The construction business is a hard way to make an easy living. Construction business owners strive to build better businesses and make more money. Their vision is to own a company that works without them doing all the work, generates steady positive cash flow and allows them to live “the good life.”
This life includes freedom to come and go without affecting the company’s bottom line or performance. This lifestyle is only possible if or when the company makes enough profit to allow the owner to hire a reliable management team to run the company. And then, over time, the results of their performance will generate enough wealth and passive income to allow the owner to step back, work less and finally reap the benefits of years spent building a successful company.
Start Making Money
To put your business in a position to allow you to hit your goals and build wealth and freedom, you must start by making big money. You must do whatever it takes to change, improve, upgrade, hire and do things differently to generate more sales, higher margins and a bigger net profit. Without high profits, you’ll remain in the “do-everything-yourself” mode and will not grow, scale or achieve your goals.
Begin with the following five steps for building wealth:
- Draft and implement a strategic business plan with a clear vision of what you want.
- Pay yourself what you’re worth.
- Sell and win customers on high-margin construction projects.
- Make above-industry average net profit.
- Invest your net profits as follows:
- 25% — Getting out of debt and increasing working capital
- 25% — Implementing standard systems and processes
- 25% — Hiring and developing great talent, managers and employees
- 25% — Investment opportunities
Build Wealth in Real Estate
Many contractors make successful business investments. An obvious and popular investment strategy for construction business owners is real estate property and development.
Real estate investments are assets. They provide positive cash flow at a higher rate than most other investments while they appreciate in value. Additionally, they build up your equity as you pay down the loan as the value increases over time with rental rate increases.
There is also a significant tax advantage to owning real estate investments. As contractors are already involved in the property construction and development business, they understand the risk and details of this type of investment.
Some good real estate investment opportunities to consider for contractors might include:
- Buy older homes, then renovate and lease out.
- Buy older duplexes or small apartments, then renovate and lease out at increased rental rates.
- Buy your own building to house your office and equipment yard.
- Buy a large commercial building, move into 50% and lease out the remainder.
- Buy land and build your own building for your office and equipment yard.
- Buy old commercial buildings, upgrade, renovate, value-add and lease at increased rental rates.
- Invest in development projects with your customers and do the construction work.
- Buy property, then build buildings and lease out.
Starting an investment wealth-building program takes time and effort. You must learn about the type of investment you want to get into. You must also learn about leasing, lease rates, financing, attracting investors, budgeting, escrow, legal requirements, limited liability company (LLC) management and property management. I suggest you dedicate four hours per week to educating yourself to find, seek, invest in and develop properties. Consider the following 15 steps in the real estate development process.
- Get ready to find, buy, develop, manage and own real estate:
• You’ll need adequate funds or investors and a lender.
• Determine which kind of real estate you want to own or develop
(type, location, lease or sale) and set a preliminary budget target.
- Find the best real estate broker in the area who handles the desired project type:
• Preview available properties, potential for upside, comparable prices and lease rates.
• Prepare a feasibility study, budget and pro forma.
• Select the site or project opportunity.
- Make offer on property:
• Purchase terms.
• Execute purchase and sale agreement.
• Enter escrow and fund escrow deposit.
- Perform your due diligence while in escrow:
• City or county planning process and zoning requirements.
• Draft a preliminary site planning and design.
• Determine the costs and feasibility.
• Begin preliminary architecture and engineering plans.
• Set conceptual construction budget.
• Complete lender loan application.
- Get commitments from investors.
- Attorney will prepare LLC, then execute and fund capital.
- Obtain construction lender, financing and close loan.
- Close escrow.
- Consider your architecture and engineering needs:
• Architect, structural engineer and landscape architect
• Civil engineer and environmental consultant
• Mechanical and electrical engineer
- Process approvals and permits with:
• Planning department or city council
• Building department, public works and engineering
• Utility companies
- Undergo bidding and award process.
- Begin construction.
- Hire real estate broker to lease or sell.
- Record permanent loan.
- Consider property management.
Make a Commitment to Invest
One of the best decisions I made while building and operating my construction company was to own, develop or invest in at least one real estate property per year. When I was 28, I bought and upgraded a duplex. Over the next 30 years, I continued investing every year: rental houses, more duplexes, small apartments, an office for my company, small warehouse buildings, investing my contractor fee in customers’ projects we were building, buying older multitenant industrial buildings, developing office and warehouse projects, etc.
I am glad I didn’t wait until I could afford it or postpone my commitment to invest. Some of my best investments involved joint venturing projects with my real estate developer clients. I was able to own a major percentage of these projects and be the contractor, thus doubling the profits.
Fast-forward to today, and my real estate investments continue to grow in value and provide passive income every month. This allows me to enjoy the benefits of building a profitable construction business and the freedom to spend time doing what I enjoy doing — helping contractors get their businesses to grow and profit.
The time is never right to start investing. Prices are always too high, and it always seems they might improve in the future. But they never do. Now’s the time to stop postponing or waiting for the right time to start an investment and wealth-building program. Make a commitment today to get started so you can achieve your future wealth goals and enjoy the freedom of passive income.