Enlightened Capitalism

Essays about how to harness people's natural desire to create wealth and improve their quality of life to solve global problems such as war and poverty.

Monday, August 01, 2005

Managing Renovations

Creating nice housing on a tight budget is not an easy task for most people. There are several skills one needs in order to be good at it.

1. Spacial Imagination. You have to be the kind of kid who builds intricate Lego structures that aren't in the instructions. You have to imagine different options, e.g. where you could put a staircase or a closet or a microwave.

2. Design Ability. You can match colors and shapes and textures.

3. Bargain Hunting Talent. There are so many options for every product and service relating to housing, and the price variations are enormous. You comparison shop and get good values.

4. Investor Instincts. Timing and cashflow are crucial. So is the ROI (determined by the price paid by the final renter or buyer).

While most people don't have these skills, there are lots of people (of all income levels) who do. Here's how I would test for them.

1. Spacial Test: Give them 50 Lego blocks from different sets, and tell them to build something. Say they get extra points if they use all the blocks. Judge their structure on the following merits: a) stability, b) complexity, c) length of longest dimension, d) number of dots showing (extra credit for extremely many or extremely few).

2. Design Test: Give them a big pile of paint swatches and tile and carpet and upholstery and cabinet samples and half a picture out of Better Homes and Gardens or Architectural Digest. Ask them to select items for the other half of the photo, and compare with what the experts selected.

3. Bargain Test: Give them a copy of Consumer Reports and tell them they have a $50,000 shopping spree for items in that issue, and they can buy any number of each item. The winner will pick items with the highest ratio of trailing to leading derivative in the curve of value vs price. To make it more interesting add random volume discounts to each item.

4. Investing Test: Give them a budget of $1 million, and a random list of houses and apartments each with different rents and amounts of required renovation, and different expected appreciations and timeframes for renovation projects (all the numbers can be random). Ask them to make a month by month plan to invest the $1 million.

A person who scored well on all four tests would make a great Renovation Manager, provided they also had basic project and people management skills.


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