4 Steps to Take When Scaling Your Real Estate Business Into a New Market

by | BiggerPockets.com

Our team has had the incredible fortune of growing 30–40% a year over the past three years. We’ve had our share of screw ups, blow ups, hiring and firing issues. Dud properties. Jacked up renovations. Many opportunities we’ve executed on. Some not so much. Dumpster fires of our own doing we have have had to suit up and be firefighters on.

All through these weeks, months, and years, we’ve been dedicated to suss out the lessons. Not be afraid of the screw ups. Understand the challenges and failures and learn the lessons out of them. Change and adapt for the better through the growing pains. Keeping ourselves honest with where we are, and where we want to go. And at a hight level, implement those operations through clear decisions, understanding the desired outcome, and reviewing the real time data as it comes back to insure its working.

Related: My Top 3 Picks for Up-and-Coming U.S. Real Estate Markets

As our growing pains turned into more and more operational capacity, we also had another issue. We weren’t able to meet the demand of the interested clients. Although we’ve continued to buy consistently here in our home market, we have not been able to serve every client. A bummer for the client, and a ceiling we had to overcome internally if we wanted to come closer to the demand of our properties and also fulfill our vision and goals as a company.

Through the thinking and processing of a new market, we have two new markets we will soon be entering with a potential growth of double or  more of our turn key inventory. Let’s dive into it.

Understand Your Strategic Objective

Our particular business is turn key rentals. So we have different challenges than say a wholesale company, or a fix and flipper looking to do high end retail flips. I personally know people who do both of those things very well in multiple markets as well. But for us, we had to be clear on what the objective was.

First, it was finding properties that would look and feel like our other inventory. If it was dramatically different visually to the client, it would not show up with the look and feel of our properties. Second, where the numbers from rents, sales prices, taxes, comparable to the other properties we had been selling. Do the potential new properties show up with the clients to make sense?Tell the story to your team, and share with your clients. Make sure it makes sense, and it’s solving a real problem.

Don’t underestimate the effort it will take to launch the new market.

Know the Market. Dig into the Details.

My partner and I early on looked at a few different markets, and after quite a bit of excitement booked flights and an Airbnb for a few days in one of them. I personally booked dozens of appointments. Found properties we wanted to look at. Spoke with realtors on comps, neighborhoods, and areas to be in or stay out of. The first morning we were speaking with the realtor we met with, and I was questioning him on the way the taxes were showing up on the properties. As a wholesale or retail investor, the taxes are a factor, but don’t typically kill a deal. For a turn key property, with cash flow and returns for the investor, they are a HUGE factor.

I felt like an IDIOT! We had failed to look at this simple, massive problem: How much are the taxes? Come to find out, the taxes in this market would be far outside the possibility to produce a similar result with our properties.

Talk about feeling like an idiot. I couldn’t believe we had gone half way across the country, with all our “experience” and business sense, we failed to look at the basics. We knew better. And we failed to look back through the lessons we had learned before, and apply them here.

If you are wholesaling, is the market one you understand? Know how to market there to sellers. Can you put option contracts on the local MLS? Have staffing and title companies to work with? You need to create a buyers list. For retail flipping, are there different codes, or unions to work with. Do you need to file something with the county to insure contractors are paid, and required for a period of time before you can sell (I’ve made this mistake too)?

There are so many nuances. You must do the diligence on the front end to understand what is happening in that market. Not just the idea and excitement of a new place. But know the actual numbers, type of deals, people on your team and network you need. And what the ideal deal there looks like.

Build out Your Key Team and Contacts

A new market requires having local knowledge. Buying and selling houses is easy. Buying and selling the RIGHT houses, and the RIGHT prices, is a little more complicated. Who knows the areas? Specific pockets to buy in, or stay out of. And then who on your team has the capacity and knowledge to make those decisions?

Start with what you have in your office. Transaction person. Title company. Who is inspecting the properties? Working through acquisitions and what to buy, and what not to. You need to know that each area that is operating within your organization is covered in the new market.

You may be able to use current staff as a resource in the new market as well. But make sure they are clear who the new people are they would work with in the next market. How do the deals come into the pipeline? Who do they need to speak with for whatever issue? Lay out each step in the process and work through the work flow BEFORE you are buying and selling properties. And, state plainly the goal in that market with your team and your potential clients there.

Start Small. Learn Lessons Small.

My natural reaction is ready, fire, aim. But this doesn’t work well if you aren’t on target. Ramp up slowly, so you can work through the issues. There will be key people you don’t have yet, or who don’t work out. There will be construction challenges, or factors that come up after a project has started.  The first projects will take longer because its something new. Expect to spend more time on these projects than others you do in your current or main market.

Related: I Used to Think All U.S. Markets Were Too High—Until I Started Investing in This City

It’s much easier to change course with just a few houses than it is with a bunch. With a bunch, you could end up with a huge problem on one project but since you kept it small, you could focus on just that one house and understand the issue and fix it. Once you have seen the projects run from acquisitions, renovation, inspections, and sale, NOW you can start to fuel more marketing, acquisitions, sales, etc.

Don’t be after to go slower and be smaller on the front it! Let the lesson be learned, get some momentum, and then scale with precision and knowledge of the area with the team you have built there.

Have anything to add?

Share your own ideas in the comments below!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

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