The Investor’s Mini-Guide to Scaling Up to a Real Estate Empire
I’m not the biggest fan of Robert Kiyosaki, but I do find his cash flow quadrant concept to be rather helpful. It looks like this:
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The left side includes any employees and those who work for themselves but who do all the work for that business. This would include trades such as plumbers, electricians, etc. Basically, people who own a job.
On the right side are business owners and investors. Their investments make money on their own without these folks having to work. Kiyosaki refers to the left side as “trading time for money.” On the right side, money works for you.
These categories are a bit blurry, though. A lot of real estate investors find themselves in a muddled position between B, S, and I. Yes, we’re not employees. And yes, our investments (assuming we’re doing buy and hold) are working for us. But while we own our own businesses, much of that work is done by us. And I’m not talking about the idea of “working on your business” but the actual day-to-day work.
In order to grow your business to the next level, you have to take the concept of scaling seriously. Scaling is what is required to move from S to B regardless of whether you’re flipping, wholesaling, or buying to hold. And the first step to this is mastering the art of delegation.
Delegation doesn’t necessarily need to be to an employee. One way to delegate is to simply hire a virtual assistant through sites such as Upwork. Many third parties can be used for delegation as well, with property management companies being an example. But obviously, hiring people is a big part of delegation. (See my guides on hiring here and firing here.)
Related: 3 Keys to Sustainably Scaling Your Real Estate Portfolio
As your business grows, you will want to offload the less important tasks or the tasks you aren’t particularly good at to others. But there is such a thing as hiring too soon when you can’t afford it or hiring someone for a position that is too vague or messy to be useful. So I recommend two things to figure out what exactly it is that you should and should not be doing.
- Keep a running tab of everything you do for a week or two. Break it down by the hour or half hour and keep track of it as you go about your day. Then at the end of the week, look back and evaluate which tasks were essential and needed to be done by you (at least for now) and which can be offloaded.
- Brainstorm. Make a list of everything you do in your business. Which items are the most important? Which are you good at? What could you offload to a subordinate? What do you need to offload because you’re no good at it? Once you’ve come up with a list, break each thing out into these various categories.
Remember Pareto’s Principle—80 percent of your results come from 20 percent of your activities. You want to focus on that 20 percent. If you can afford it, leave the 80 percent to someone else.
This process should help clarify what you should and should not be delegating.
Measuring and KPIs
Sometimes it’s easy to figure out when an employee or third party is doing well or doing terribly. Other times, it is not. And I’ve heard plenty of stories of employees who are incompetent at their jobs being quite competent at gaslighting their employers into thinking it’s not their fault.
The more direct measures you can come up with, the better. It’s also a good idea to work on these with the person you’ll be measuring, be they an employee or third party. You want to get them on board with the evaluation method. Otherwise, they might feel it’s arbitrary or unfair. The more that person buys into the measurements, the more they will work to achieve those goals. Furthermore, it’s important to note that you might come up with unrealistic goals and numbers to hit. Still, even if they are off, coming up with numbers to aim for allows you to 1) measure similar employees against each other and 2) measure for improvement. If you measure, you can tell if someone is doing better or worse than before. The more you know and the quicker you know it, the better.
Here are some examples of KPIs (key performance indicators) for various jobs that many real estate investors often hire:
- Leasing agent: application per showing, leases per showing
- Maintenance technician: call back percentage, complaints
- Turnover coordinator (often the property manager): average time to turn a property over and get back on market, complaints from new move-ins
- Rehab coordinator: budget vs. actual cost (remember, it may be your budget that is the problem and not the construction cost)
- Marketer: calls per letter sent out, deals per letter sent out
Really, there are a lot of these. But as with everything in business, the key is to measure. And with regard to employees or key third party vendors, the more you talk with them about these measurements and create plans for improvement, the more effective this process will be.
While any small business is going to have a lot of overlap between departments (if you can even call them departments in a small business), you want to start to delineate your staff’s roles sooner rather than later. KPIs are not going to work very well if someone is split between four different primary tasks. Indeed, some tasks, such as accounting, are hard to create KPIs for. If you have someone in charge primarily of bookkeeping but who also who oversees turnover and you have a KPI for the latter but not the former, that might corrupt what your employee believes is the most important thing to focus on.
And the sooner you can split accounts payable from accounts receivable, the better, as there is a risk a dishonest employee could launder money. (In the meantime, you as the owner should review each transaction.)
The point is, you want each position delineated as well as possible with its own goals so an employee or even a vendor can focus on achieving those goals instead of just checking off boxes and trying to make sure everything is complete.You want to create sandboxes, and you want your staff to stay in their sandbox (for the most part, at least).
And again, this isn’t always possible in a small business.
Working on Your Business
The final point is that the bigger you grow, the more you need to focus on working on your business rather than in your business. Namely, the more important tasks will be the ones that aren’t as straightforward. Things like networking, brainstorming new ideas for growth, strategizing, hiring, and firing should take precedent. And as far as the work in your business that you do need to do, you should focus on the highest level activities, which will often be finding good deals.
As the great John Wooden once said, “Never mistake activity for achievement.”
For those who are interested in learning more about scaling, I recommend you check out the book Scaling Up by Verne Harnish.
How do you make sure the tasks you perform are worth your time—and how do you delegate the rest?
Let me know with a comment!