3 Must-Haves for Scaling Your Real Estate Business

Written on January 15, 2016 by , updated on December 9, 2016

Scaling your Rental BusinessOne night while waiting in-line to check out at the grocery store I was scrolling through Twitter and saw an interesting update:

While still in line, I said alone “100,000 customers is a lot!”. The cashier gave me a puzzled look before returning to her scans.

I clicked through the link and found a very interesting press release from the CEO of Cozy.

Below is an excerpt:

I started thinking about my small real estate investment company. Sure, I do plenty of planning for my real estate company and have already planned for 2016.

However, after reading this press release it made me wonder, What would my company look like if I planned to not just double the size – but 10x the size of my real estate company? What resources would I need?

What resources would I need?

Here’s the list I came up with. It covers the essentials, but I’d love to know what other tools and processes you have in place to help you scale.

1. Money (and lots of it)

Real estate is capital-intensive.

I repeat this phrase on a daily basis when talking to fellow real estate investors. If you want to grow slowly, with your own-cash flow, your growth will be anemic. However, if you want to grow quickly you will have to learn how to raise money from multiple sources. Additionally, you will have to learn how to structure deals creatively.

… you’ll have to learn how to structure deals creatively.

A lot of real estate investors are held back because they have “sticker shock” when they see the difference between a personal residential mortgage and an investment mortgage.

Obviously, this cost is material and should be evaluated carefully. However, don’t allow this extra cost cause to you lose a deal. A couple of months ago I had a property under contract to sell and the borrower was excited about getting a FHA 203(k) loan and only putting 5% down. In the end, he couldn’t get the mortgage and lost out on the deal. He could have put 20% down, and still got a great deal. After 3 years, he could have done a cash-out refinance and been in a better place, but he lost the deal.

In real estate, your renters are paying your mortgage interest, so please don’t confuse the forest for the trees.

Case Study 1

One of the most creative deals I’ve heard about lately is a large developer selling a portfolio of 50-rented single family homes. They put the homes into a new LLC and sold a 60% interest in the new LLC.

They collect a management fee for renting and maintaining the properties and are still going to participate in any upside with their 40% ownership. The developer was able to get out of a personal guaranty with this new structure and put some cash in his back pocket.

Case Study 2

Another creative deal I heard about is a friend that had two duplexes (4 units) under contract. He had them under contract for $60,000 combined. The seller was only wanting to finance $20,000 of the purchase price. He went to another friend and said:

“Do you want to buy two duplexes that are completely rented? You have to put up $40,000 – I will handle the management and maintenance. You will get 40% ownership.”

The friend agreed. My friend took control of two duplexes without any money out of his pocket.

2. Systems and Processes

Losers have goals, winners have systems.

Scott Adams (creator of Dilbert)

We’ve covered how real estate is capital-intensive. However, when you are growing a real estate company, property can also be extremely time-intensive.

When growing a company and portfolio, you will have to deal with:

I’m not going to try to tell you that you can systematize your whole business and just go surfing all day. Furthermore, I can tell you that anybody who says they are doing that is not telling the complete truth. Even if it was true, do you really believe it would be responsible to buy, remodel and sell (if you are a house flipper) hundreds of thousands of dollars of property without some kind of personal oversight?

I’ve had both failures and success in outsourcing the vast majority of the “work” in real estate. I outsource all of the day-to-day stuff and focus on deal acquisition and financing since that is the part I enjoy.

For me, I am looking for two main qualities with the people that I hire:

  1. They have to be completely independent and able to make decisions without me being there.
  2. They have to have significant experience and come with great references.

I’m sure you have heard the saying:

“Work on your business, not in it”

I think there is a lot of merit with this. However, please don’t feel like a failure if you get caught in the day-to-day management of something every once in a while. Sometimes it’s necessary and some people enjoy it.

At the end of the day, I have to remind myself that I am ultimately responsible for everything, good or bad, within a project or investment that I’m managing. I keep a sign on my desk that says: “THE BUCK STOPS HERE”, to help me remember.

Related: How to Build a Little Black Book of Contractors

3. Software

Two major steps you can take to streamline your real estate business is to use online tools and to automate the majority of your repeating business processes.

My real estate company was able to double when I started using Evernote for everything documentation related.

If vendors refused to use my Evernote processes, they were cut out.

This year I took my online processes a step further and started using Cozy.

It’s extremely simple, but powerful property management software, and the best part is that it will grow with your business.

My last couple of renters have absolutely refused to write a check – they demand everything has to be electronic based (and rightly so). With Cozy, they can pay by bank transfer (ACH) for free, or via a credit/debit card for a small fee.

I know this sounds like a big pitch for Cozy (which owns Landlordology), but I’m just speaking from experience. The main reasons I use it are:

  1. It’s Completely Free
    All the others property management software solutions cost a fair amount of money
  2. It’s Easy to Test
    You don’t have to move your entire company or all your properties over to the platform. Just try it out with one property like I did at first. If you like it, you can migrate the rest of your business.
  3. The Screening Tools are Awesome
    The credit reports (view a sample) are some of the best I’ve ever seen, and the tenant pays for them when they apply. Easy!

Check out Cozy’s website, or invite an investor you know to try it out.

Summary

I hope you enjoyed the article. If you have grown and scaled a real estate company and think I left something out – let me know in the comments!

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3 CommentsLeave a Comment

  • Tour Wizard

    I completely agree! Software is a very important part of any business development process.

  • Bhavesh Koladiya

    Here are some benefits of using real estate software:
    1.Customized and personalized service
    2.Keep in touch with past clients
    3.Immediate responses
    4.One place for information
    5.Automated tasks and workflow
    6.Instant feedback about what works
    There are numerous real estate software in market. I recommend to go with SoftwareSuggest. They listed on many real estate software for landlords, brokers and others.

  • Lucinda

    That’s the best answer by far! Thanks for conutibrting.

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