Networking is quite the buzzword these days. You have probably watched the TED Talks, read the articles, and seen all the research and statistics. And you have experienced firsthand the value that connections make to support solid real estate portfolio investments. But what if your networking strategy is still missing something important?
Your networking strategy is missing direct relationships with your building material suppliers.
The challenges of the past few years have made this gap financially painful for many investors. Project delays, missed opportunities, frustrated tenants, and slow turns are not the hallmarks of growth for a portfolio.
Partnering with a trustworthy supplier can ease and potentially eliminate these problems in the most challenging market conditions. But even more important than reduced costs, a strong relationship with a dependable supplier can have a meaningful impact on the ongoing increase in value for your investments.
How is this possible? Let’s walk through some key points to consider.
Negotiate Pricing Directly
Times have changed, and new lines of communication have opened up. More than ever before, manufacturers and suppliers are open to direct conversations. Previously, access was only given to contractors, installers, or developers. The agreements were guarded and exclusive. In this new era, suppliers are not just open to direct communication, but eager to establish good relationships. This opens up significant opportunities for real estate investors and asset managers.
Leverage Your Buying Power
You have a lot of leverage and buying power when you walk into a negotiation armed with information about the number of units and turn rates across your properties. That is not the time to hand over the reins to someone less experienced, knowledgeable, or persuasive. No, that is the time to send in your expert negotiator to secure the best deal for your building materials.
Discover Your Actual Costs For Labor And Materials
Recent years have seen an unprecedented fluctuation in costs across all categories, including labor and building materials. The constant change has increased the risk of blind spots and potential vulnerabilities when contracting with one company to provide both labor and materials.
Markup is a standard practice and can be handled in a manner that is fair to both parties, but how do you really know if you are paying a fair price? You cannot know unless you negotiate the price directly with the supplier. Removing layers of obscurity provides valuable insights about your true costs, increases your ability to forecast, and helps protect you from being taken advantage of in a volatile economy.
Protect Your Day-To-Day Operations
It is not just about getting lower prices. Good relationships with building material suppliers also provide tremendous benefits for ongoing operations.
Teams working on-site deserve a lot of credit for the complexities and frustrations they deal with through the maintenance requests and unit turnover process. When disruptions happen, it quickly becomes like a train of dominoes. One thing delays another, which causes another issue, which brings another problem to light, and turnover time lengthens each time another domino falls. How can a direct relationship with suppliers help with any of that?
Consistent Materials Improve Efficiency
Nothing burns time and money like trips to the hardware store. By working directly with suppliers, you can standardize the parts and materials used across properties. This may sound like a minor benefit, but it compounds and grows with time. Six months down the road, maintenance crews know exactly which parts they need, which tools to use, and have experience to do the work quickly.
This should be in the top ten of things you do not want to hear: “Well the last time work was done in that unit they used a different type of [insert-building-material-here] which is a different size so our [insert-normal-part-here] does not fit and we have to special order the part or redo the whole thing.”
Consistently sourcing materials from manufacturers provides efficiency in supply, storage, labor, and training.
Consistent Materials Ensure Quality
Roughly 30% of all traffic accidents occur during a lane change. These accidents happen between vehicles driving the same road in the same direction at similar speeds. This simple maneuver increases the risk of collision every time. That is a good analogy for the increase in risk when changing the source of building materials. Manufacturers use different standards, material quality and testing tolerances, so even products that look identical cannot be trusted to be identical in performance and quality.
Consider luxury vinyl plank flooring for an example. It is the fastest growing category in flooring and that has caused a flood of many similar products into the market. Yet each one is designed, engineered, and manufactured differently. You will experience an unpredictable range of issues if your units have flooring from different sources. Some products will expand and contract more than others. Some will last longer and can be preserved across multiple tenants. Some products will transfer more sound and annoy occupants of lower units.
Consistent Materials Stabilize Operations
They say asset management is like a box of chocolates, that you never know what you’re going to get. That is true, unless you develop a solid relationship with building material suppliers that you can rely on to get the right products for your properties. Avoid the perfect storm of empty units, upset tenants, unpredictable products, and unreliable suppliers.
Level Up Your Strategic Planning
Bump, set, spike. Negotiating pricing directly affects the bottom line. Consistent sourcing protects the day-to-day operations. Now you are set up to score real growth for the future. As you set your eyes on the horizon, make sure these additional elements are included in your supplier agreements.
Do not make the mistake of only negotiating price. The best price on the market does not mean much when delivery will be four weeks too late. One major advantage of a direct relationship with the supplier is that you can work together to ensure project timelines include the appropriate lead time.
An excellent supplier will also keep you in the loop for any timeframe changes. You get to hear the news firsthand instead of relying on another party who may not relay the changes clearly or promptly.
There may not be a bigger travel-related frustration than arriving at the airport and discovering that the airline oversold your flight, and your spot is in jeopardy. The airlines are not the only industry to use that tactic. Unreliable suppliers have no problem selling to others the stock reserved for you. That terrible approach to business forces you to delay or go through the costly process of reselection.
Root out those kinds of suppliers from your roster and develop stronger relationships with those that fulfill their agreements.
Update Your Networking Strategy
Your networking strategy needs to be revised if it does not include an avenue for developing relationships with manufacturers and suppliers. Find trustworthy suppliers and build relationships that can make a big impact on your operational overhead, material costs, timeframes, and future opportunities.