Leveraging your way to a massive Real Estate Portfolio
We're gonna talk a little bit about building a massive real estate portfolio without going crazy and how to use leverage. What exactly is leverage and how do you use it?
A lot of landlords, a lot of rental property investors, get into the business, they buy a property, they buy their second property, or maybe it's just their first, and they immediately become an accountant, a maintenance person, a landscaper, a bookkeeper, an attorney.
When you're buying your first and second property, you tend to do a lot of things yourself to keep costs low. You're cutting the grass, you're trimming the hedges, you're collecting rent, you're knocking on doors, you're negotiating with tenants about rental increases.
You're doing all of these different things yourselves, and you're driving yourself crazy. It's hard to keep up with, and in order to continue to build your portfolio, there's no way that you could ever operate like that.
We're going to talk about four ways to leverage yourself, or use leverage, to continue to build. Number one: build systems. A perfect example would be McDonald's. The McDonald's franchise would never be able to be as big as they are without systems.
When you go in and you work for McDonald's, you knew immediately from day one, or within the first week, how long a hamburger should cook for, how long the fries should be done. They're not hiring people and second-guessing, or people coming and trying to figure out how long the fries go down for. There is a system, a manual, a handbook in place that already tells you exactly how long those fries should be down for.
Creating your business or building your rental property business like McDonald's, and creating systems and checklists for everything for yourself. Going in and, if you do something correctly, if you do something well, you're creating a move-in checklist for your tenants. Your tenant's moving into the apartment, you wanna walk through each bedroom, you wanna walk through the kitchen, you wanna turn on the dishwasher, you wanna make sure all these things are working in a good working order. You create that checklist, and now that checklist is something you can hand off to somebody else in the future, so you can do something more important later on.
If you're one of those people that believe you do everything right yourself, and you do it yourself because you do it right, that's great. Document what you do, and then hand that system off to someone else later on. Create a repeatable process for yourself, and you can do that with almost everything.
Number two, use tools. Tools as a form of leverage. Just like a plumber uses a plunger. He or she is using a tool to unclog that toilet, or that tub, or whatever it may be. Use tools in your business to build that portfolio. An example of a tool would be accounting software.
If you have one property right now, or two properties, and you can use a yellow legal pad to take all of your income and expenses down, that's great. But you're never gonna get to 30 units or multiple properties, 30 properties, doing it that way.
Implement an accounting system into your business now while it's small, to allow yourself to grow. A good accounting system are things like QuickBooks, Quicken, and then personal finance software, like Microsoft Money, can also help you out with a lot of your rental property stuff as well. And then management software that can help track your leases.
When are your leases due, when are your tenants going to need to renew, stuff like that can all be taken care of with some type of tool, some type of software for your rental property business. I would say, last but not least, on the tools note, is potentially building a website for yourself. Websites are very easy to build nowadays and they're very cheap.
Two things that you can do with your website are: 1) collect rents and 2) marketing. If you are trying to build now, you can put photos of your rental properties online, and people can see when the lease is being renewed. They look at the photos, maybe there's a spot for an application to be filled out right on your website as well.
Leverage point number three would be using people. People leverage. Instead of trying to do everything yourself, if you are great at accounting, but you suck at cutting the hedges, or landscaping, then shell that job out to someone else. If it takes you four or five hours to do landscaping work at your rental property, but you can shell it out to someone else who's gonna get it done in an hour, yes, of course you have to pay them, but that's four or five hours, or three hours, or whatever it may be, that you could be doing something else that you're actually good at and that you enjoy doing. Maybe it's going out and looking for other properties, or maybe it's taking care of the books, or something that you can actually do efficiently.
Consider also hiring a property manager and snow removal. Again, is it worth your time to go out and shovel snow, when you can potentially get neighborhood kids to do it, or a professional company to handle that for you?
You find a lot of landlords are still taking calls on their vacant rentals. Especially in urban areas, I would suggest hire a rental agent. They are going to do the lease for you, tenant vetting, showings, and take the calls. Vetting the tenant can take a lot of time - background checks, employment verification, fielding random questions and everything else that is taking up a lot of your time, and doesn't allow you to grow.
Last but not least is financial leverage. Money leverage. Building a massive portfolio takes money. Most people say, "Well, I don't have any additional cash to invest." Leverage means finding partners. Maybe you have $20,000 to invest, and you can find another partner with $20,000, or maybe multiple partners with $20,000, and now you are all in a similar space, where your portfolio hasn't been able to grow, but combining together your resources, your financial resources, you are able to take that next step.
You could also barter for services. Going back to, hey, I'm really good at accounting work, I'm really good at keeping the books, but I don't like the psychical aspects of landscaping or snow removal. But do you have another landlord within your network, or another friend, that you could barter for services? Maybe you do their taxes or help them with some of their accounting work, and they do some snow removal for you.
In conclusion, decide what you're good at, decide what you like doing. Decide what you're not good at, decide what you do not like doing, and then shell out those things that you don't like doing. Stick to what you're good at, you can be really efficient at, and use leverage. Leverage is, again, systems. It's tools, it's people, and it's financial leverage. If you do those things, you'll ultimately grow a massive real estate portfolio.