High failure rate?

[Reality]

I was reading on another HI forum yesterday. One home inspector said that there was a high "failure rate" among new home inspectors. Do you see many home inspectors getting out of the business? Financially speaking, do you see this as a "risky" business? How concerned should I be in trying to pay the bills during the first year?

[monte]

Yes, Yes and Very Concern. In any self-employed business you should have at least 6 months of reserves to cover your business expenses, personel bills and living expenses. Under capitalization is one of the major reason's that most business's fail.

[DonTx]

Yes, from what I see there is a high failure rate among new HI's. The reasons vary, but I believe a lot of it has to do with the HI school ads that tell everyone how easy it is to be an HI and how much money they will make.

Other reasons I see HI's fail is they have no clue as to the amount of money that will be required for marketing, tools, insurance, everyday expenses, etc. and to survive on the first year. Most also do not have a clue as to how much time and energy it takes to run a successful company or how to go about it. For many, being an HI is their first attempt at self employment.

Is this a risky business? You betcha!

You're gonna need a very supportive wife, hopefully one that makes good money. You'll also need either about 10 to 15k in starting expenses or work on building your company part time while you work part/full time. Both would be good.

Should you be concerned? Yes, very concerned!

Good Luck,

[Jim Katen]

Originally posted by Reality

I was reading on another HI forum yesterday. One home inspector said that there was a high "failure rate" among new home inspectors. Do you see many home inspectors getting out of the business? Financially speaking, do you see this as a "risky" business? How concerned should I be in trying to pay the bills during the first year?

It's been a long time but back when I tracked these things in my area, only 1 out of 17 new inspectors was still in business after 2 years.

The vast majority fail because they're undercapitalized and they don't know it.

Lots fail because they just wither on the vine; they don't get any work.

Some fail from trauma. They screw up and get sued.

I don't understand how anyone can startup with as little as $15K. I'd say it's more like $30K.

- Jim Katen, Oregon

[kurt]

Yes. Don't quit the day job.

It's not just HI business; it's any business.

[Les]

Les,

Everything above is correct. I have been at this for longer than most and the single reason I see for HI failure is stress. 'course it could be stress of liability, financial, maritial, etc.. I see the failure rate of single person operations higher than those that join a multiple inspector firm. New guys in my company have the most difficult time about four months into being on their own. Several have left the company and all have failed, except one.

With a multi person firm, you have the ability to talk to each other and of course the liability seems to be less.

I suspect the failure rate in Mid-Mich is roughly 70% in first year or so and about 20% quit during the second year. Likely 1 in 15 is in business after three years. It is hard to find hard numbers because many just stop working or do one or two a month, so they never really go away.

IT IS A VERY DIFFICULT BUSINESS TO BE IN - PERIOD! I have always had a passion for it and have been learning more every day.

PS: It is my experience here that quickie school trained guys don't last as long as those that bring a little experience and a love of learning do.

[hausdok]

Hi,

I agree with all that the others have said. It's not enough to simply know how to inspect a house.

You have to know how to interact with people as a business owner and how to present your findings to your clients. If you have never been in a situation where you've had to explain electrical, mechanical or structural concepts to someone who hasn't a clue, in such a way as to make them understand the importance of such matters without using overly-complicated explanations, you'll be in trouble if you can't learn to do it really quickly. It sounds simple but it isn't. If you can't do it and do it well, you'll find that when customers don't have a complete understanding of the home you've just inspected for them they'll feel like they wasted their money on your services and you'll have lost someone who could tell others about your company.

You'll have to be able to write a decent report where what you've explained to the client is mirrored and explained equally well and will be available to the client, as well as you, later on. Some very knowledgable folks say that home inspectors say you should be able to write on at least a 6th grade level. I personally think it should be closer to a 12th grade level or at least at GED level(Have you seen the stuff high school seniors are producing these days? I would have failed English badly if I wrote like that when I was in high school!).

You should learn to type. Not just hunt and peck or the two finger stab, but really learn how to keyboard.

You need to have a pretty good understanding of computers and various types of business program applications - Word, Accell, Access, Powerpoint.

You'll need to get a decent report writing program and then re-write all of the boilerplate to fit your own style of syntax and writing. Don't use a checklist - those are frought with so much potential liability you might as well paint a bullseye on your forehead and tape a sign to your back that says, "Sue Me!"

You'll need to set up a decent home office and learn the internet really well, so that you can use it to best advantage. You wouldn't believe the amount of really, really good free stuff out there on the internet that a home inspector can use.

If you've never had any business related educational courses, you should take some at your local community college. They have nightschool classes at most colleges for adult continuing education. You need to know about how and when to file local, state and federal business tax returns and how much to set aside for that. You'll need to learn how to figure out how much per hour you'll need to make in order to pay your overhead, pay yourself, pay your taxes and insurance and still be able to put something aside for unexpected expenses. (This is where so many folks fail it's pathetic. They get into the business without a clue as to how to go about figuring out what they must make, come out of the chute charging less than anyone else, and before you know it they can't pay their bills and are facing financial ruin.).

You need to learn to market your services to anyone who can refer others to you - friends, relatives, real estate folks, mortgage brokers, lawyers, insurance agents, bankers and anyone else who will listen. For each of these, you'll need to know the best way to approach each if you want to catch their attention.

If you go to one of the basic 6 day to 2-week home inspection schools, you'll come out having only a very rudimentary knowledge of the home, so you'll need to find a mentor who will work with you and teach you what the schools can't or you'll be faced with learning the other 90% of what you need to know by trial and error - basically flying half blind and hoping that you'll be able to learn enough and dodge enough errors, while experimenting on customers' houses, to be able to survive through the ramp-up period.

I agree with Jim. I don't think 15K is enough. You'll need to weather about 6 to 9 months of extremely long days where you won't be bringing in squat compared to what you'll be spending with insurance, marketing costs, equipment purchase costs, advertising, etc. If you don't have enough, you'll find yourself very, very, very deeply in the red faster than an ink dauber in the hands of a 75 year old at the bingo table.

There's more, but you should be getting the idea. Bottom line, I've been doing this nearly 10 years and have yet to see the $100 an hour and the full-time pay with only part-time work that all of the correspondence course ads in the magazines talk about. This is an extremely demanding business. Don't every think otherwise.

But don't believe me. Click over to the Amazon or the Barnes & Noble sites and order a copy of 21 Things Every Home Inspector Should Know (See the review on the TIJ home page.), read it and then decide if you really want to take a chance jumping into something where you may need to jump right back out next year and will have lost a year of your life and a big chunk of your own self-confidence.

If, after reading it, you think it's still for you, dive in, but dive deep and dedicate yourself to learning as much as you can about homes and this business every single waking moment. Then, don't slack up until you're getting enough referrals to keep your head above water without the need to spend half of every day marketing.

ONE TEAM - ONE FIGHT!!!

P.S.

Say goodbye to vacations for a while.

[chrisprickett]

Reality,

I guess I'm a "sucessful" HI. I built a business, grew it, sold it, and still work for the company that bought me.

It was tough getting started, and I had grown and sold two other businesses previously. I won't go into all the boring details, but long hours, throwing most of my profits back into the kitty, and lots of expensive mistakes (in marketing and choosing new hires) were involved. Here are a few tips:

1. Don't be a low-baller! Those guys fail faster than average. They run their a$$es off for low pay, get a bad reputation fast, and become Realtor Be-atches. I teach part-time at an HI school, and have guys in the biz come to some classes. Last night there was a guy who was in the business 2 1/2 years, and his average fee is 65% of what my base fee is. He asked me if my company was hiring, because he was dying. I told him to raise his prices, but he said he couldn't because Realtors say he's too high already. He's carved his niche, and his niche is a rut!

2. Get a marketing plan, and work it hard! You better be unique, because everybody and his mother are bringing brochures and donuts to the RE offices. Read "Purple Cow" for starters.

3. Look professional! Don't print your cards on your computer, and unless you're a graphic designer, pay a pro to come up with your logo, brochures, etc.

4. Have a war chest! Jim K. was on the money with the $30K number for start-up. Equipment, marketing, training, licensing, & insurance will eat up about $10K before you do your first inspection.

5. Learn, Learn, Learn!

6. Learn, Learn, Learn!

7. Get involved in your community, give back, and network your butt off!

8. Listen and ask lots of questions! There are plenty of old salts on this board who forgot more than I know. I've hung with some of em, and they fart wisdom! (sorry for that visual)

[kurt]

Yes again. That's a couple of pretty good analysis' on what it is to make it in this biz.

I'm hitting an even 20 years of full time inspecting this year; I'm kinda surprised that I'm still around.

It's partly due to my never having stopped being scared, partly due to my keeping a fire under my ass because I'm scared, & partly due to my ignorance. Ignorance, as in, I keep having to learn new stuff every day to stay alive in this business.

Chris is one of the smart one's; well, maybe not. Let's say he's lucky. Given the choice, I'll take luck over smarts any day.

[Reality]

Thanks for all the great information. This state requires 90 hours of IN classroom training and 30 hours of on the job training. I'm still planning on jumping in as soon as the educational requirements are met. I need to hear the bad side of this profession as well as the good. I don't need anything "candy-coated." I know it's going to be tough. Thanks for the frank comments.

[Garcha]

It breaks my heart every spring and fall to see 15 new fliers in the realtor offices and by the end of the season they're mostly gone and new ones are in. These are guys just like me trying to make a living, feed their families and have some fun. Do your home work and study your market or you will be another empty Brochure holder.

Good luck

[Phillip]

Just to give you an idea of the failure rate. In the state of Alabama they have a license number for each home inspector. Last month the number HI-0995 started doing inspections. I started in July 2000 and I am HI-0445. At this time there is only 286 license inspectors in the state. At this time of the year it slows down and sometime I think about getting a job. In other words it hard to stay an inspector. Thank God for my wife.

[Scottpat]

Louisiana is a licensed state with mandatory E&O and GL insurance. It is similar to Mississippi and I tell folks all the time that it will take about $10,000 to $15,000 to just get started. This is your education, tools, insurance, license fees and office equipment. Then you need an income to live off of for a couple of years. Seldom do they believe me.

[Scorp100]

Hi Guys,

Well, I start my new HI career next Wednesday.

I'm not brave enough to go it alone so I will be working for a national company. I want the benefit of working with an experienced company that I've personally heard several Realtors say "I only use you guys because the rest don't take the time to do a good inspection". Plus, I like the peace of mind of having a "safety net" as I'm just starting out. I hear too many folks getting sued, and I'm a bit of a perfectionist so I want to learn how to do my new career the right way.

Maybe after a few years, and several hundred inspections under my belt, I may venture out on my own. I've worked for 29 years, always a steady paycheck, so this is risky enough for right now.

[Bradd Judd]

Reality,

I'm finishing my 3rd year in business for myself as an HI. My first year was -$30,000 and in the red until halfway through my second. I'm finally in the black and have an operating monthly expense of approx. $1200.

The Money (almost 50% if not more)goes back into Marketing, Advertising and Promotions. The Schooling, training seminars, association meetings are never ending, as it should be.

As previously mentioned by my colleges, you must be genuinely interested in doing this type of work. It's no quick buck, semi-hazardous and your attitude has to remain positive and pleasant.

There will be times when you may secretly feel that you need to be the final solution to a Snobby realtors' demise or participate in driving a nail into an attorneys coffin.

There is no glamour in it, but a harty and sincere thank you for a job well done and a check in my pocket is all I need to be happy these days.

Best of luck to you!!!

Brad

[slinger2k]

Reality,

I consider my company one of the VERY forutnate ones. We did our very first inspection on July 11, 2001. Unlike Brad, we were in the black nearly from the start (start-up costs were about $5k out-of-pocket and a couple pairs of shoes...walking and talking wears away the soles rather quickly LOL).

I attribute our immediate success to finding a niche and non-stop promotion. The niche was a "2-man inspection" ALWAYS (we walked into that one - on our first inspection my brother and I flipped a coin and separated our checklists between the two of us - we havent changed the format since). I have an advertising/marketing background, so I put that to use. When you have the chance to reach the masses, do it. Business comes in usually by way of agent referral (or the agent him/herself), so I wormed our way into sales meetings at all the real estate offices and talked, and talked and talked. I got to know the receptionist very well - I had carte blanche with the mailroom (make use of it distributing fliers, magnets, business cards, etc.). Right around March 2002, our business went off the hook.

And now I sit here four years and change later doing pretty well. To answer your questions...I do think there is a "high" rate of failure. I see an awful lot of New Candidates in the ASHI magazine, but I've never run into, seen, or even heard about a majority of them (may be they are part-timers?). My brother (and business partner) continued his 9 to 5'er until we were six months old. If you still have a job, continue to work until they make you leave. Would be nice if you were in sales.

Risk is involved in any self-employed endeavor. You can temper risk by "doing the right things right", finding your niche, being competitive, etc.

Reality, we all have to live like hermits some time in our life. I was out of work Dec 2000, got one months severance, remained unemployed, brainstormed the home inspection idea w/ my brother and survived off of $8500 (net income on my 2001 return) for an entire year. Before that I ate soup, venison and mac & cheese for nearly a year straight when I built my first house. Everyone has different life styles to fulfill and comfort levels at which to live. I definitely could live like Grizzly Adams if I had to.

Take a deep breath, hold your nose and jump in - the water is fine.

P.S. - I do have time to write this because the market has wised up. Values are well beyond the norm (a friend bought a condo when I moved back home in 2001 for $115k - just sold it for $289.9k a couple months ago), everyone is scared to heat their home because of the outrageous gas/oil prices expectations and we are in the middle of a rough war with vey little upside in the near future (creating a democracy in Iraq is difficult to say the least). A 25-yr vet (inspector) told me he has never experienced this before...he hasnt had a request for or performed an inspection since October 18. Be preapred for the really good times and the not-so-good times.

[paul burrell]

Originally posted by Reality

I was reading on another HI forum yesterday. One home inspector said that there was a high "failure rate" among new home inspectors. Do you see many home inspectors getting out of the business? Financially speaking, do you see this as a "risky" business? How concerned should I be in trying to pay the bills during the first year?

I did a home inspection for a Lady that said Her husband and son took HI training, went into business and the going was so tough that both quit and went back to their regular jobs.

When I started in home inspection over a decade past the first two years were very bad almost starved to death. Then I had a lucky break. A friend that I attended ASHI meetings with who was established had a heart attack. He had to quit work and he gave my phone number and recommended me to several large Realtor Companies. We all need a break and I got mine from a good friend who unfortunately developed health problems.

Many times I almost quit but now I am glad I hung in there. It paid off in a big way.

Paul Burrell

[Paul MacLean]

I got into home inspections in 1989 when I found that no one would hire me to do work I wanted to do. I was single and had just gone through bankruptcy, so I had no debts or family to worry about. I was throwing newspapers at night to keep days open for inspecting. I did 70 inspections the first year (my 1040 said I earned about $7000 that year), 120 the second year and 180 the third year. It wasn't until after the third year that I finally felt secure enough to quit the paper route and start looking for a woman.

I guess I would have to say that inspecting is a tough business to get into. If I had to do it again in today's market with a family, I don't think I could make it. Inspecting wasn't as complicated in 1990 and I could get by on a lot less. I feel for anybody trying to get into inspecting today without a sizable nest egg to get them through the first years.

Just my experience FWIW.

[paul burrell]

When I started in HI business in 1990 there were about 5 inspectors in my county now there are 100 or so. The county population has approximately doubled since 1990 and the HIs have increased 20 times. The math does not lie it is very hard to get started now. I have quoted homes that should warrant a $300.00 fee only to be told that they have a quote of $175.00. I just tell them good luck and I can not do the job for that. Fortunately I have a custome base built up so I do not have to work for nothing. I also am glad I am not starting out now.

Paul Burrell

[robert1966]

I agree with all the above comments, it is risky business. You need start up capital, etc. I worked part time while I grew my business. You must be great at marketing your services to everyone related to the real estate business. Continue what works and improve or revise what doesn't.

Robert

www.atexinspects.com