profit

Why you should close fewer deals at a higher profit

Paring down your business can be more profitable
  • Worry more about being profitable than doing more deals.
  • The best real estate investors are sticking to what they know and not just doing every deal that comes their way.
  • The bigger real estate investors get themselves in trouble because they have too much overhead or debt than the smaller investors who have a squeaky clean monthly budget.

It’s very common for real estate investors to think that making more money equals doing more deals. Real estate investors start with one deal, and usually, they make a good amount of money on that first deal.

Then they do another deal, and another and another, and they typically make less money per transaction once they hit a certain point.

The reason for this — in most cases — is because they don’t have all of their systems and processes in place for volume.

Jason Balin’s guest today is Mike Green from Restorahouse in Baltimore, Maryland, who is one of the leading real estate investors in the area, having done over 500 transactions, including wholesales, flips, rentals and auctions.

Balin is talking to him about a new approach he has taken in the past year.

Green was doing 150 transactions a year. He thought to make more money, he had to do more and more deals.

Then he realized if he pared down his enormous staff, huge marketing budget and did fewer deals that were more profitable, he could make a lot more money.

Green used to have $100,000 in overhead a month between employees, office space and marketing.

Now he is down to a $10,000 a month overhead, which includes one employee and a few 1099 staff members — and he works from home.

He is making more money than he did when he was working much harder in the past.

The point of all this is to emphasize that execution is key. Green is properly executing on all his properties.

His goal used to be $30,000 per transaction, but in many cases, he ended up with $20,000 per transaction; now he is hitting his new goal of $40,000 per transaction.

He is more concerned with executing a deal well than doing many, many deals.

Less is sometimes more in real estate investing.

We know a lot of different types of investors. Some do four to 10 deals a year; some do 100 deals a year. The ones who are doing 10 deals a year and really honing in on their work are more profitable than the bigger investors.

We believe you can do lots of deals, do good work and be very profitable — we know investors who do this — but it is hard. The way you get to that level is to do one transaction at a time, hit your time frame and your budget, execute perfectly and then do two deals at a time.

And make sure you can continue to hit your time frame and budget and execute perfectly, then do three deals at a time, then four deals.

Don’t jump to too many transactions until you know what you are doing.

Chris Haddon is an entrepreneur based in Washington, D.C., a partner at Hard Money Bankers and a co-founder of REI360.net.

Email Chris Haddon