I see a lot of bone-headed marketing “tactics” by contractors in my city, but what I just found on my driveway was so exceptionally ridiculous that I just had to share it.  So, I’m walking out to check the mail and notice that there’s something near the end of my drive.  As I get closer I can begin to see that it is some sort of folded up marketing flyer in a clear plastic baggie.  I bend over and pick it up.  It is surprisingly weighty.  Flipping the baggie over I see that it contains not only a bright green flyer but also five or six rocks.

Nothing says professionalism like a baggie full of rocks in the driveway.

Now, I’ve actually heard of this “technique” before, but this is the first time I’ve actually seen it implemented in the real world.  Probably because it usually doesn’t make it past the “oh wait, this is a really dumb idea, Bob” stage.  I won’t name the company involved with this piece of ingenuity, and I’m sure they think they’re being really clever, but this is a perfect example of how not to distribute your company literature.

I know what these guys are thinking: “We’ll save loads of time by simply driving down every street in this town and chucking our rock-filled bags out the window as we go along.”  It’s no doubt true that such an approach will cover more ground in any given time frame versus someone walking door-to-door, and the sheer number of homes one could reach in a single day is probably astonishing.  But I have to think that the conversion rate is so insanely low that it renders the entire strategy POINTLESS.

If nothing else, it probably just ticks people off: “These jerks just threw a sack of rocks on my driveway…what the f#%@!”  It’s just rude and annoying.  It’s not going to win any business.  And it wreaks of desperation and amateurism.  The amount of time they spent at home filling thousands of bags with rock and stapling them shut could have been used to do something that actually works, like starting a blog.  But I guess that would make too much sense.

Today I dropped my car off at the shop that I’ve been using for several years.  I’ve spent many thousands of dollars there, and had every intention of spending tens of thousands more over the remainder of my lifetime.  But today was different.  Today they probably lost me forever.

Chuck Was Worth His Weight In Gold

The problem is that the manager whom I always liked and trusted (Chuck) and who pretty much ran the entire show up front now seems to have been replaced or has moved on.  He’s gone.  Poof.  Adios.  Where he’s gone to I have no idea but his replacement is, well…he’s not Chuck.  I had complete trust in Chuck, not only because he knew everything there was to know about cars, and not only because he demonstrated respect and kindness, but also because he never tried to gouge me.  Dude was a straight-shooter.

Steve Is A Value Suck

His replacement, Steve, immediately made less than a stellar impression.  Actually, I should say that he wasn’t awful.  He just wasn’t Chuck.  He wasn’t especially friendly or helpful.  He didn’t really give a crap who I was or what my history was with the shop.  And he was a little shifty with the pricing of the work that needed to be done (it started much higher than I expected and then oddly began to slide down the scale as I expressed surprise and asked more questions).  Something in my gut just doesn’t trust him.  In short, it was similar to past experiences I’ve had with other shops.  Which is to say that my favorite car doc is now just….nothing special.  There’s no reason for me to keep driving across town to get there.

Sadly, this lifetime customer is a lifetime customer no more.

Your Competitive Advantage Could Amount To Just One Or Two Key People

Why Chuck is gone I don’t know.  Perhaps he just moved away or wanted to do his own thing.  Or maybe they just didn’t want to pay him what he was worth.  If that’s the case, then what a terrible decision.  It’s a decision that will shift my allegiance (and dollars) to someone else going forward, and I can only imagine that many other longtime customers feel the same way.

The cumulative losses over time could likely be in the hundreds of thousands of dollars for this business.  It boggles the mind.  Save a penny on payroll…lose thousands from the top line.

How much is YOUR superstar employee really worth?  Probably more than you think.

I haven’t talked a whole lot about real estate on The Rich Contractor, but it’s time to change that.  It’s time to talk about one of the best and most amazing ways you can capitalize on your trade skills to dramatically increase your net worth over time.  And, guess what?  You don’t have to deal with a single customer or even travel beyond your local Home Depot to execute this technique.  And you can take as long as you want to finish the job.  At the edge of your seat yet?  Basically, I’m talking about rehabbing your OWN home in a smart and calculating way to quickly boost your equity (and for the sake of this post I’m going to include home equity in the calculation of net worth).

The FHA 203k Loan Is Flipping Amazing

Several years ago my wife and I bought a home with the FHA 203k loan program, and though the process was a bit tedious, we look back on it now as one of the best decisions we’ve ever made.  Essentially, the 203k loan allows you to build in the cost of renovations into your overall home loan.  Thus, the total loan amount is a calculation of the purchase price of the property plus an amount to cover labor and material costs to rehab the house.  I believe the down payment was somewhere around 3.5%, and it should be noted that all FHA loans come with the additional pleasure of mortgage insurance, but this is a small price to pay in my opinion.

The house we purchased was in some major need of TLC.  Built 1956, there were many needed repairs and updates that had simply been overlooked by previous owners.  So, we rolled up our sleeves and went to town.  Some of the work I did myself.  Some of it I hired out to other contractors.

In about eight weeks the following list of things were done to our “new” residence:

• New Roof
• New Siding and Gutters
• All New Windows
• New Electrical Panel
• New Kitchen
• New Exterior Basement Stairwell
• Lots of Painting and Tile Work
• Random Clean-Up and Touch Up

Now, don’t get me wrong.  Those eight weeks were a bit stressful and chaotic, but when it was all said and done there was an enormous sense of satisfaction that we had just turned a run-down handyman special into a one of the nicest homes in the neighborhood.  No longer was it the eyesore of the block that every neighbor cringed at while driving past.

Better still was the fact that we had just skyrocketed the home’s value, which essentially amounted to roughly $35,000 in near-instant equity.  As time has gone on that margin between what the house is worth and what we owe has continued to fatten, a result of rising prices and additional improvements that included a complete bathroom remodel.  Suffice it to say that we are going to walk away with a very large check when we finally do sell.

Rinse and Repeat.  Rinse and Repeat.  Have an Extra $4,000,000 in the Bank Come Retirement.

But, the story doesn’t have to end there.  My wife and I like the neighborhood and the house and have decided  to hang tight for now.  But, this process can be repeated over and over again.  As long as you live in the residence for two years before selling it, all profits are 100% tax free (up to a max of $250,000).  For the average person this can be a great way to build net worth, but for the contractor who has mad home improvement skills this is a scenario that can produce absolutely mind-blowing results!  Why?  Because you don’t have to pay for labor, and as a professional contractor you’ll likely have access to materials at a cost that is well below retail.

Consider this hypothetical scenario.  Smart contractor “Joe” decides to buy a piece of crap house with a 203k loan in an otherwise nice neighborhood as his primary residence.  He’s made the intelligent move of finding an area of town where appreciation outpaces the rest of the city as a result of good schools, services, and facilities.  He’s going to renovate it whenever there is free time and then sell it after two years.  Just for the sake of simplicity, let’s say he does this ten times over the course of twenty years.  Granted, that’s a lot of moving around, but it’s really the only downside to this strategy.  Let’s say the average purchase price per home is $150,000 with a build-in of $50,000 for improvements.  That amounts to a total loan of $200,000.  Each time, Joe is able to use his amazing skills to renovate the home, which results in a sale price two years later of $300,000.  Each time he’s able to sock $100,000 of pure, un-taxed profit into his bank account.  He does this ten times.  After 20 years he has a cool million in the bank.

This is IN ADDITION to any savings he has from his actual job (or business) as a carpenter/remodeler/builder/etc.  Of course if he’s smart he’s plowing the extra $100,000 per sale into retirement accounts and/or rental properties during those 20 years, so it should actually be worth WELL over a million after 20 years (probably closer to four million, actually).  This stuff isn’t rocket science – it’s just a matter of having a plan and executing.

For the nit-pickers out there, yes I realize that this example is a gross oversimplification of the process.  Profits per sale will range wildly based on economic conditions and housing trends.  And Joe is unlikely to stay put for only two years in each location, but fundamentally this strategy really works.  Depending on swings in real estate values it could take 15 years or it could take 30, but OVER TIME this is a fantastic way to accumulate wealth over a lifetime.

Trade skills plus real estate knowledge equals early retirement.  You just have to want it.

I know a woman who is the owner and operator of a lawn care business and who charges a good 25-35% more for her services than almost anyone else.  Her business, though seasonal, is absolutely rocking.  I recall last year she had trouble keeping up, and had to start bringing in help because there simply weren’t enough hours in the day.  I believe that there were many days when she was grossing $500 or more by herself, just from mowing grass.

It got me wondering…

Does this same phenomenon apply across the board to all home service niches?  If so, why?  I don’t know the answer to the first question, but I’d like to get some feedback in the comment section from you guys (and especially gals).  What have your experiences been with this?

If indeed it does apply to multiple specialties, I would assume it has something to do with trust.  It’s no secret that a big part of having a successful home services business is having the ability to put clients at ease.  They need to be assured that when you come to their home you are going to treat them, their family, and their property with respect and kindness.  And, well, men are viewed as more of a potential physical threat than are women…it’s just the reality of the world.

I’m sure you can see where I’m going with this:

Why Aren’t More Contractors And Service Providers Hiring Women?

I think, at least in some industries, you’d make a lot more money!  I know it’s hard to find good people who don’t mind physical labor in the first place, and (in general) women probably tend to be drawn more to jobs that involve a different set of skills (more mental and less physical), but it’s not an impossible task.  My lawn care friend is the perfect example of this.  If simply having a female or two out in the field (or at least doing sales) has the potential to boost margins by such a tremendous amount then why not make more of an effort to recruit them or to set up training programs specifically for them?

Is it just sexism?  What’s the deal?