Jeff Shadrick chose to diversify in the several businesses around his main real estate investing business. In this FlipNerd.com Flip Show interview, Jeff shares why he made his decisions, and how you can consider what makes most sense to you. Most do better by staying focused on one thing, but many real estate investors are attracted to shiny objects. Learn more in this episode!
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Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting VIP interview, where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. Today I’m joined by Jeff Shadrick. He is the owner of REI Associates, a real estate investing company that provides individuals and institutions high quality investment properties in the state of Alabama. Jeff also runs a construction company and a brokerage. And over time he has decided to vertically integrate his businesses by adding on different businesses that supplement each other and also using those businesses as additional revenue streams for other opportunities that are out there to kind of maximize his opportunities. So it’s an age old adage, the decision that small businesses really have to make all the time to stay narrowly focused or to diversify your business and maybe your risk. And for a lot of entrepreneurs that I know, they may change their decision on how they’re going to do that with the wind, as the wind changes directions. So it’s difficult for entrepreneurs to say “no” to some opportunity. But Jeff has done just that and we’re going to talk about it today. Some of the pros and cons of vertically integrating your business and spreading some of your risks. Before we get started though, let’s take a moment to recognize our featured sponsors.
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Hey, Jeff welcome to the show. Jeff: Hey Mike, how are you?
Mike: Good, good to see you. Jeff: Good to see you as always. Mike: Yeah, I saw you a couple of weeks ago. For those that are listening, we happen to be in a Mastermind group together. I’ve seen over time some of the stuff that Jeff talks about with some of the challenges of whether to diversify and add on new opportunities or stay focused and that’s the challenge I think that probably all small businesses face. You get presented with opportunity and sometimes it’s hard to say no, right?
Jeff: It is. As an entrepreneur there’s always that dangling carrot, there’s always something that you’re always chasing. It’s really hard to stay focused a lot of times with your core business and what you really excel at. You really have to look at it from a standpoint of what makes sense, of what you personally want to do more of, personally take on as a business and be successful at it. Mike: And I think, especially for real estate investors, there seem to be a lot of honest face, logical things to bolt on. Whether its property management or lending. There are a lot of things that seem to kind of make sense. But again, it kind of depends on… on its face, everything is a little bit easier than when you get into the weeds. And some of those things are a little bit harder to execute, right?
Jeff: They are. You have to be very clear on what it is you will do and what your boundaries are and what you want to do. There are certain things, like you said, we run a four turnkey model for our properties [inaudible 00:04:15] in the investing world. It really encompasses this inherit piece of it. So anything from a wholesale all the way up to our regular retail [inaudible 00:04:26]. But you’re taking that all the way from the beginning to the end and you just [inaudible 00:04:33] process. So you’re right when you’re thinking that, a lot of times it’s really easy to say, “Well, I just had lending in there and I can add that piece to it.” If I own my own construction company, I can bring that into the house and property management. There’s just so many add-ins that I can talk about that sound great, when you first start to analyze it. But you have to be real careful as you’re going through the process and make sure that it really makes sense for your [inaudible 00:05:04] and its not really distracting you from maximizing your efforts in whatever it is you do the best. Mike: Yeah. Well Jeff before we get too far into this, why don’t you tell us your background and kind of tell us a little bit about who you are. Jeff: Yeah absolutely. So I’ve got kind of a unique background as far as how I got into real estate investing. I grew up in a construction family. So my father owned a construction company, so I learned that [inaudible 00:05:32]. So I learned that side of the business growing up. But I didn’t go to school. I graduated from college with a finance degree, so I spent about 18 years in the financial world [inaudible 00:05:48]. I got a very diversified background which really helped me out when I decided to go full time in real estate investing. I knew the financial background, that helped me with product lending side and understanding what investors were looking for and needed. I presented budgets to them for funding. And then [inaudible 00:06:15] construction side, so when I show up at a job site, and I’m trying to get a contract [inaudible 00:06:20] I can speak the language [inaudible 00:06:23] understand what they’re telling me [inaudible 00:06:27] telling me something that’s not necessary, I’ll know that. So it’s a good blend of a background. Both have been beneficial since I started. I’ve been investing for about 22 years now. Started out with doing those rental properties, personal property and then transitioning over to the turnkey model where we basically take them to the house from the beginning by [inaudible 00:06:58] acquisition, renovation, renting, property management, and then the sales. Mike: Okay. Now, do you guys, I know you own some of your own rentals and I know you do some turnkey stuff for other people. Do you manage those as well?
Jeff: We only right now, and this goes back to what we’re talking about knowing what you want to do and what you don’t want to do and that’s a piece of it. I owned a property management company before I made the decision not to continue on with property management in order to hire that source out to somebody who does it on a grander scale. And of course, it’s just not something that I felt was beneficial for our business model. So we manage everything that we own as a company that is our own personal portfolio in-house. But anything that is sold as a turnkey property to one of our clients, we have [inaudible 00:08:01] company that manages it. Mike: Okay, so you have the brokerage side as well, right?
Jeff: That’s correct. Mike: Yeah, that’s a more logical bolt on for investors as an agent or a broker. Hard money is usually pretty common, even property management is pretty common. Although that’s the last thing I would ever personally bring on. Jeff: I don’t [inaudible 00:08:23] anybody taking on property management. Mike: Yeah, yeah. Why don’t you talk about, on the construction side, how you kind of make that decision versus just using independent contractors and hiring others? I would say that clearly most real estate investors don’t have their own construction company. Jeff: Well a lot of it had to do with me, I love construction and I love that side of the business. So in addition to having a group that could do the renovations for my investment properties, I also wanted the ability to able to do owner occupant projects where you need to remodel your personal house or you come to us and you actually want to build a [inaudible 00:09:15] construction. I really wanted to have that as a [inaudible 00:09:19] for my model as well as [inaudible 00:09:22] to be able to look at whatever real estate cycle we were in, then I could always capitalize [inaudible 00:09:31].
Mike: Yeah, and I guess if especially with the turnkey model, I mean some of it is just a matter of scale, right? If you’re rehabbing a dozen houses a year, you can’t, you couldn’t have your own construction company or you couldn’t have anybody on staff per se. It gets to a point where you’re doing enough volume to where you know you can justify it and maybe start to see some expenses that you can cut, is that true?
Jeff: Yeah, absolutely. So once you reach a certain point, and usually its somewhere around… yeah you’re right, 12 a year, you can’t do that. [inaudible 00:10:11] before you do it. You can obviously sub that out and get a lot better of return for your time. Usually when you get somewhere around to five to seven a month on average, then it starts to become an area where you might want to consider… I’m doing enough [inaudible 00:10:30] monthly basis that I can go on paying somebody and bring in full time [inaudible 00:10:36]. The way we do that in our business is if we have [inaudible 00:10:42], we don’t get as many projects under the investment property side. We always have regular retail projects that I can take [inaudible 00:10:51] move them over to help finish up those jobs. We have that whole separate division of the construction company which is solely focused on annually, individual, remodeling, and construction projects. Mike: And on that side, other than the turnkey stuff that you do in conjunction with selling investment properties and rehabbing your own houses that you are going to resell, the construction company is out looking for traditional home owner type remodeling projects. Is that right?
Jeff: Absolutely. Yeah, we have individuals that will contact us through a referral process or certain leads that we generate. We do actively market for non-investing property renovation. Mike: Okay, so talk a little about with the different businesses like that and particularly that contracting one. How do you keep that separate? They’re separately branded. I assume there are no blurred lines between… from the retail customer standpoint. They know nothing and don’t need to know, you don’t want them to know about the investment side of your business, I presume. Is that safe to say?
Jeff: I really don’t care if they know. Mike: I’m just saying from a branding standpoint, not to confuse things as to, are you trying to buy my house? Are you trying to fix it up? In that regard. Jeff: Yeah I could see where that could be… we still operate under the same name, REI Associates, the company name. So whether we’re going out on a residential remodeling project or an investment property remodel, we’re still branded the same way. We have up, to this point seen that that has been a detriment. Obviously on our business cards and our marketing materials it says residential and commercial construction and real estate investment services. So it really just means we do a multitude of things for them. The home owners really want to cut down to it, their interviewing less as to determine whether or not they take us on on a project. It really becomes a factor of, it’s usually a referral from somebody. So it’s somebody that we’ve done work for in the past. So you really don’t have to answer that question anyway. The other piece of it too is, if you know what you’re doing and know how to bid those types of projects. And of course we have all the licensing and all the necessary [inaudible 00:13:23]. Then that usually goes along well. We don’t necessarily brand it like REI Associates Construction Division and REI Associates Investment Division. We just really operate under REI Associates. Mike: Okay. So let’s maybe talk about the pros and cons, because I know that you… I’m sure when making those decisions of whether you wanted to start a construction company, have a brokerage, which I know you’re looking to grow and add more offices and things like that. Just talk about your decision making process and maybe sprinkle in some stuff like, I’m sure some of it is about the opportunity to make money. I’m sure, probably equally as much of that is about control, like having more control over how it impacts the other parts of your business. And then just kind of how you evaluate it from an opportunity cost standpoint because there are a lot of things you could do with your time or those resources, I assume. Jeff: Absolutely, we only have certain hours in the day. You’re role as the entrepreneur, the owner of the business is, your time is best spent on how to develop and how to grow the business and not so much into the technical day-to-day functions of the business. Obviously you have to be on top of that, to know your balances and what’s going on, the processes [inaudible 00:14:51] around with just a systemization and knowing that you’ve got the right system in place to monitor all those pieces. One of the biggest deciding factors for me in whether we could go full blow into having a clear construction, a clear invest company, we’re a brokerage group, was could I manage all of that? Could I keep track from the level that I needed to, on a daily basis, or a weekly basis so that things didn’t fall through the cracks or wasting resources or money on [inaudible 00:15:27]. So really what it boiled down for me was, how do I put the system in place to manage all of that to where it didn’t require me to be hands-on on a day-to-day basis as the owner. That’s what we spend a lot of time on, is developing out systems. I will tell you, we have [inaudible 00:15:49] 100% like clockwork right now. But the [inaudible 00:15:53] systems were an ever evolving process. We’re always going to make [inaudible 00:15:57] technology that allows you to streamline things a little more [inaudible 00:16:07]. So to me it just, I looked at it from a standpoint of one, could I manage it and then two, did it really add value to the business. And when I added all of those up and I looked at the different segments, whether it was brokerage, construction, or the investments company, it just made more sense to me than it made more sense of how do I control the process to where I take off as many variables that are out of my hands and put them back into my hands? Or I can really capitalize on [inaudible 00:16:40] income stream where I possibly could get out of… how do I get the most opportunities or the most leads to fund either side what division it is and then maximize my marketing hours to [inaudible 00:16:54] business. So by creating a funnel where everything comes in really through the investment company and through the real estate company, there are options that I would have that [inaudible 00:17:11] if I was just solely an investment company. So I can… if a lead comes in through our lead generation system, I can take that lead in and we can decide, okay, this doesn’t necessarily fit for the investment company, we can’t get our numbers where we need to be on that side. But, we could transition that over and we know people that will buy in the brokerage portfolio. So, maybe we don’t look at it from an investment property [inaudible 00:17:38]. We looked at it from [inaudible 00:17:40] off the sale. It was important for me too, I didn’t want to have multiple sub divisions. I didn’t want to have an investment property subdivision, a retail subdivision. I wanted all that [inaudible 00:17:59]. So it made sense to me just [inaudible 00:18:04] sales functions or whether it be investment property or just a regular traditional resale property to have all of that [inaudible 00:18:12] located, where there’s a clear definition between the groups and there’s responsibility for… and I think it gives us a benefit too in the local market because most brokerage businesses don’t deal with traditional real estate investors. We’ve had success… local agents really like the model and they’re excited when they [inaudible 00:18:39].
Mike: Okay, you’re saying agents that work for you?
Jeff: Yeah correct. Agents that come in and traditionally been just the regular agent. When they start to see the opportunities that they had so where it’s not feast or famine, they know that we have onsite buyers, not only can they sell a property to one of our local buyers or [inaudible 00:19:09], they can turn around [inaudible 00:19:13] could be a potential buyer for one of their [inaudible 00:19:17]. This gives me so many more opportunities to [inaudible 00:19:21] new properties. Mike: Yes. I struggle with the same thing, your biggest cost as an entrepreneur is your opportunity cost or the cost lost of you… in your example, if you didn’t do your construction company you could focus more on your investment company presumably, and drive more leads, and drive more business through there. That probably was an opportunity for you. Talk about how you evaluate whether you should bolt more things on in light of other things that you could do in your already existing businesses. Jeff: Yeah, I think you have to come down and make a decision of, it’s really more of an individual decision [inaudible 00:20:05] your capability and then what best suit your strengths. I’ve always been able to juggle both of those things. Some people can handle one thing and be really good at it. I tend to chase the shiny… I like the shiny objects. I do that but I do it within somewhat of a controlled fashion to where I only do it if it makes sense. Or I know that there’s a revenue stream and I can put the right systems in place that we’ll monitor on a regular basis. I don’t tend to go after things, because you and I both know, everyday something comes across your desk that is, “Oh well, maybe this is a new strategy. Maybe we should do owner financing or maybe we should do lending or maybe we should do…” this business, there’s a multitude of opportunities to try to generate cash flow [inaudible 00:21:03]. And so, at the end of the day you’ve got to look at it and go, does this really fit with what I’m doing and does it meet my “why” in my role? If I add in this new process, does it help me for [inaudible 00:21:19] reaching my ultimate goal? So I think that’s really what you have to ask yourself is, you start with the ultimate goal and work yourself backwards and then say this does or doesn’t fit. Mike: Yeah, and it sounds like from talking here, you’re pretty hands-on with each of your businesses. Lets just say your construction business again, or your brokerage, are you running those day-to-day yourself or do you have somebody that is running those?
Jeff: Yeah, so on the brokerage side I have a partner who serves as our broker, the brokerage side, he handles all of that day-to-day activity. I’m not too involved in the day-to-day on the brokerage side. My efforts are focused on the day-to-day basis with the investment company and the construction company. I have project managers that are job specific and their either residential or investment property [inaudible 00:22:16] day-to-day, go along, making sure the jobs are getting done on time [inaudible 00:22:22]. Then they just report back to me on a regular basis. We also have some systems that we have in place that allow us to track that. So I can go into our system and say, okay, well I want to know what’s going on with XYZ project on 123 Main Street and I can pull that up. My project manager put in notes to get the scope of work, they’ve got all of that stuff in the system so that at any given point in time I can keep a bird’s eye view of what’s going on. Mike: Yeah, maybe share some of your insights on how technology has probably enabled you to do a lot of what you’re able to do now. I mean, it’s changed dramatically just in the last few years alone effectively being able to be somewhere without physically being there, right?
Jeff: Yeah no doubt, [inaudible 00:23:15] to where I can sit on a beach and run my business. I think that’s what a lot of us want. Not necessarily where you want to be on the beach but you want the freedom to be able to run and oversee your business and not be tied to an office on a day-to-day basis. That’s really where I strive is to, how do I get myself a mobile office. And you’re right, systems have really allowed me to, not 100% where I want to be yet, but I’m pretty close to [inaudible 00:23:48] basically be anywhere, anywhere on a cellphone, a tablet, or a PC and I can be pretty in tune with what’s going on with my business and make decisions that need to be made. So I think you’re right, systems and those advancements that we’ve had recently and some of the programs and technology have really, for our line of business, just been phenomenal in helping us get to that point where we can start doing the virtual [inaudible 00:24:20]. Or managing multiple divisions from a higher level without having to have every day, day in and day out [inaudible 00:24:30].
Mike: Right, and sometimes just to require, if you have employees or other people doing tasks for you, the requirement that they have to put it in a system, even if you as the owner are not necessarily looking at it every single day just the requirement that they have to make those entries makes the whole… just holds everybody more accountable because they know they effectively have to report out. Jeff: It does, now that’s probably the hardest part of putting the system in, is getting your people to use it. A system is only good as good as what get’s put into it. I think that’s sometimes the hardest piece. You have to go through a learning curve there because most people don’t traditionally log everything they do with a project. They’re in charge of their own projects and they keep a minimum record of what’s been done today, but they don’t necessarily have a system, everyday at the end of the day, I’ve got to go in and I’ve got to take what I’ve got in my head and put in so somebody else [inaudible 00:25:36]. So you really have to go through a learning curve with your people, this will help you in the long run and understand that this is for the benefit of everybody. It also keeps me from having to [inaudible 00:25:50] every 10 minutes. What’s going on with this project? Why are we behind? All of that stuff. It keeps you from having to micromanage your business. I hate micromanaging. I refuse to do it and I think that, that helps keep me out of that micromanagement mindset. If I’m feeling like, if I’m not on the phone with somebody or I’m not getting daily messages then that’s a problem. Mike: Jeff, we’ve got a little bit more time here, a few more minutes, maybe you can take a few minutes and talk about, for a little bit of a lesson for anybody that has a business now that has a need to have some tasks done and they’re thinking about maybe bringing that more in-house, whether its property management, or brokerage or lending or whatever it might be versus just partnering and working with others and finding a way to outsource that. Maybe just give a little bit of an outline of how people should think about those things and how they should consider the opportunity and the potential for distraction from presumably their primary business. Jeff: Yeah, I think one of my best tips that I can give would be to, if you’re evaluating whether or not to bring an additional process or line of business into your company, I think the beginning question is, number one, do I have the systems [inaudible 00:27:23] implement the systems that I need to run that business without it, devoting more time that I need to get up to go another [inaudible 00:27:34]. You’ve got to look at it from a standpoint, one, is it something that I know will add value and obviously [inaudible 00:27:43] to the bottom line. And not just be another expense on the balance sheet or on the income statement. Do I have the people and the resources to manage it. The worst thing you can do, at least in my mind, is you get to know [inaudible 00:28:01] from being available [inaudible 00:28:06] put yourself back into that technician role and so then you basically [inaudible 00:28:12] yourself right out of the gate. If you’re having to put forth all of your time [inaudible 00:28:18], then obviously something will fall through on your other lines. So to me, it really revolves around, do I have the systemization, the capability to implement the system and [inaudible 00:28:32] all the time. And then it’s just a matter of do I have the right people that [inaudible 00:28:43] day-to-day functions. If you weigh those two… I think the third one, the third piece of that would be, [inaudible 00:28:54] partner or do I bring it in-house, you’re not great at everything. You have to come to that realization that you can’t be great at everything. And so while some people can be great at some things and some people are better at other things, you have to look from the standpoint of, does it really [inaudible 00:29:13] like property manager, is there somebody that really enjoys doing property management and are they much better at it than I would be. And [inaudible 00:29:20] spend the time if necessary, because property management takes a lot of time. And so, I think that when you’re looking at those types of [inaudible 00:29:29] businesses, is, is there somebody out there that is better at it than you are and would it just be cheaper for you to go get somebody to do it. If it really comes down to the decision that, look, if I brought this in just to be an additional income stream, I’ve already got systems built out to integrate it in, then obviously that’s your decision. It makes a lot easier. But I think, us as entrepreneurs [inaudible 00:29:59] we’re good at everything. Mike: Or you can get good. Jeff: Or yeah, I can just learn it. I’m the worst about that with [inaudible 00:30:15]. Whenever it comes down to [inaudible 00:30:19] generation of building out websites and stuff, I’m like, “Oh no, I can do that.”
Mike: Just Google it, just Google it and you’ll figure out how to do it. Jeff: Yeah I could do that, and then I’ll get into about 30 hours of my time into it, and I’m stuck. [inaudible 00:30:30]. I think that’s one of our lessons we need to learn as entrepreneurs is, there are some people that [inaudible 00:30:40]. But it’s a more effective use of your time and money to allow those people to do it. Mike: Right. Awesome, Jeff, thank you for sharing your experiences and letting us learn more about you today. If folks want to reach out to you, they want to learn more about what you’re doing, where do they go?
Jeff: You can go to REIAssociates.com. You can call us directly or you can email at [email protected] Mike: Okay, awesome. Jeff, hey thanks for your time today. Good to see you my friend. Jeff: Thanks a lot. Great to see you too. Mike: All right, take care. Thanks for joining us for today’s FlipNerd.com podcast. To watch or listen to more great shows, please visit FlipNerd.com or visit us in the iTunes store. To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals and great vendors, literary in your market and to socialize with other like-minded individuals, please visit the one, the only FlipNerd.com. If you’re not yet a member, you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry. So get on over to FlipNerd.com.