We have been in business for 10 years as of this December. Through the years, we have made decisions to “raise our game.” That could look like moving to larger properties, hiring a new employee, entering a new geographic territory, or taking on a new strategy to grow our business.
Right now we are making one of these decisions, which is the inspiration of this article. We own around 100 units in the central NJ area. These consist of single family homes, small multifamilies, mixed use buildings, small apartment buildings, and even an office building. We have done well with this portfolio and will keep it going for the long term. That being said, it’s time to take our new acquisitions to the next level. We are targeting apartment complexes large enough to have an onsite management team. So how did we know it was time? And how did we know what our new investment target would be? I’ve laid out the factors we considered for you in today’s article.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
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3 Crucial Factors to Consider BEFORE Expanding Your Real Estate Business
Factor 1: Time
New investors have a distinct advantage over investors with existing portfolios. They can dedicate all their time to growth, networking, and exploring new possibilities. Seasoned investors have experience in their corner, but they also have an existing portfolio to manage. That portfolio is not going away, and it needs attention, even if you have a manager in place. If you have more than a couple of units, there is a trap you can step into—spending all your time in your existing business.
Most investors I know spend 90% of their time in the current business and 10% on growth. That begs the question: If you land that new deal, where are you going to get the time to coordinate it? All new projects require time, energy, and focus. The apartment building, the fix and flip, the buy fix and rent deal, or whatever new deal you have in mind will take an investment of your time to make sure it goes well. You should also plan to spend extra time in the deal to learn the ins and outs of how the process works so that you can be more effective on the next deal!
If you have an existing portfolio, the key to successful expansion is having the time to expand. If you have been around for a while and are active in the business, you have to literally create the time to dedicate to expansion. Your current business will take all the time that you give it, so you need to find ways to run it with less of your own time. There are a few options for this.
If you are a landlord and have enough units to financially justify it, consider bringing in some part or full time help. When we had around 30 units, we brought in a part time bookkeeper who also assisted with some property management items. You can also consider outsourced management, but remember that the manager still needs management by you to keep them in line. I know some wholesalers who have added virtual assistants to help them clear their plate and some flippers who use general contractors to run the day to day activities. Either way, find a way to create some time to focus on your new expansion before you take the leap.
Factor 2: Experience That Can Be Leveraged
For the last 10 years, we have been primarily residential landlords. We do own some other assets, but residential rentals has always been our bread and butter. Over the years we did some expansion, but within the realm of our experience. We had rehabbed single family homes and leased them, so rehabbing a house for sale was not that big of a transition. We had our leases and property management protocol in place for single family homes and small multis, so expanding into our first apartment building made sense, too. We have purchased multifamily buildings with store fronts because we know how to run multifamily buildings.
An example of a purchase that was outside of our experience is our 10,000 SF office building. We bought it in 2008 based on the cash flow we would make if it was fully leased; the problem is we didn’t have the experience to lease it out or to properly set up office tenants as they came in. We learned quickly, of course, but it was a hard couple of years! The building is now fully leased and performing well, but it is a distraction and an outlier when compared to the rest of our portfolio. We were able to make it work eventually, but we would have grown much faster had we simply expanded our experience in residential real estate!
For all you newbies out there, you are not off the hook on this one. Everyone has some kind of experience. That could even be from a prior job—maybe you worked in marketing or sales or finance. Or maybe you have a knack for construction and are constantly taking on home improvement projects. Either way, you are great at some things that can be carried into your business. Leverage these things.
Factor 3: Mentorship
The best way to go somewhere new is to talk to someone who has already gone there and ask them to borrow their map. There are plenty of pitfalls you can step into as you expand into a new business venture, and an effective mentor can help you avoid the common mistakes.
You can go a few angles for mentors. Option one I call the “free advice” route. There are plenty of people in the business, whether you meet them here on BiggerPockets and/or real estate networking groups, who are more than happy to give you some guidance. If you can find some people local to you, take them out to lunch and pick their brain. This may be enough for you to get moving.
The second option for mentorship is a bigger commitment. This involves a deeper relationship with someone who is willing to have regular calls with you, to help you set goals, and to hold you accountable to them. These types of mentorship typically require some type of compensation to the mentor, either monetarily or in a “bartering of services” arrangement. Get creative; there is always a way to create a win-win for you and your mentor.
It’s my hope that this article inspires those of you who are on the brink of expansion in your own businesses and also serves a caution to those newbies out there to have your “ducks in a row” before your take on new challenges.
So where are you looking to expand?
Let’s get a conversation going and share some inspiration for taking our businesses to new heights!