There’s no rule that says real estate investors have to scale their businesses.
In fact, many fix-and-flip investors look at it as a side hustle to supplement their income. Some just enjoy the hands-on work of home renovations and like making a bit of cash along with it.
But are those the only reasons people don’t scale their fix-and-flip businesses? We wanted to find out, so in our recent survey for the “2023 Fix-and-Flip Success Report,” we asked over 100 investors if they are or are planning to scale their business — and if not, why? Nearly 22% of respondents said they either hadn’t thought about scaling or have thought about it but never started.
There were, of course, myriad responses to the question of why not, but here are the top five reasons real estate investors aren’t scaling their business in 2023.
5. No Time
Whether it was having multiple business ventures or a growing family, 11% of the investors we surveyed said they just didn’t have enough time to commit to scaling their business.
Most of the other reasons given tie back into the lack of time. If an investor has difficulty finding good deals, has a lot of competition in their local market, or can’t find enough subcontractors to work on multiple projects, they will have to spend more time solving for those issues than makes financial sense.
4. Not Interested in Scaling
Surprisingly, over 13% of those surveyed said they just were not interested in scaling their business.
While some didn’t give a reason for the lack of interest, others shared that:
- They were overwhelmed at the thought of managing multiple projects.
- They didn’t want to increase their risk in an uncertain market.
- They were unsure how to even start scaling.
- They are making enough money to not have to scale.
3. Lack of Available Deals
When our survey went out in late 2022, over 14% of real estate investors said they haven’t scaled their business because they haven’t been able to find deals worth taking.
This makes sense based on what was (and in many places is) going on in the market. In a mid-December article, BiggerPockets reported on a “sellers strike.” Many homeowners are opting to stay put until mortgage rates drop, especially those who were able to take advantage of the low rates available prior to 2022. Add to that the fact that investors are leery of paying the inflated home prices because of the expectation of a market downturn, and it’s no wonder that good deals seem few and far between.
2. Can’t Find Contractors/Subcontractors
“The skilled labor shortage is one of the biggest challenges facing the U.S. economy, with 650,000 open jobs in the construction industry alone,” said Stanley Black & Decker CEO Jim Loree in a press release.
That’s why about 15% of fix-and-flip investors told us they can’t find enough subcontractors to allow them to scale their businesses.
This doesn’t seem to be a problem with a solution coming any time soon. Stanley Black & Decker conducted “an in-depth research study examining sentiment about skilled trade careers in the United States.” They found that 49% of young people have ever considered a skilled trade career and only 16% said they are “very likely to consider a skilled trade career.”
Nearly a quarter of the real estate investors we surveyed (24%) said money was the reason they weren’t prepared to scale their business.
The follow-up details to that answer did vary, from not being able to find the right lender to private investors pulling out to a lack of liquidity. With today’s economic landscape, the latter two answers are unsurprising. An impending recession has curbed spending in many sectors, and an uncertain housing market has many investors holding on to funds until a clear direction materializes.
Finding the right lender also makes sense if you take that answer as another way of saying “being able to find a loan with reasonable rates at an LTV that allows for a profit.” Current hard money loan rates range up to 14% or more. And many lenders are appraising homes at values lower than the asking price, which in turn lowers an investor’s profit margin.
Should You Scale Your Fix-and-Flip Business?
Success is subjective. For one real estate investor, success could be one home every couple of months. For another, it could be multiple homes per week.
That being said, all of the above reasons investors aren’t scaling their businesses (with the exception of willingness) are not insurmountable. If 69% of the respondents are actively scaling, that means they’ve found solutions to each of those hurdles. They’re using virtual assistants to help with time management; handing out flyers to generate leads; pivoting to other regions to find better deals; and finding networking opportunities to meet contractors.
Those solutions all require additional investments of time and/or money. So the question real estate investors should ask themselves is are you willing to invest in yourself?