In one sense, owning rental properties is an investment. It’s basically a practice in building an investment portfolio. But in another sense, it’s owning a business. And if you want that business to be successful, you have to learn how to scale it with efficiency in mind.
4 Tips for Scaling Your Rental Business
Owning one rental property is nice. Owning three or four is even better. But owning 10, 15, or 30 is enough to create a lucrative income that’s fairly passive (when managed properly). Here are some tips to help you go from just a couple of rental properties to an entire portfolio.
#1. Add Properties With a Purpose
If you’re serious about building a business, you can’t just add every single property that looks like it’ll cash flow. You want to be intentional with the types of properties you invest in. Know your “wheelhouse” and operate there.
For example, if you’re focused on multi-family properties with 10 or more units, don’t suddenly become mesmerized by a single family home and pour a bunch of money into it (just because it looks like a smart investment). Find your niche and focus your energy and effort there.
Having said that, there comes a time when it makes sense to expand. Once you feel like you’ve built a pretty strong portfolio in one location, you might hand everything over to a property manager and search for a second market. The key to doing this well is to identify the right markets via rigorous research and analysis.
“Don’t get stuck with the notion that your local MSA (Metropolitan Statistical Area) is the only feasible rental market that exists. Challenge yourself to spend some time investigating other areas,” investor Dennis Spivey writes. “Once a market is identified, drill down to specific neighborhoods. View school rankings and job information to isolate areas that will create the best rental demand and consistent income.
Don’t shift markets prematurely. Wait until the research is done and you’re confident in the market. And once you move into that market, put all of your focus there. (Never try to add more than one market at a time.)
#2. Streamline Processes
The most successful real estate investors are the ones who have streamlined, documented processes for everything they do. Nothing is random or “off the cuff” – they move with precision.
Anytime you add a new process to your strategy, we recommend creating what project managers refer to as Standard Operating Procedures, or SOPs. These are written documents that outline each individual step of a process in sequential manner along with who is responsible for it.
The beauty of having SOPs in place is that it makes your business repeatable. Suddenly, everything is able to be outsourced. This means you can grow twice as fast (because you don’t have to be the one always doing everything).
#3. Work With the Right Partners
You might be able to invest in a couple of properties on your own and keep an eye on them yourself. But you can’t build a thriving portfolio of properties without having a supportive team of people by your side.
When finding partners, look for people who can help you in areas where you’re deficient and/or don’t find enjoyment. For example, you don’t have time to personally collect rent and schedule repairs on every single property you own. These are tasks that can be outsourced to a property management service. Other examples of valuable team members include real estate agents and attorneys.
#4. Plan for Taxes
Taxes can make or break your real estate investing business. Unfortunately, a lot of newbie investors don’t factor taxes in until after they’ve started acquiring properties. As a result, they fail to maximize the benefits that are available in the form of depreciation, taxes, and deductions. This is why we seriously recommend working with a real estate tax professional from the beginning. It’ll save you from a lot of mistakes and pain.
Grow Your Biz!
As you build your portfolio of investment properties, keep these tips in mind. It’ll give you much greater predictability and efficiency, while also paving the way for much higher returns. You won’t always enjoy smooth sailing, but the destination will make the hard work worth it!
