JD is flying solo on today’s episode of The FortuneBuilders Real Estate Investing Show, addressing one of the biggest problems today’s investors are facing – supply chain delays. While delays on rehabbing materials have always been an issue for real estate investors, the pandemic seems to have worsened the problem. Minimizing or eliminating these delays altogether is crucial for investors to reduce their hold times and, ultimately, maximize the profit potential of a deal. Today, JD shares five ways that CT Homes is solving the supply chain issue for you to implement in your own business.
Listen to the Podcast here:
Solving the Supply Chain Problem in Real Estate
Alright, hello everyone. You have your old pal JD Esajian here on the FortuneBuilders Real Estate Investing Show. Now, if you’re looking around for Mr. Jeff Rutkowski, he’s actually not with us today. This is my first solo episode without interviewing another guest or having Jeff here alongside me. I have to be frank, I feel naked, not literally naked, but I feel alone. Jeff, where are you? Where’s that flat top that people have come to appreciate so much? He’ll be back with us soon, but we’ve got a special show plan today. This is actually a viewer or listener-requested show. When we threw out the topics of what you want to learn more about, this came to the top of the list.
Word of the Week
And so we’re excited today to talk about (and it’s actually our Word of the Week) supply chain. Just sit with it. Let it marinate. Enjoy it. Let it just roll off your tongue, or off of your ears or off of your eyes, depending on how you’re watching or listening to this. It is today’s word of the week. I’ll give you the definition, like literally the definition from the internet: (noun) the sequence, or processes involved in the production and distribution of a commodity. I mean, if that doesn’t scream “exciting show” I don’t know what does. The reality is, it’s a big problem in our real estate space. And we’re going to talk about today’s problems, solutions, what we’re doing at CT homes, how to think about it moving forward because it’s a real problem for us in the real estate space. So I’m excited to discuss it. I’m excited to break it down. I’m just excited. So let’s go ahead and get into it.
Supply Chain Issues
So let’s talk about what the issues are with the supply chain. Now. This is something that has always been in our industry: delays on materials. Obviously, if you back up to when COVID affected the world, that’s when the supply chain and the delay in certain goods and products and services and materials really got exacerbated. Now, I’m not going to say that this is going to remain forever. It’s going to be something that we have to deal with, certainly in the short term and in the intermediate, and certainly thereafter, depending on certain goods and materials.
Now, recently, Tim Cook, who’s the CEO of Apple had some statements to make, and he’s been looked at if you research and read, he’s been looked at as a supply chain guru, in that he has figured out ways over the years to really help Apple reduce their supply chain issues. He made a mention recently, very recently, that he sees by the second quarter of 2022, the supply chain issues loosening up and get back to normal. Now, that remains to be seen. Tim Cook’s a pretty smart gentleman, so I’m going to opt to listen to that. And we’ll see what happens. Either way, let’s talk about some things that we can do immediately. We can plan for now and have our tool belt if you will. See, I use that reference “tool belt” talking about supply chain issues in our tool belt or toolbox that we can use immediately.
Some of the things whether we’re talking about residential, or whether we’re talking about commercial real estate (doesn’t matter) the delay for goods, the delay for certain materials is real. Some of the big things that we’ve experienced are delays happening the most on our appliances right now. For those of you that are renovating, or planning on renovating, or just wanting to get appliances for your own home, chances are there’s going to be some delay. So I’m going to talk about what the problems are, or what we’ve seen the problems to be. And then I’ll go over some of the solutions that we’ve been implementing, testing, and measuring as we always do at CT homes, and how you can think about solving some of these things.
So appliances have really been the number one thing. I mean, maybe last year, you might say it was lumber, either shortages or increased cost of the material. But right now, appliances are at the top end. And up at the top of the list of things that are creating the most delays, then you have things like tile and flooring. Whether you’re talking about tile for walls or bathroom surrounds, or you’re talking about tile for flooring or wood, those kinds of materials have seen significant increases in lead times and delays beyond what those extended lead times actually have been as well.
Lighting fixtures are up at the top of the list as well. There are definitely going to be other things that you’ll experience as you go to order that might not fall into those categories that I mentioned. For example, windows can be delayed as well. And sometimes that has been related recently or caused recently by certain products that are intimate window, whether it’s the glass or whether it’s the metal or whether it’s the plastic that are having problems getting from overseas and there’s they’re sitting on a shipping container in ports in a coastal town near you. That’s something that we have to deal with.
So those are some of the problems and some of the specific materials and things within our real estate space that we’ve experienced to be the most impacted by this supply chain delay. Now, I do think that over the course of this year, we’ll see improvements towards getting back to what normal was. We’ll see how far we get this year and how quickly that happens.
CT Homes Supply Chain Solutions
Nevertheless, if you’re facing it now, I want to give you some things to do immediately. And if you are going to be facing it as soon as you get into this business (if you do get into this business now if you’re not already renovating or owning rentals) you will experience this. I want to give you some things to do right away.
Now some of these things might seem like “Well, duh, JD. Are you captain obvious here today on the FortuneBuilders Real Estate Investing Show?” Well, maybe, but if you implement them, they work. And then some things are ways to think about your business differently, that can save a lot of time and ultimately money when, when you’re faced with these delays.
The first thing is ordering sooner. That’s a very obvious statement. I’ll give you some examples and I’ll give you some ways to think about it. The number one thing that we can do, as I said a little bit earlier, is to plan ahead. And the best way that we can do that is to order material sooner.
As an example, primarily, up until maybe a year and a half, two years ago, we would always order or have the contractors order the rough materials first like the lumber, and maybe some of the things that go behind the walls, etc. What we’re doing now is we’re ordering the materials immediately when we know that we’re going to be buying a property that we’re going to reposition. Whether it’s a single-family, whether it’s multifamily, whether it’s a retail asset, whatever it is, we’re going to need to order stuff that could be delayed. We’re ordering that right away.
Once we know we’re locked and loaded. For us at CT Homes, that’s when we remove all of our contingencies on the buy-side. So we’re looking at 123 Main Street, it’s a three-bedroom, two-bath home in any town in the USA. Wherever you’re listening or watching from, and you’re going to renovate that home, and you’re going to be putting in certain things, new appliances, new tile, new flooring, right? Those kinds of things.
As soon as we’re locked and loaded 100% know that we’re buying the property, even before we own it, we’re ordering those materials. So for us, you know, we’ll buy anywhere between two to five homes a week, and maybe sell the same depending on the time of the year, obviously, the week out of the month. We’ll be ordering those appliances for those two to five homes immediately when we’re signing off on our contingencies on the buy-side.
That does a couple of things. Obviously, it gives us the opportunity to get those materials here faster. Appliances, flooring, lighting fixtures, some plumbing fixtures, getting those sooner. It also lets us know sooner if those materials are back ordered. I’ll talk about a process to help there as well. We’re ordering, even before we’re buying or we actually closed on the home. We know we’re 100% committed. We’ve released all of our contingencies. It gives us the ability to get them sooner, and also be notified sooner if they are going to be delayed.
I can stop the show there. If you just implemented that you’d be better off. I’m obviously going to give you some other tools and some other things that we’ve been doing. That’s the number one thing that we can do now and move forward is to order material sooner. Also in that same conversation is be willing to pivot and don’t be married to a certain kind of material. Meaning if you have to have Whirlpool stainless steel appliances in your next renovation like the name Whirlpool just is orgasmic for you. I don’t know why that would be the case. But if it was, and you’re only stuck on the Whirlpool and those are delayed, well, you’re going to find yourself in a jam.
Be open to three or four different kinds of things that give you the same look and the same feel as the Whirlpool. I did use “Whirlpool” and “orgasmic” together in the same sentence, which maybe hasn’t been done on the podcast before. It has now. Be willing to pivot when you’re planning your next project. Whether it’s a hold, whether it’s a renovation, quick turn, or some variation of those, have a couple of different types of materials that you can interchange.
Also with regards to ordering sooner and then being notified, obviously when things might be delayed sooner as you will be when you order sooner when you get that feedback or you find out that those materials are delayed or that type of material or that type of fixture or that type of appliance is delayed, you want to log that. What we do is we look at transitioning towards the materials that are more readily available. It’s a process of elimination. Of course, as supply chains freeze up, we can go back to ordering later, as long as we can get those materials faster. Right now we’re ordering a lot sooner.
Broaden Your Horizons
The other thing that will help with that as well is to broaden your horizons and explore different and more vendors. If you’ve been used to walking into Lowe’s or walking into Home Depot or ordering from the local Ferguson’s down the street, and that’s the only place you’d like to go, it’s comfortable, you know, everyone you got your process set up, it’s going to benefit you to expand your database and expand your list of vendors where you can get materials from.
You should be doing that anyway. It’s just like marketing or looking for contractors. You find a good contractor, you work together and all of a sudden, that good contractor becomes not good. They move away, they’re hard to get a hold of, they get too busy. Then, you got to start marketing again. It’s the same thing with vendors. It’s a good reminder, this scenario of supply chain issues and delays has been a very good reminder.
It should be for you as well, to expand your horizons in the world of vendors. Find more places local or beyond online where you can get material faster. If you’ve only gone into Lowe’s in your marketplace, go next door to the Home Depot because there’s probably one not far away. Start expanding the vendors that you work with. Don’t just rely on the big box stores. Like I mentioned, you want to try to also look at some of the smaller mom and pop operations or the smaller national chains or local chains in your marketplace that have the kinds of materials that you order.
If you haven’t been doing that, that’s another very good use of time. It will benefit you in the long term, definitely in the short term, and absolutely in the long term as well. In the short term, we’re dealing with this exacerbated situation that will certainly free up over time. In the long term having more resources to go to allows you to compare pricing help reduce pricing. You can negotiate with those vendors. I don’t like to necessarily pit a vendor against one another to have them price match necessarily. It’s always a good idea that the people that you buy material from or that your contractors are getting material from know that you’re looking at all options that are out there. Expand out to different vendors and do that right away. These are things that we’ve been doing throughout the years, but we’ve definitely put more energy in our office and time blocked that more every week in our office to do that.
Even go so far as to set goals around how many new vendors we’re going to reach out to, and starting those relationships or reestablishing relationships that we’ve had in the past. Number one thing I mentioned was ordering sooner, and being willing to pivot and adjust around materials that may have or you’ll find out have longer lead times and delays. Number two, which will help with number one, is to expand your horizons around the vendors that you’re buying material from or that your contractors are buying material from. I would set a goal in this next week or when you get to your first project, set a goal of how many new vendors you’re going to establish relationships with.
As a recap, right, we’re ordering materials sooner on in the project even before we own the property. Then number two, which will help with number one is to expand your database and research interview, walk into other vendors, other places that supply material that you’re putting into your projects or that you’ve experienced delays with as you’ve been ordering, or as your contractors have been ordering material.
Use More Materials
Okay, number three, which actually is related, of course, (they’re all related). Number three which will help with number two, which will help with number one is: block out time. Spend more time expanding the types of materials that you use. In your scope of work, as an example, the way I describe it, a scope of work is to a rehab what a screenplay is to a movie. It’s everything you want to be done in the home.
So the contractor that’s bidding it, the contractor that’s doing the work, the homeowner that you’re potentially selling the property to the right when they look at the scope of work, it has everything there and they can envision what the property is going to look at. When you create your scope of work, have 2, 3, 4 different kinds of materials that can be inserted or changed for that one tile or for that one kind of appliance.
So having a database of other materials. Now in our network, and in our education, we have our students use a Scope of Work Library, which is very detailed. Over the last decade, CT Homes has been uploading scopes of work to that resource, and they pull from the exact scopes of work that we use. Start to create your database of those materials.
If you look at all those things together, it takes time. It’s planning. It’s organizing. It’s tracking. It’s spending time each week. It’s being proactive. It’s not waiting to find out that something’s going to be weeks or months delayed. It’s asking and then planning appropriately. Some of you might find yourself in a situation where whether it’s in the short term, intermediate, or potentially long term, you can create a position, part-time or full time around this activity. That’s also what we’ve done at CT Homes as well.
Again, the volume of business dictates that we can warrant it. We have a team member that we brought on and their job is to plan and order material ahead of time. Track in real-time where the materials are or where that material isn’t at. If we don’t know when it’s going to be here, then pivot and find option two, option three, option four, option five. Go online if there’s nothing local, which sometimes we’ll face. The internet’s created an opportunity where you can go, whether it’s Amazon or searching Google, and try to find something online that they have a limited supply and in someplace and you can get it delivered and keep your project moving forward.
For those of you where your business doesn’t necessarily warrant a full-time team member, you can very easily look at solving that either by yourself or someone that’s already on your team, or using resources like virtual assistants. We talk and train a lot at FortuneBuilders around using virtual assistants to leverage their time, it’s more economical, to get tasks and things done that aren’t the highest and best use of our time.
This is definitely one of those activities. It’s not the best use of your time as the investor or business owner to be on the phone 3, 4, 5, 10 hours a week calling around to every plumbing supply store in your city trying to find that one faucet that goes perfectly with the other materials that are going in the bathroom and the kitchen. It’s important, because if someone’s not doing it, then
“every day that your project isn’t getting completed and sold, it’s costing you money”
The way that I would suggest you solve it is on a short-term part-time basis with a virtual assistant. Another way to look at that same thing ( planning ahead does take time, but it’s time well spent) is to have interns, which is another version of an assistant if you will. We have in the past and currently have college interns that come into our business, and they spend time getting real experience in a real estate business. They can do these kinds of activities, pre-ordering material, adjusting the scope of work, calling around locally, or going online and researching other materials that will replace what we’re looking for.
To recap, we talked about some things that we can do to pre-plan, which is really the single best thing that we can do to get ahead of supply chain issues. First and foremost is it’s planning and ordering ahead of time, whatever it is that’s being delayed in your marketplace. We talked about expanding the vendors that you get material from locally or not locally and using the Internet to reach out to other resources. Then we talked about spending more dedicated time looking for alternative resources (materials are what I’m talking about) that can replace that one or two types of tile that you really like to use, or you think you really want to use, or that appliance package. And then we talked about the time that it takes to do those things and how to think about potentially solving that if you don’t have the time. Someone’s got to do it and it’s important to be done for your business if you want to eliminate or try to eliminate supply chain issues. The way that we’ve done it at CT homes is we’ve actually brought in an almost a full-time team member to do these things go online, call other vendors, be updated in real-time, or get updates in real-time about materials that we were told are being delayed. Another way to solve it for those of you that don’t want to justify or can’t justify full-time team members, solve it with part-time help, whether that’s a virtual assistant, or a free or paid intern, depending on how you want to look at that activity.
Get out there, implement the things that we talked about, stay plugged into what we’re talking about on this show. Go to FortuneBuildersshow.com to get more information about future online trainings that we do. In general, stay plugged into what we teach and talk about here at FortuneBuilders and CT Homes. Excited to see you on the next show. We’ll certainly have Mr. Jeff Rutkowski in his flat top (aka like Iceman from Top Gun) back with me. That’s a great movie. I haven’t watched it in a while. When you watch Top Gun for the next time or the first time, notice that in almost every scene in that movie, the actors are glistening. I’m not making that up. It was filmed in San Diego. I live in San Diego. I’ve never glistened in San Diego, but in that movie, every single scene, the actors are glistening. That has nothing to do with supply chain issues. Just a fun fact. Jeff will be with us on the next show, most likely. Thank you for tuning in. Thank you for plugging in. And we’ll catch you on the next podcast.