The Investor’s Mini-Guide to Scaling Up to a Real Estate Empire

by | BiggerPockets.com

I’m not the biggest fan of Robert Kiyosaki, but I do find his cash flow quadrant concept to be rather helpful. It looks like this:

The left side includes any employees and those who work for themselves but who do all the work for that business. This would include trades such as plumbers, electricians, etc. Basically, people who own a job.

On the right side are business owners and investors. Their investments make money on their own without these folks having to work. Kiyosaki refers to the left side as “trading time for money.” On the right side, money works for you.

These categories are a bit blurry, though. A lot of real estate investors find themselves in a muddled position between B, S, and I. Yes, we’re not employees. And yes, our investments (assuming we’re doing buy and hold) are working for us. But while we own our own businesses, much of that work is done by us. And I’m not talking about the idea of “working on your business” but the actual day-to-day work.

In order to grow your business to the next level, you have to take the concept of scaling seriously. Scaling is what is required to move from S to B regardless of whether you’re flipping, wholesaling, or buying to hold. And the first step to this is mastering the art of delegation.

outsource-income

Delegation

Delegation doesn’t necessarily need to be to an employee. One way to delegate is to simply hire a virtual assistant through sites such as Upwork. Many third parties can be used for delegation as well, with property management companies being an example. But obviously, hiring people is a big part of delegation. (See my guides on hiring here and firing here.)

Related: 3 Keys to Sustainably Scaling Your Real Estate Portfolio

As your business grows, you will want to offload the less important tasks or the tasks you aren’t particularly good at to others. But there is such a thing as hiring too soon when you can’t afford it or hiring someone for a position that is too vague or messy to be useful. So I recommend two things to figure out what exactly it is that you should and should not be doing.

  1. Keep a running tab of everything you do for a week or two. Break it down by the hour or half hour and keep track of it as you go about your day. Then at the end of the week, look back and evaluate which tasks were essential and needed to be done by you (at least for now) and which can be offloaded.
  2. Brainstorm. Make a list of everything you do in your business. Which items are the most important? Which are you good at? What could you offload to a subordinate? What do you need to offload because you’re no good at it? Once you’ve come up with a list, break each thing out into these various categories.

Remember Pareto’s Principle—80 percent of your results come from 20 percent of your activities. You want to focus on that 20 percent. If you can afford it, leave the 80 percent to someone else.

This process should help clarify what you should and should not be delegating.

Measuring and KPIs

Sometimes it’s easy to figure out when an employee or third party is doing well or doing terribly. Other times, it is not. And I’ve heard plenty of stories of employees who are incompetent at their jobs being quite competent at gaslighting their employers into thinking it’s not their fault.

The more direct measures you can come up with, the better. It’s also a good idea to work on these with the person you’ll be measuring, be they an employee or third party. You want to get them on board with the evaluation method. Otherwise, they might feel it’s arbitrary or unfair. The more that person buys into the measurements, the more they will work to achieve those goals. Furthermore, it’s important to note that you might come up with unrealistic goals and numbers to hit. Still, even if they are off, coming up with numbers to aim for allows you to 1) measure similar employees against each other and 2) measure for improvement. If you measure, you can tell if someone is doing better or worse than before. The more you know and the quicker you know it, the better.

Here are some examples of KPIs (key performance indicators) for various jobs that many real estate investors often hire:

  • Leasing agent: application per showing, leases per showing
  • Maintenance technician: call back percentage, complaints
  • Turnover coordinator (often the property manager): average time to turn a property over and get back on market, complaints from new move-ins
  • Rehab coordinator: budget vs. actual cost (remember, it may be your budget that is the problem and not the construction cost)
  • Marketer: calls per letter sent out, deals per letter sent out

Really, there are a lot of these. But as with everything in business, the key is to measure. And with regard to employees or key third party vendors, the more you talk with them about these measurements and create plans for improvement, the more effective this process will be.

tax-changes

Related: How to Scale Your Wholesaling Business to 120+ Properties Per Year

Sandboxes

While any small business is going to have a lot of overlap between departments (if you can even call them departments in a small business), you want to start to delineate your staff’s roles sooner rather than later. KPIs are not going to work very well if someone is split between four different primary tasks. Indeed, some tasks, such as accounting, are hard to create KPIs for. If you have someone in charge primarily of bookkeeping but who also who oversees turnover and you have a KPI for the latter but not the former, that might corrupt what your employee believes is the most important thing to focus on.

And the sooner you can split accounts payable from accounts receivable, the better, as there is a risk a dishonest employee could launder money. (In the meantime, you as the owner should review each transaction.)

The point is, you want each position delineated as well as possible with its own goals so an employee or even a vendor can focus on achieving those goals instead of just checking off boxes and trying to make sure everything is complete.You want to create sandboxes, and you want your staff to stay in their sandbox (for the most part, at least).

And again, this isn’t always possible in a small business.

Working on Your Business

The final point is that the bigger you grow, the more you need to focus on working on your business rather than in your business. Namely, the more important tasks will be the ones that aren’t as straightforward. Things like networking, brainstorming new ideas for growth, strategizing, hiring, and firing should take precedent. And as far as the work in your business that you do need to do, you should focus on the highest level activities, which will often be finding good deals.

As the great John Wooden once said, “Never mistake activity for achievement.”

For those who are interested in learning more about scaling, I recommend you check out the book Scaling Up by Verne Harnish.

How do you make sure the tasks you perform are worth your time—and how do you delegate the rest?

Let me know with a comment!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

4 Comments

  1. Cindy Larsen

    Thanks Andrew. I will definately check out that book. I currently delegate:
    – things I’m not good at
    – that require expertise I don’t have,
    – jobs I just am not willing to do: plumbing, electrical, landscaping
    – jobs that I can pay to get done for less than my time is worth
    PLumbing, electrical, HVAC, landscaping, to name a few.

    I don’t delegate things I am good at that I have time to do, or jobs with a high labor cost that I can do myself. Jobs with a high labor cost that I can learn how to do, I generally A) research thoroughly B) interview applicants/contractors, bot to determine who is best for the job, and to ask them questions so Imunderstand the right ways to do the work C) either work alongside them as a helper, or watch them work, to learn what they are doing. I do this for two reasons:
    1) Many jobs, such as painting, are actually easy to do, and cost a lot for a few hours work. Last time I needed painting done, quickly, I spent 6 hours interviewing contractors, hired one I thought would do a good job, paid them and their helper to work for 6 hours (turned out to be 12 man hours, but the job was specified as fixed price for the work, not by the hour at $650, I supplied all materials). It looked good when they were done. The next day I spotted paint specks on the brand new hardwood flooring and on the tile, and two places the size of my palm behind the woodstove that were unpainted. Cleaning and fixing took me two hours. I should have just done the job myself. Ideally, as my business scales, I find people to delegate to who do as good or better than I can myself, for a reasonable price. But, until you find those people, sometimes it is just better to do it yourself, if you have the time.
    2) Once you have learned to do a job yourself, your chances of successfully finding a person to delegate it to are increased, and your chances of getting overcharged are reduced. I believe that there is value in learning as much as you can about anything you plan to delegate in the future, and that includes doing it hands on. Even if you suck at it, you will be better at delegating it. If you are good at it, and it is a small job, it may take about the same amount of time to just do it, as to find someone to do it, and then supervise them while they do it, and save you money.

    I am currently doing the BRRR method on small multifamily (thanks Brandon) and many small jobs can be done while living in the property. I plan to scale up quite a bit in the next few years, including investing retirement accounts in real estate. For those, I’ll have to delegate almost everything, since being hands on is a prohibited transaction. So, I’d better read that book 🙂

    CJ

    • Andrew Syrios

      You definitely don’t want to outsource everything you do when you can’t afford it, but I think there is a danger of falling into the comfortable. We’re almost afraid of having nothing to do. But delegating less valuable tasks, even one’s we’re good at, can free us up to find even more valuable opportunities.

  2. Jessie Huffey

    Hi Andrew,
    I was really looking forward to reading an article entitled: “The Investor’s Mini-Guide to Scaling Up to a Real Estate Empire” and was disappointed when the contact of what I actually read was “How to Manage Your Already Huge Real Estate Empire”. How about writing an article about how we get to the point where we have a Real Estate Empire? Maybe a personal story about the specifics of how you got there.

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