We were blessed to spend a recent weekend with friends in the Silverthorne area in the Rockies. My friends are attempting to rent the property we were all staying in and we saw first-hand the challenges of having a rental!
More importantly, I saw that liminal dimension between building a business and having a business.
Many entrepreneurs go into business out of necessity after being “right-sized” while others desire to pursue their passion. Passion is great to get you started and keep you going. But it’ll keep you on a treadmill. Before long, they find themselves in a new trap of their own making.
Think back to getting your first home. I still remember the pride in being lord of my manor—an 863 sq. ft. bungalow. I loved my home but realized quickly how much maintenance work was needed to keep it up—watering and mowing the lawn, replacing the gutters and windows, painting, etc.
Now imagine instead that you have a rental property. Though you’re doing all the same work—plus the added challenge of finding a good tenant—you’ll have a stream of income as a result of that maintenance.
In this economic climate, we have the perfect storm in Denver: Since Denver has more renters than available properties, the average rent has increased by 7% in the last year. Investment properties anyone?
From the renter’s point of view, s/he wants a turnkey experience. The better your rental, the better a renter you’ll get. Ignore the yard and kill the curb appeal, and you won’t even get a looker. However, if you invest the time up front you’ll be surprised at the quality of renter you get and how much she’ll be willing to pay.
Once you get a good tenant, you’ll have a monthly income. Your investment of time and money will generate income for having prepared a place for someone and their family to create the kind of home they want.
My point is that the passion that got you into your castle is great. You’ll have wonderful memories of time in your home, raising a family, Fourth of July celebrations and growing with neighbors. But as long as you’re in your home, you’ll be on the treadmill of mowing, watering, painting, and cleaning furnaces and pipes. If you want someone to eventually buy your home, you realize that tastes have changed over the last 10, 20 or 30 years and buyers may want something different. (Having recently sold my parents’ home, I know first-hand the effort in getting a 45-year old home ready for sale!)
Similarly, if you’ve built a merely “job” for yourself and not a business, consider your potential successors. They will not want to buy a job but a business with clear systems and processes that are not merely documented in your head.
- For those of you looking to sell your financial planning practice in the next few years, consider meeting with a broker and business advisor to assess where you are and where you need to go.Consider too what buy-sell agreements and financing arrangements you’d be willing to consider.
- For those of you looking to join or buy into a financial planning practice, consider what you’re shopping for. Ask yourself: in addition to considering the client base and culture, what else am I looking at? Am I buying a business or am I buying a job?