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Johnny Learns the Truth About Home Inspections


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By Mike O'Handley - Editor, TIJ

Johnny just got into the business and has been told that the average inspector in his area does about 400 inspections a year. Being a realist, he figures that's an inflated figure and plans to shoot for 200 jobs a year.

He wants to net $60K after overhead and taxes (This is the only place where he's not a realist).

After he's mentored with a guy in town for a month or two and done a few practice inspections, he figures out that his inspection of a 2500sf home will probably take 3-1/2 hours and that it'll take him another 3-1/2 hours, including travel time to and from, to write the report. Total = 7 hours per inspection.

Trying to decide what he needs to charge when he hangs out his own shingle, Johnny sits down with a pencil and paper. He decides that, being new, he'll need to low-ball everyone else's price if he wants to get the referrals that the guys at the inspection school told him would be showered on him by real estate folks.

The guys that made him a home inspection God at the 5-day home inspection course had told him that roughly half of what he grosses will be eaten up by overhead and taxes, so he swags $20. per hour as what he thinks he needs to net. "Lesse," calculates Johnny, "7 hours X $20 per hour = $140, so if I double that I'll get $280 per inspection. That's at least $100 less than anyone else around. Heh, heh, this is going to be easy," he chuckles.

Then, just to be sure, Johnny multiplies that figure times the 200 inspections that he thinks he'll be able to do and discovers that, at that rate, he'll only gross about $56,00 per year, leaving him only $28,000 per year to pay his rent, put food on the table, pay his utility bills and feed Gorgon, his giant English bull mastiff." It isn't much and it's only 46.6% of his goal. "Damn!" says Johnny, "I've got to either do a lot more inspections or raise my prices if I want to make my objective!"

So, Johnny tries figuring it again at $30 net per hour. 7 X $30 = $210 X 2 = $420. X 200 = $84,000 gross or only $42,000 net per year. "Damn," he says, "If everyone else is telling me the truth, I'll be lucky to get between 80 and 100 inspections my first year. Even at this rate, I'll bankrupt myself in about 12 months. Ain't no way I can low ball anyone if I want to stay in this business for any amount of time." Johnny goes down to the local bar to partake of some thought lubricating liquid and wakes up in the drunk tank the next day with a hangover.

After he's sobered up and has been cut loose, Johnny goes home and sits down to once more recalculate. "Lesse," he says, "$40. an hour X 7 hours = $280. X 2 = $560 X 200 = $112,000 gross a year in order to net only $56,000. Fer cryin' out loud, this ain't gonna be as easy as I thought!!!" Johnny goes to bed with a migraine.

The next morning, Johnny is frustrated. His dreams of making BIG money in the home inspection business have been quashed. Finally, he has an idea, he decides to go to Big Bill, the inspectingest Inspector around, whose been inspecting since long before Johnny got his first job flipping burgers down at Burger Whopper, and asks Big Bill how he can make the BIG money. "What BIG money?" asks Bill, I've been in this business for nearly 20 years and I'm lucky if I can net $45K a year.

"Dang," says Johnny, "Where's all that full-time pay for part-time money that the magazine ads told me I was going to make?"

Big Bill looks at Johnny, winks and says, "Well, it's definitely part-time work alright, but I've yet to see any full-time money. To make what you want, you'll need to work at least 60 hours a week and set your sights on between 300 and 400 inspections a year. Then you'll need to charge a reasonable fee where you know you'll be able to just scratch by while your business builds, and don't plan to take any vacations, or be at your 200 inspections per year level, for at least the first 3 years."

"Dang Bill! If I can't make any decent money for at least 3 years, why the hell would I want to be in this business in the first place?" moans Johnny.

"Good question," replied Bill, "And one that I've been asking myself for the past 20 years."

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Hi Steve,

That's an interesting observation. A very good friend of mine teaches home inspection. Here's what he recently said to me via e-mail:

As one who has sat in front of hundreds of aspiring first-timers on that first day of class, I always scan their eyes to see how many have that deer-in-the-headlights look when I explain

- paying quarterly tax payments

- what happens if you don't do it

- costs of things like business licenses

- real-life simple things, like opening a business bank account

At some point, I make a mental count of how many are never really going to file a schedule C on a tax return in their life. I guarantee you, it's well over 50%. (I think the same is probably true of existing home inspectors. I bet that half the guys in the business, and maybe a fourth of those on TIJ, don't pay taxes.)

As you know, the basic newbie looks at collecting a $300 inspection fee for a few hours work, realizes that's it's more per hour than they ever made in their lives, and instantly decides it beats heavy lifting.

I can sure relate to that. There've been times that the only thing that's kept me from going under and ending up pitching a tent under an overpass somewhere, or has enabled me to pay my taxes when there hadn't been enough income that month to pay all of the bills, has been my military retirement check.

I sure hope you guys are paying attention to the Ellen Rohr articles that I've been posting the last couple of months. That lady has definitely got small businesses figured out and truly offers solutions that can help. Wish I'd known about her when I first got into this business. If I had, a comfortable retirement would probably be looking a whole lot closer than it does right now.

ONE TEAM - ONE FIGHT!!!

Mike

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I can understand the effort to find more ways to bring in money but for those who have turned to training new inspectors they are making all of our jobs more difficult. I agree, at first glance this job looks like the cat's pajamas and it will always draw many people into the field. But I can't see having a training program and then telling your students how difficult it can be to stay in business - not if you want them the finish the course and pay your fee.

The other side of the coin - new guys are going to charge bottom rates just to get a foothold. Marketing in general has conditioned buyers to shop on lowest price. For some reason the "You get what you pay for" idea isn't even a thought for most people.

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  • 1 month later...

Originally posted by lstation

As a new inspector in the business, I own a few rental properties and I'm writing my business plan and completing the market research before going live in March. Is this common practice?

No, the common practice is to dive in half-cocked and try to make it work. I get one or two calls a month from people who want to ask about getting into the business. When I start telling them the truth about the expenses and liabilities involved most will brush that stuff aside and ask about the money.

Hell, if I had known exactly how much it would really cost to get me going that first year I probably wouldn't have done it myself. Ignorance is bliss. [^]

Brian G.

Diver-In'er, Making It Work [:-party]

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I was at the wine store ( cheap wine by the way )and a fellow came up to me and said, I see you're a home inspector. I'm thinking of doing it part time for some spending money. I work as a FD inspector in the neighboring state and figure I know all about this stuff.

Well, I tried to tell him about insurance, E&O insurance, licenses, continuing ed, operating expenses and many other items no one thinks about. He said " I know all about that stuff and I'm don't need it for part time. Even if I do, it's a cost of business.

I wished him good luck and happy new year. It will be a happy new year if he stays away from this but I don't think he will. Oh Well.

Peter K

Argyle Home Inspections

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Istation,

Not having seen your business plan, we can't determine if your going to start marketing in March or start inspecting in March. If its the latter you better start marketing now. For most realtor's they have to see you or have contact with you at least three times before they consider you. I have had realtor's tell me that they have seen so many inspectors, mortgage people, insurance agents, title people come through there doors drop brochures on the counter and never be seen again that many automatically dump the first two trips of materials in the waste bin before they consider using them.

Prime season is March through September and you want to be positioned that if the realtor's favorite isn't available you will be ready and waiting to do the job,

//Rick

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Originally posted by kurt

Uh oh....just what you need Mike, a little diversion to Norman Island.

The big fantasy is about Norman Island, right?

Nope,

Shhh, that's not the name anyway, but keep it under your fedora you Chi-Town gangster yous![:-psst]

OT - OF!!!

M.

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  • 1 month later...

Norman Island appears to be a dreamy "Someday I'll" escape. Some might make it a brief reality.

Watch out fcr "island fever"

On track with the topic:

Where ever there is a buck to be make someone will eventually fill the void. Marketing hype and spin is so rampant one has to take all advertizing with much filtering. We are all bombarded daily with misrepresention via lies, half lies and trickster exploition.

Marketing companies often use psychology to exploit the weakesses, habits and addictions of the target market to garner sales and thus profit.

The inspection business is no different than the others in some aspects. At least some of us actually try to protect the consumer's intersts.

Other industry may try to protect the consumer's welfare but when push comes to shove they protect their turf first and hide bedhind disclaimers and legal dodging of responsibility. Some of that turf protection can be justified to a degree where it deals with fairiness issues.

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