved by the Small Business Association so that a buyer would only need 10% or 20% down and the SBA would guarantee the loan.
The Besters had worked hard to create a business that “was not all wrapped around one person,” Heather says. “The fact that we didn’t name the business after ourselves was helpful.”
They kept good records, and each of them spent several weeks with the buyers showing them one-page checklists for how to run the administrative side of the business as well as manage sales and personnel. With the money from the sale they moved to West Hampton Beach, N.Y., where Colin started United Building Fund and began buying spec houses to renovate and sell. Colin is now able to enjoy the “creative process,” says Heather, “but we wouldn’t have had the seed money if we hadn’t sold the business.”