How do you best set yourself up for scaling up?

Question

Hi all,

Two questions here:

1) What are some of the financial efficiencies you achieve when you get to scale in rental properties (e.g., property management savings)? Other synergies / efficiencies that help your bottom line?

2) What have you done to best set yourself up for scaling up? Anything from freeing up capital to buying in the same locale / region to manage properties easier, etc.

I'm just trying to think ahead as I'm start to think about my portfolio and how I want to play in this space.

Thanks!

Anthony Vicino · Answer

Great questions, @Dimitri Savidis. Your mind is definitely already in the right place.

One of the things that's helped us scale multiple businesses relatively quickly has been to build from day one the systems and infrastructure necessary for the size company we intend to be in the not too distant future.

Of course, this forces you into the position where in the early days you're spending more time, energy, and resources laying a foundation that isn't technically needed quite yet.

Then again, it's really difficult to scale when you're constantly having to redesign or upgrade systems.

My best advice, hire sooner than you think you should, and build longterm systems from the very beginning.

So that's a general high-level take on scaling (which you're welcome to totally disregard if it doesn't apply to you!).

To answer your questions specifically.

1) If you have property management in-house then you can definitely realize the synergistic effects of having multiple properties within close proximity with one another.

If you're outsourcing to third party, well, you probably won't get too many benefits.

There are definitely discounts to be had on buying materials in bulk (appliances, floors, paint, etc...) which you can more easily justify when you have a larger portfolilo. When you're small, you'll be stuck more or less paying retail at Home Depot.

A massive synergy that is often overlooked is that when you have multiple properties within a certain vicinity, you have the ability to graduate tenants or laterally shift prospective tenants.

Example, you have a vacancy on a 2-bed unit at Building A and a tenant living in a 1-bed at Building B with a lease ending next month and who is now looking for a larger space. Wham, you're able to upgrade them to fill the 2-bedroom.

2) We're all about buying properties within a certain area of one another. We built a property management company from day one with the idea that we'd be scaling aggressively and wanted to be in full control of our resident's living experience. Keep in mind, building in-house PM is a different sort of headache, so think long and hard if that's the direction you want to go before running that way.

As with everything in life, the best way to set yourself up for success is to begin with the end in mind. From there, simply work back to where you are to decide what strategic moves need to be made next.

My question to you, Dmitri, is: What's the desired endstate you're building towards?

Drew Sygit · Answer

Time is your most valuable resource, so systemitize everything you can to protect that resource:)

Sendin Bajric · Answer

Hi @Dimitri Savidis, what @Anthony Vicino said is spot on. A book I recommend you to read is The E Myth: Why most small businesses don't work and what to do about it. This book talks about building the systems and working with the end-goal in mind. Although you are investing, you are a business owner at the core of what you're planning to do. This book helps you think and act like a business owner.

Beyond that, build your team of financial advisors. Tell them your goals and where you want to be, and see how far they'll go in helping you get there. You want the banker, tax accountant, bookkeeper, lawyer who will focus on your goals. Once you find those who work WITH you with your END-GOAL in mind, you're in a great position.

Good luck, stay positive, fall in love with the process, and always remember: "The only people who don't succeed in real estate are those who give up."

Sendin

Evan Polaski · Answer

@Dimitri Savidis, I agree with Anthony regarding systems.  Rent collection, book keeping, maintenance requests, financial reporting.

Then it is your team.  Even if you are the "sole owner" having a sounding board of people around you will help you come up with ways to grow far greater than you will likely come up with yourself.  The key for all entrepreneurs is to work ON the business, not IN the business.  There are always times you will have to do something you wished you didn't, but if you are spending all your time plunging toilets, how can you be out finding the next deal.  Eventually, if you are spending all your time bookkeeping, how can you be setting up the next level of growth.

Figuring it out as you go is inevitable to a certain extent, but the more you can free your time to focus ON the business, the easier it is to stay ahead of things.

Dimitri Savidis · Answer

@Anthony Vicino This is great, thanks!

To answer your end-goal question: The way I currently perceived where I want to be is maximizing monthly cashflow through multi-tenant property.

Beginning the quest this year for 2-4 family properties, but have been running the numbers and getting to a - let's say - $10k/mo cashflowing portfolio might be tricky with 2-4 unit properties only. The likely road will be to start small with 2-4 unit properties & work my way up to bigger deals. Maybe I'm even thinking too small with that $10k target.

I've been running the numbers on how I could possibly get to bigger deals (given equity on properties I would theoretically be holding at set times in the future and how I could leverage to free up capital). Before I really start modeling out the numbers in detail, I just wanted to know what the optimal way of going about scaling would be.

I think I'm more interested in making sure I have access to capital at the right time and avoiding any procedural barriers (e.g., "this would've been so much easier if you had gone with this type of loan, or if you bought these two properties here, etc.")

It's probably a "you'll figure it out as you go" type of thing, but if there is anything I can do now, I would want to be aware of those things!

How do you best set yourself up for scaling up?

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