The Scott Wammack Story, Part 2
In Part One we traced Scott's construction industry roots to an early desire to be a builder, his enrollment in college and his first real break in land development. There is a recurring theme in Scott's story: he has worked very hard for all he's accomplished. It would be easy for someone with Scott's track record to become jaded, perhaps even snooty, but that’s not Scott. He is a regular guy, down-to-earth and a pleasure to work with. In fact, he hesitated even doing this column simply because he likes to keep it humble. I personally thank Scott for allowing this column and for those readers who find inspiration in it.
Tim: So now you’ve purchased a lot and built a house which helped pay your second year of college. What next?
Scott: I continued working for Benna doing general construction during school, and in the summer purchased another lot and built another house. I didn’t make as much profit this time, but fortunately my buyers had me build a shop and a deck too, and I made decent money there.
The next year I formed Grandview, Inc., a development and construction company. Benna put up the majority of the cash and I signed a note for my share.
Tim: So is it fair to say that Benna was your “angel” in venture capital terms — your source of capital to get the company kick-started?
Scott: Yes, I suppose you could say that. Certainly it takes money to make money and at that point in my life I had very little. However, there is no doubt in my mind that even without Benna I’d still have gotten where I am today, it just would have taken 10 years longer. And of course, venture capital is not free money. Benna is a smart businessman who invested in a start-up venture. It turns out this particular investment was a good one for both of us.
Tim: Okay, now you’ve got a corporation and some cash. What next?
Scott: I tied up four lots — built two houses straight away and purchased the other two lots. This is when I really learned how to work with banks.
Scott: Well, banks are eager to lend you money only if you appear to be a low risk and you understand and play the appraisal game correctly. In this business, many people fail because they don’t manage their cash wisely. I learned quickly to conserve cash, move it to the tail end of projects, not to live beyond my means.
Tim: How did you fare on the four houses?
Scott: They went well. I was working so many hours, however, I had to drop from full-time to part-time at the university. The houses sold and I bought four more lots and built four more houses. Those four, unfortunately, did not sell. The market was stagnant. I wound up buying one house to avoid paying rent and save on interest. Still, I ran out of cash and began having trouble paying back lenders.
Tim: Gaaa… every developer’s nightmare. How did you get out of it?
Scott: I went to work for others to bring in more cash, and I got creative with my creditors. I signed up two more lots, and fortunately, one of the previous four sold. I built and sold the two new ones right away and wound up selling the other two at a loss, but recovered my equity and was back in business.
Next, I tied up seven more lots. At this point I found I needed to speed production — less margin, more production. I finished the seven and tied up 20 more lots.
Tim: It sounds like you were busy. Did you hire a team?
Scott: I subbed more trades out. But to keep as much cash handy as possible, I still did my own interior work and general labor. I did paperwork and accounting at night. Somehow I managed to finish college with a degree in economics and minors in marketing and accounting.
Tim: With school out of the way, what next?
Scott: By that time I was doing 70 houses a year. Within two years I was up to 200-plus. Now I had employees and significant overhead. I was finally comfortable enough to begin taking weekends off and reduce my work week to something semi-normal.
Tim: Did you diversify?
Scott: Yes, single-family housing naturally expanded to multifamily, commercial and rentals. Over the next few years I dabbled in other ventures as well.
For the time being, I’ve found my comfort level with single-family in the 100-plus homes per year range. You know, the first money you make is always the hardest. But once you pass that hurdle, the next batch comes easier. And as you find success, other opportunities come knocking.
Tim: To wrap up, what advice would you offer others interested in a similar path?
Scott: One — stay focused; live for tomorrow not today. Two — don’t live beyond your means. I’ve been in serious financial straights twice. Living frugally saved my bacon both times. Three — do as much yourself as you can for as long as you can. And four — stay intimately involved in your accounting. Know where your money is and how much your really have. Although I have employees for the day-to-day stuff, in the big picture I still keep tight reins on the balance sheet.
Again, I thank Scott for his time and his story.
Tim Garrison of ConstructionCalc.com, is a professional engineer, author and software producer for the building industry. Send e-mail to firstname.lastname@example.org. Tim reads every one.
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