How do you realistically increase the number of rental properties you hold?
Scaling your income property portfolio is crucial for ensuring continuity in cash flow, achieving financial freedom, accommodating increasing expenses, and achieving your bigger goals.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
How Many Rental Homes Do I Need?
If you’ve owned a few rental properties or have even just done your homework, you already know that you need diversification in your portfolio to make sure money keeps coming in. This will probably include both diversification in number of units and geography. Then, if something hampers the performance of a couple of your rentals, you should still be ahead of the game.
It is also important to recognize that expenses will typically keep on rising due to inflation. Taxes, food, travel, healthcare, and your own housing costs will probably keep growing for the rest of your life. Then, make sure that you account for the fact that once you achieve your goals and dream lifestyle, you’ll no doubt be setting even higher goals to achieve.
How many rentals you need is really an individual equation. It depends on where you want to be financially. Maybe you only need 10 to reach your financial freedom number. For others, it may be 100 or 10,000 units.
Remember that over a few decades, the chances are that you will cycle through a few properties, too. Aging ones may be replaced. And some may be switched out for more profitable options in new markets. That means ongoing transactional activity in addition to management.
The Challenges of Scaling a Rental Property Portfolio
Profitably and soundly scaling a rental portfolio takes work and has its challenges. This specifically includes rehabbing, finding property deals, navigating the distance between properties, and maintaining a good level of service and free time during the process. You want to actually be able to enjoy the rewards of investing in real estate. If you are not careful, you’ll create more than a full-time job for yourself — a job where you may work late nights, weekends, and holidays.
The 3 Keys to Scaling Wisely
There are three keys to being able to realistically scale your rentals:
- System: procedures, processes, methods, or courses of action designed to achieve a specific results
- Team: property managers, leasing agents, real estate agents
Try to go too fast, and you’ll burn out. Take shortcuts, and it won’t be sustainable. If you aren’t efficient at every step in the process, you will suffer subpar yields, you’ll miss your goal deadlines, or you simply won’t close on enough properties. The truth is that you can scale very quickly. The key is doing it in a sustainable way so that you can afford to hang onto your gains and cash flow lifelines. This means having a good framework, proficient team members so everything does not rely on you everyday, and using a sound mix of your own cash and financial leverage from others. Maybe you have one team member who solely focuses on finding and purchasing deals, while another team member coordinates the closing with the title company of those deals.
Fortunately, there are now more efficient ways to scale rentals, especially for busy professionals who know they need the passive income and yields rentals offer, but either can’t skip the paychecks in the short-term or don’t want to leave the careers that they care about. For example, new technology, better access to data, and more efficient cloud-based systems have been attracting more sophisticated investors to turnkey rentals and real estate crowdfunding.
So break down how many rentals you think you’ll need, and do the math on how many you need to pick up each year (or month) to hit your financial and retirement goals.
How are you planning on scaling your real estate business?
Let me know your thoughts with a comment!