From Architects to Real Estate Developers – with Alex and Esther from Barcelona

Today we are sharing a VERY interesting story for our blog readers who want to “productise” their service business.

This is the story of 2 young and interesting Spanish architects, Alex and Esther (http://www.diazgallardo.com/), who transformed their architecture service business into a products business that is giving them a lot of freedom, saving them from stress, from deadlines, and from the pressure of clients. These days they buy, transform and sell on average 12 apartments per year in and around Barcelona.

I think what they did is really amazing, and even better: it is not that difficult. All it requires is a change in your mindset, patience, and the burning desire to DO IT.

I have been calling with Alex for 1 hour on this topic, and in this article I’m sharing you the most important lessons learned.

Products, Products, Products

When you buy a bottle of Coca Col in a supermarket, would you ever return to the supermarket, and say something like:

“I like the taste… but I’d like to have the color of the bottle changed from red into yellow. Could you do that for me please?”

Or something like:

“I’ll pay 90% of the price, I’ll drink it, and if I like the taste, I’ll pay the remaining 10%”

Of course you would not!

Why? Because from the moment you choose to buy that bottle, you decide to buy a finished PRODUCT. It is very clear for seller and buyer that you’ll pay for that specific product, and you’ll get that product, not less and not more. Your expectations are set, and the price tag is clear for everyone.

Why is it then that so many architects face the never ending story of clients asking for ‘little’ changes during the project or clients not wanting to pay the last 10% because ‘the result is not what they hoped for’?

Because if you sell yourself as a service, some clients think that with this service comes everything they can get done from you. Although they often want a fixed price for a project, the actual work – in their eyes – is subject to their constant changing wishes and desires. Even if clearly stated upfront in contracts what exactly will be your role and is in scope (and not in scope!) of the project, I don’t know of any single project where the client did not ask and get more than what was originally agreed upon. Raise your hand if you agree. (Hey, don’t raise it for real – I can not see you actually!)

The Service Trap

Back in 2009, Alex Díaz and Esther Gallardo (http://www.diazgallardo.com/) were running a typical architecture service business. They studied architecture, and – like every young architect – they started designing buildings, crafting plans and brainstorming ideas day in day out for clients. This is the kind of job they studied for, right?

But two things didn’t go as planned.

First, in 2009, the world economy collapsed. Spain was amongst the countries in Europe with one of the biggest housing market bubbels. Demand for their architectural services almost stopped.

And secondly, and that was probably even a more important reason, there was always friction with clients, no matter how hard they did their best to please clients. Clients didn’t take their ideas and input serious. Clients changed their mind during the project. Clients blew up the total cost and planning with “little details that shouldn’t take that much time”, but didn’t want to pay extra for it and didn’t want the deadline to shift backward.

What should be a creative, interesting and profitable job, became a real source of stress and constant pressure.

Finally, a dispute with a typical “dictator client” (the type of client that just never listens to your ideas and input) was the trigger.

Alex: “We couldn’t take this any longer. We were so frustrated that we could not design and do what we really like. Instead, we had to deal with very demanding clients, deadlines, pressure, deliveries, changes and budget limits. Our dream to do creative projects and focus on real architecture was gone. We had to change this situation.”

The Switch from Service Business to Product Business

Alex and Esther wanted a change. They had been brainstorming and thinking on what was really the root of their frustration.

They came to the conclusion that the client was often the bottleneck. Architects, Engineers and Contractors have little issues to understand each other. They talk the same language. They all understand that if you change something during the project the consequences can be huge, other changes might follow, the budget could go up, and the deadline will shift backward. Like a small droplet in a pool of water.

Clients don’t (want to) understand this.

Alex and Esther decided they wanted to work without clients.

They would reverse the project flow from:

Client => Architect => Contractor

into:

Architect => Contractor => Client

In other words: they would do the projects without clients involved at all. Once the project would be done, they would sell the project just like a bottle of Coke: what you see is what you get. Period.

Alex: “A client involved in a project is often a recipe for overhead, needless calls, delays, discussions, budget issues, deadlines, stress, misunderstandings and so much more. We looked for ways to keep on doing what we like – real nice architectural design and creativity – but without the clients involved during the project. We turned around the process: we would do a project just with the contractors and engineers, talking the same language, and once the project would be done we would find a client for it and sell it. In other words, we would do some kind of real estate :-)”

This reverse is a just small shift in mindset, but the outcome can be life chancing. Alex and Esther are now doing THEIR projects. The work THEY want, being as creative as they think is needed. On the rhythm they prefer. With the budget they set. And the deadlines they choose. No one is stopping their creativity and ideas in any kind of way.

They only thing they have to take into account, is that they need to sell the project in the end, with profit. For the rest they are as free as a bird in paradise.

Alex: “If we kick off a new project, and we plan the renovation work to finish in 3 months, but instead it takes 3 months and a week, nobody cares. It is our own problem. No clients claiming penalties because of the delay.

Also, if something unexpected happens, which is ALWAYS the case (the world is just not perfect), we would just talk with the contractors on the field on what the issue is, and we would brainstorm together on what the most easy and pragmatic solution would be to work around the problem. No need to try to explain to a client why his first idea is no longer possible, and to face upset clients because of external problems which are out of our control. We as architects and our contractors are a very well oiled machine on things like that. This saves us literally days of endless discussions and phone calls. We can shortcut many things, and the projects get done a lot faster and more efficient. We create huge value in a short amount of time.”

Overall, their day to day work is still architecture (which is really what they want to do and what they studied for), but they almost never experience stress, unpaid invoices, yelling clients, and deadlines.

How they work right now: how 2 architects are having fun in live, while flipping apartments.

First, they keep eyes open for a nice opportunity (apartment, house,  building, …) to buy and transform. Buying price and future possible value added are very important here. The lower the initial buying price, and the more potential for extra value in the project, the better the overal project.

Once bought, they go through a process of research on how they can get create the most value for this project. This goes for as well the internals of the building (example: how to shape the apartment in such a way that all rooms are optimised and best used), as for the externals (example: what kind of neighbourhood are we in and how can we attract the right kind of future clients). This “value creation” step is very important, since most profit is made in this part of the process.

Alex: “When buying, we can negotiate the price a bit, but the real profit is made on the value we create when transforming an old apartment without any soul or meaning into a warm and inviting home to live in. In the beginning, we tried to do as few as possible transformations, and then flip (sell) the project, to get our money. That does not work, since that way we don’t make maximum use of our knowledge as architects.”

They always have their future client in mind during the project. They imagine a very specific person or situation. That might be as specific as “a German expat couple with 2 children, 8 and 11 years old, moving to Barcelona“. This makes decisions during the project more easy (“would this German expat really want this?”), and ensures that all aspects of the project are aligned around 1 center, and avoids incoherent decisions.

Alex: “It might sound strange to you, but for our current project we think and work around the keywords “surf” and “Los Angeles”. The flat we are working on has a nice balcony and a view over the wide sea, and reminds me of surfing. Although in the end the client might not be a surfer at all, we have seen in so many cases already that the clients buying the project are not too different from what we had in mind during the project.

With a specific person or context in mind, we can really create a lot of value for that specific kind of persona, and we often see it the first time they visit the apartment. Either they are not interested at all, or they immediately flash on it. In some cases we just knew that they would buy it the moment they entered the building. They matched totally with the type of person we did build this for. The nice thing is that in such a situation, price becomes less relevant for the buyer. They feel already at home when they enter, so they REALLY want that flat, house or apartment – price is secondary.”

In the past, Alex and Esther did sell their projects themselves, but lately they outsource that to real estate agencies. Although they are always curious about who buys, they prefer their end clients not to know them, so there is no further room for changes at the end of the project.

In some way, you could say that Alex and Ester are doing creative architecture, without clients :-)

Lately, they started to work more and more without a close follow up with the contractors. This is because over time, they assembled a great team of great workers which collaborate with them with mutual trust. They talk the same language, are from the same city and know each other for years now. This reduces the need for micro management, phone calls, distrust, penalties, deadlines, negotiations, late invoice payments and other overhead. Everyone can focus on the essence and on the project.

I realised, while interviewing Alex, that he and Esther are putting their life and fun in the first place. No matter what they do, they first want to enjoy what they do. This is what I like so much about them.

I have seen how happy he and Esther truly are. They want to live a certain life, they have certain passions and ideas, and they transformed their architecture business into an “engine” that serves their life, and not the other way round. Currently, they are 2 people, they are doing more or less 12 projects per year (flipping one per month more or less), and enjoying life like crazy. Right now, they have no reason to grow, hire more people, do more projects and earn more money. They own a business that is working for them (instead of the other way round), and are enjoying every minute of it.

The biggest difference…

I asked Alex what the biggest difference would be between 5 years ago, and today.

His answer was short but speaking: “Phone calls.”

No comment.

:-)

Their Very First Project… and some lessons learned (the hard way).

In fact, it was a good thing that their last client was one of the most annoying people they ever had to work for. Why? Because it made Alex and Ester extremely determined to make the switch from service to product business. No matter how and at what price tag, they would switch from their old model into their new model.

They didn’t have 100K in the bank to kick off their first project. So there was only one option left. They would sell their loft in the surroundings of Barcelona, in order to have money to invest in their first project. Half of that money got invested in their first project.

This sounds crazy, right?

Alex: “Well, it was crazy actually. But there was no other way. It was a choice between either staying frustrated in our day to day job, or changing our situation. It is all in the mindset. With a determined mindset and the willingness to work hard and keep on going, I was sure we could succeed. Of course it would have been more easy to just keep on trading our hours for money, but in the long term it was not what we wanted to do. Postponing the decision to switch our business model would be like fooling ourself.”

In order to get started with their first project, they put everything at risk. Which is a great way to FORCE yourself to succeed. Failing is not an option in such a case.

And if you think selling your flat in order to kick off your first project is crazy, then hold on…

The week after they sold their home, Lehman Brothers got bankrupt and the world economy collapsed.

Due to the economy, their first project didn’t sell easily. They got a bit very nervous. Yet, since the project was finished and ready for sale, they had nothing to do but wait till their first project sold. They still had the other half of their savings, and instead of desperately waiting, they got started with their second project.

And that second project sold very easily.

That gave them some cash (and confidence!) to kick off their third project. And their forth, and their fifth.

Over time, they realised that as soon as you have a small portfolio of projects, in a given month their is always at least one that flips. Just the fact that you have a several flats in your “store” ensures a quite constant baseline of money dripping in.

Let’s go back to their first project…

Alex: “Afterwards, we realised that the reason why the first project didn’t sell easily was that we didn’t really transform it. We bought it, we did 2 or 3 small changes, and then wanted to sell it again. This is wrong. Why would people then buy from US? There are so many average apartments for sale on the internet. People can compare prices, locations, filter, sort, and get email alerts when a new one gets online. We were competing with 1000 of other apartments. Later, we have seen that the more we put our knowledge as architects into the game, the more value we create and the more unique our projects would be. That makes it more easy to sell later on. We won’t compete anymore with the ‘average’ flat in Barcelona. We would make each of the transformations unique and stand out from the crowd“.

Want some proof? Check out their projects page for what I mean…

For their first few projects, they started with the cheapest possible apartments in Barcelona and surroundings. It is easy to find them. On any real estate website, make your geographical area big enough, and filter for the cheapest flats or houses for sale. Since you are not making YOUR home, but the future home of SOMEONE ELSE, you don’t have to limit your search area for your first project to your own preferences. That only reduces the chances that you’ll find a cheap first deal. For every area and neighbourhood in and around Barcelona, there are always people who have a good reason to buy RIGHT THERE. If you feel the asking price is low enough for that specific case, and you see lots of opportunities for value creation, then go for it. You’ll flip it, don’t worry.

Later on, after their first profits, they started with bigger price tags, not shooting for the cheapest anymore, but for the projects with the biggest potential (where they could create most value).

So here are the lessons they learned (some of them the hard way) from their first few projects:

• if you are determined and motivated like crazy, you can do it
• your mindset is everything
• the more projects you have in your portfolio, the more chance that you’ll flip one
• soon or late, someone will buy – time is on your side
• the more value you create, the more money you’ll make (duh!)
• the first 2 projects or so, everything is still new and you doubt a lot, but from project 3 on and afterwards, everything will go faster, smoother and with more confidence
• flipping your first project gives really a huge boost in energy, confidence and desire to continue – and money :-)
• for your first few projects, try go widen your geographical area so you can find real cheap opportunities (and reduce risk)
• just do it!

Want to get started? Where to find your first project?

In the beginning, Alex and Esther did look for flats where anyone would search them: online. And that is a great place to start. The biggest advice that Alex gave me here, was to not limit yourself to a too small geographical area. For them, their area is the city of Barcelona and its surroundings. Limiting yourself to one area in Barcelona also limits the chance to find a good deal. Opportunities pop up randomly, and the wider your area, the more chance that the “opportunity bus” would drive by so you can hop on.

After their first few projects, this got easier (as with anything in life). They got to know the right people, real estate agencies, banks, and ways to spot good deals. Since they sell more or less 12 flats per year, they are on average buying one flat per month. These days, banks and real estate agencies contact them directly with good opportunities.

Also, don’t be in a hurry. Time is on your side. The more you know, the better the deal you will find. Look around for a couple of weeks or months, set your email alerts on some real estate sites when now properties are added, get to know typical prices so you can compare new opportunities against each other, talk to others who already did this before, and keep your eyes open. I’m sure that within 3 – 4 months you’ll find a good candidate. Then just go for it. No one ever learned to swim without jumping into the water.

I personally like the story of Alex and Ester, and really think they gave some great advice. Hope you too.

Feel free to share this blogpost if you like it, or comment if you have feedback or specific questions.