Brilliance in the Basics

Any complex system can be broken down into small, actionable, steps that, when combined, will lead to the larger result you are looking for. Building a rental portfolio is no different. Properties must be identified and located, financing must be secured, and tenants must be placed. Complacency must not exist in any step, or the chain will be broken and success will not be attained. That is not to say that YOU must PERSONALLY accomplish each step, but the accomplishment of each step must be accounted for in your overall plan. This is two-fold. First, you can see which areas you need to bring outside help in to enable you to accomplish your goals. We just aren’t able to function at a high level in every area of life. Recognize where your personal weaknesses are and outsource those tasks. Secondly, breaking down the large goal into small steps helps you take initial actions. Attacking a large problem from the standpoint of smaller steps takes the fear and initial impression of impossibility out of the equation, allowing even newbies like myself to get past their own inhibitions and take actions that will positively impact their bottom line for years to come.

Property Identification

This site is full of countless ways to set this up. Get a real estate agent to set up MLS alerts. Drive around the neighborhoods you want to invest in and just talk to people. Make phone calls and send letters to demographics that you have identified as being potential targets. Go to BP meetups and talk to other real estate investors and agents. You don’t need to do every method, but choose a few pipelines that you want to focus on and drill down hard in those areas. Make daily and weekly goals on how many phone calls you want to make, how many properties you want to analyze, how many meetups you want to go to. You won’t see results immediately, but in this phase focus on the lead metrics. That is to say, focus on achieving those short-term analysis and outreach goals that you set for yourself. If you take care of the lead metrics, the lag metrics (how many properties you buy) will take care of themselves.

Financing

As with the property identification tasks, there are a million different ways to skin the financing cat. Unlike the identification tasks, it is more important to be at least aware as many of the different financing methods as possible so that your proverbial tool belt contains the right equipment to lock down as many deals as you can. Each seller has a different reason to sell, and each situation is a little different. Using ONLY conventional financing may not be the best method if a seller is willing to carry a note on the property. If creative finance isn’t your deal, ask for help or bring in a partner who can take care of that piece of the pie and allow you to focus on the parts of the deal that you are good at! Talk to other investors and grow your knowledge base on the subject. You can work financing concurrently with the deal acquisition so that you can quickly close on a property if it looks like a home run! Some of the different ways to finance a deal include a conventional long-term mortgage, paying cash, seller financing, bringing in a partner or a syndication, setting up a lease-option. Additionally, if paying cash, the source of the cash can be a self-directed IRA, 1031 tax-deferred exchange, portfolio loans, and other personal loans. I am throwing a lot of terms out in this section, but BP contains hundreds of articles and examples of each of these different methods. It’s important to get exposure to what these terms are so you can pick more up out of conversations with other investors!

Tenant Placement and Management

To be honest, this is one area I always outsource. I am an out-of-state investor serving in the military on active duty. I do not have the time or energy to properly vet applicants, set up contacts who can maintain eyes on my properties while I am away, maintain a contact list of good handymen and contractors for any area that could potentially go wrong, show vacant units to potential tenants, collect and process applications in compliance with all applicable fair housing laws, etc. I do think there is value in doing it yourself at first if you live in the vicinity. It will allow you to keep a finger on the pulse of your tenant pool in the area while teaching you a ton about the rental property business as you learn by doing. However, if it is not feasible, as with the other pieces of the pie, outsource it!

Your business is your business. Every aspect of it should be attacked with competence and attentive intensity. Learn and do the areas that you can, outsource to partners and experts the areas that you cannot. When you are first getting started, write down each piece of the process, write out how you are going to accomplish it, and set lead metrics and goals for each piece to define for yourself what success will look like. Remember, every large process can be broken down into small, manageable chunks. Good luck!