It seems like everyone on BiggerPockets these days wants to quickly build huge real estate empires, syndicate their way to a fortune, and become the dominate force in their market. I appreciate those points of view, but I’m here to tell you that bigger and fast-growing real estate businesses are overrated.
I have no inherent problem with some businesses getting big or growing quickly. Our capitalist system thrives because ambitious entrepreneurs set out to climb their own economic mountains in bold, new ways. Billions of people around the world are able to invest their money safely and profitably because these ambitious entrepreneurs need capital to fuel their growth. This is a valuable service and a noble pursuit. If the top of that mountain calls to your soul, then go for it.
But the problem I have is the myth sold to us that the same goals and strategies that work for big, non-stop growth businesses will actually help us, the small entrepreneurs and part-time investors, to meet our personal goals. The myth usually goes something like this:
“When you build your empire, finally get 200 units, put money in the bank, create foolproof systems, and assemble an awesome team, then you’ll be able to go on vacations, have a lot of free time, and do what you really want to do with your life.”
I would certainly love to meet people who can prove me wrong here, but I rarely meet owners of big, fast growing businesses who have a lot of free time and who live their lives in the way they want. Yes, they have money, but they don’t have freedom or autonomy as I define it. These entrepreneurs are doing amazing things, but on a personal level, they are busy, stressed, and chained to a Frankenstein monster (their business) who never lets them leave.
Here’s the main point.
If the real reason you got into real estate investing was to create more economic security and more personal autonomy and freedom, it makes a lot more sense to keep things small and simple. I’ll explain 5 reasons why in the rest of this article.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
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1. Small and Simple = Less Risk
“It’s hard to fall off the floor.” – Jack Miller
In the last few years, I watched in amazement as my two young daughters learned to walk. They fell thousands of times along the way. They cried after a few falls, but for the most part, they just got up and tried again.
What was the secret? Their little butts were really close to the floor! How much force could they actually build up with a 1-foot drop plus a diaper as a landing pad?
Small businesses are the same way. While you’re learning to walk (and this learning can take years), it’s safer to stay close to the floor. Borrowing a lot of money, bringing on partners, or syndicating may allow you to start a big business and to grow quickly, but you’re still a wobbly toddler. Falls from great heights could cause fatal damage to your business and to your finances.
It’s far better to stay small and patiently learn your business. Then you can fail, get back up, fail again, and then get back up. You will always make mistakes, but you want to avoid mistakes that will set you back for years or forever.
2. Small and Simple = Less Stress and Hassle
You’ll never avoid all stress and hassle (and a little bit of the right kind of stress is a good thing), but you can reduce the amount and the longevity of stress and hassle by staying small and simple.
From my experience, getting too big too fast creates stress because you take on more complexity than you’re ready for as a new leader of your business. I admire leaders of large organizations, but those expert leadership skills were acquired over years of practice, often working under other expert mentors and leaders. As a small entrepreneur, don’t jump too fast into leading others before you’re ready.
It’s ok in the early days of your business to do everything yourself. Of course, you’ll have to work hard and long, but that’s less stressful than losing control before you’re ready.
Learn every task and responsibility. Make the most common mistakes yourself. Build checklists and systems to correct a mistake each time you make it. Over time these checklists will allow you to delegate (not abdicate, big difference) to someone else. Because you have done everything yourself, you’ll be much more ready to hold this new person accountable.
My own small real estate operation has one part that buys/sells houses and another part that owns rental properties. A business partner and I have been in business for almost 12 years now, and after an initial sprint, we’ve chosen to slowly expand our scale, our systems, and our team. This slow and deliberate pace has reduced and spread out much of the stress and hassle that came with growth.
3. Small and Simple = Adaptable
In 2009 my wife and I took a 4 month sabbatical. We travelled to Spain, Peru, Chile, and Argentina. We lived with families, I learned to speak Spanish (my wife already spoke it fluently), we toured amazing sites, and we soaked in new cultures at a peaceful snail’s pace.
I didn’t take this trip because I won the lottery or because I had millions of dollars in the bank. I took this trip because I saved up the money (less than you might think) and because my little business was adaptable.
Often when your business is big and growing fast, it takes on a life of its own. I’ve had friends who describe their business as a runaway train or a monster. That means your business is threatening to swallow you up! Yikes.
I like the idea that you can turn the volume of your business up and down when it suits your life. I have really busy times when I work hard and hustle to move ahead. I have other times when I work at a slower pace.
Life is cyclical. Your energy and enthusiasm are cyclical. It makes sense to keep your business small so that it can adapt to your own natural cycles.
Aside from adapting to your life, a small business can also adapt to changes in the market. What happens when your best customers stop buying? What happens when expenses go up? What do you do when your entire industry changes overnight?
A small, nimble business can change gears and direction quickly. When you work in your small business, you are also more likely to notice these changes quickly so that you can steer clear or even profit from them. Author and investor Nassim Nicholas Taleb calls this ability “antifragile,” or the ability to thrive with change.
The size of large businesses may give other advantages, but the companies are often heavy and slow like a huge boat. In competitive, dangerous economic oceans full of icebergs, these businesses often sink like the Titanic (unless they’re bailed out by the largest slow-to-change organization, the U.S. Federal government, but that’s another story). 🙂
4. Small and Simple = Lucrative
You don’t have to sacrifice your goals and dreams by staying small. Quite the contrary; by staying small you can tailor your business so that its fruits serve your own definition of success.
I know professionals with very small businesses who make huge incomes. I know real estate investors who manage all of their properties themselves using a cell phone and a home office who make hundreds of thousands of dollars each year. These are little known stories, but they’re not as unusual as you might think.
But even if you earn an average income as a small entrepreneur, you still have many advantages over someone earning the same income at a job.
First of all, you can give yourself a raise if you really need it. Most entrepreneurs sell a product or service, so if you want more income, go sell more! Second of all, no one can fire you. If you want to keep doing this business the rest of your life, you can as long as you provide a useful product or service. Third, entrepreneurs enjoy many opportunities for legitimate tax savings by creating entities that can write off expenses normally paid for personally (think healthcare, retirement accounts, cell phones, etc.).
If your goal is to not work forever, but rather to earn money, accumulate assets, and eventually live off the income from these assets, a small business (especially one focused on or matched with real estate investing) can accomplish that.
Here’s my little game plan to do just that:
- Earn as much as possible.
- Save as much as possible
- Invest as safely and profitably as possible
I set yearly goals in each of these categories, and I measure my progress. I want to earn a certain amount, I want to save a certain amount, and then I want to invest that amount and add it to past invested capital, inside and outside of of retirement accounts.
The third step for me is measured in regular income generated from real estate investments. Like a little trickle from a fresh water spring, your income from investments is very small early on. But as you continue to work this plan over and over, your income stream will begin to compound and grow until it is a small brook, a rushing stream, and someday a mighty river.
5. Small and Simple = Meaningful
We all have to take care of ourselves financially. Adding value to our customers’ lives and earning money in return to meet our personal needs is an honorable process.
But I have also been amazed that my business can meet even more of my needs than just a paycheck. On a deeper level, my business has given me meaning, fulfillment, and happiness.
I can hear some cynical responses or hesitation and doubt about mixing meaning and profits. We live in a world where many of us feel like our role at work is just a cog in a meaningless wheel. We contribute to organizations that give us a paycheck, but they give us little feeling of gratification or fulfillment. We leave our fun, our meaning, and our fulfillment until after work during recreation, at church, or volunteering at charitable organizations.
Your own small business, however, has the potential to be much more because you create it. You get to decide its purpose, its mission, and your role within it. You get to choose the customers you will help, the problems you will solve, and the values and standards by which your business operates.
Your business can be a vehicle to make a difference in the world. And in addition to all of that, this wonderful business can still make a profit for you. Those two concepts are not mutually exclusive.
Like me, earning money might be the motivation that drives you to start your small and simple business. But I also hope that like me, you find that the larger meaning of business is what keeps you excited over the long run. You might just decide to be in the “business” of positively changing the world for the rest of your life.
The fact that you have read this article validates the meaning I get from this part of my own businesses. I am first and foremost a real estate investor, but I get enormous satisfaction and meaning by sharing ideas and insights with fellow entrepreneurs. Thank you for lending me your time and attention.
Do you like to keep your own business small and simple? Or do you have arguments for getting bigger or growing faster?
I’ve love to hear from you in the comments section below!