How do you ensure business continuity and sustainability in real estate?
This isn’t about being green (which should be a part of your business anyway), it is about ensuring you stay afloat and financially secure. The last few years have been a pretty good ride for virtually everyone in real estate. Young Millennials fresh out of school have been able to quit their jobs as clerks to flip houses and earn six figures a year, and many have made more.
Yet, if we learned one thing from the last housing cycle, it was that it doesn’t matter if you are making $100 million a year if it isn’t sustainable. In fact, if your finances and income are not sustainable, you just fall harder. So, as more people get into real estate and some markets continue to recover while others are starting to look pricey, how do you ensure continuity?
How to Ensure Survival in All Market Conditions
The most important factor here (and in finances and business in general) is ensuring that you have income (cash flow) and that your income exceeds your expenses. Once your passive income exceeds your expenses, you have achieved financial freedom. Once you are there, you never, ever want to lose it.
Related: The Big Difference Between Those Who Tank & Those Who Survive in Down Markets
Please don’t be confused by this post. I am still bullish on U.S. real estate. It is just smart to be practical and stay ahead of the curve. Stay optimistic for the best and be prepared for the worst, and you’ll be just fine. But what does this mean for real estate investors and business owners?
As the market evolves, you can bet we’ll hear more about “cash flow is king” and “it’s all about cash flow.” It is to some extent. But that’s only one part of the equation.
To ensure we survive and thrive in all market phases, it also means:
- Building up reserves
- Maintaining a strong marketing/advertising budget
- Constantly pursuing growth
- Establishing strong profit margins
- Keeping consistent sales to maintain cash coming into your business
If your real estate business and investment strategy is scalable and the profit margins are there, you can ride any waves. If the profit margins and safety cushion aren’t there and you lack scalability, you’ll be on dangerous ground.
Building Wider Margins
Build wider margins than you need or want now to account for any potential slowdowns in volume and increases in expenses. I believe the best time to advertise and ramp up marketing is always during those rough times — because others are often being overly conservative.
Related: 3 Crucial Areas Entrepreneurs Should Cultivate For a Sustainable Business
Then there is safety to be found in diversification of income streams, too. Augment your strategies with other sources of cash flow. If you have been focused on fixing and flipping houses, consider rolling over some of that highly taxed income into turnkey rentals, crowdfunding, private lending, or wholesaling as extra sources of cash flow.
Most importantly, don’t wait until you run into an issue and then come back to this post you bookmarked. The time to build in sustainability is now.
How are you ensuring sustainability in YOUR business?
Let me know your thoughts with a comment!