It’s one thing to own a single rental property and cash flow a few hundred dollars every month. But if you want to generate some serious cash in real estate investing, you need volume. This requires you to expand your portfolio at speed and scale. But it’s equally important that you scale with discipline and efficiency. Read on to learn how.
6 Tactics for Scaling Your Portfolio
It might sound impossible to make a full-time income off of rental properties, but it’s far more realistic than you realize. The key is to break it down to a science and to remove your emotions from the equation. Armed with an objective and mathematical approach, you can scale with ease. Here are a few tips:
- Start With One
One of the worst mistakes aspiring real estate investors make is going from zero properties to 10 properties in one fell swoop. And while there’s nothing wrong with eventually scaling up to 10 properties (and beyond), it’s not smart to begin there. We recommend investing in one property first and then growing your portfolio from there.
Your first property is always a learning experience. You’ll discover what does and doesn’t work with financing, tenant screening, rent collection, lease agreements, etc. Then, based on this information, you can improve your approach to the second deal. And you’ll glean even more information from that deal. (And so the process goes.)
While it’s certainly a slower approach, scaling one at a time is good when you’re small. After you reach something like 20 or 50 doors, then you think about taking a “bulk” approach. Patience is the name of the game.
- Document and Systematize Everything
To scale any sort of business venture, you need to have repeatable systems in place. This is true whether you’re growing a billion-dollar tech startup in Silicon Valley or a small single-family real estate portfolio in the midwest.
It’ll seem like overkill in the moment, but take the time to document a step-by-step process for everything you do on your first real estate investment. This includes searching for properties, vetting properties, speaking to mortgage brokers, making offers, dealing with negotiations, etc.
The beauty of systematizing everything into documented Standard Operating Procedures (SOPs) is that it allows you to hand that task off to someone else in the future. And eventually, when you’re doing a dozen deals at once, you’ll be able to step back and let your team do everything for you.
- Hire a Property Manager
It’ll cost you a percentage of your gross revenue, but hiring a property manager to oversee your rental properties is one of the smartest decisions you’ll ever make. A good property management company will offer you comprehensive services like tenant screening, property marketing, maintenance and repair coordination, and anything else that comes with owning a rental property.
- Put Cash Back Into the Business
It’s hard to spend a lot of time and money buying a rental property only to put the cash back in the business, but that’s precisely what you need to do.
If your goal is to own a single rental property and generate $300 or $400 of monthly cash flow to fund some personal expenses, great! You’re more than welcome to take that cash every month. But if your goal is to scale a portfolio, don’t touch the money. Every penny should go back into the business and fund your next purchase. You’ll eventually reach a point where you feel comfortable drawing on the money, but that time hasn’t come.
- Pay More for the Right Deal
As a newbie investor, you might assume that you should always go for the lowest priced deal you can find; however, this isn’t always the best option. Some experienced investors even encourage paying a premium for the right property.
“I would pay more money to buy a deal. I would not use the buy low, sell high phenomenon, or strategy. I would pay extra for a better location,” says Grant Cardone, CEO of a private real estate fund with nearly $1.8 billion in assets under management. “You make more money with a lower cap rate. Lower cap rate deals, over my 25 years in buying real estate, would’ve made me more money than buying more cash flow.”
In other words, being in the right location can reduce your risk, help you find better tenants, and lead to higher long-term appreciation.
- Network Like Crazy
You can usually cash flow your first couple of deals. As long as you have some money in the bank and a decent credit history, you won’t have a ton of difficulty procuring traditional financing in this market. But as your portfolio grows, you’ll need additional funding options at your disposal.
The best money is always going to be private money. By networking with other investors and wealthy individuals, you can secure private money loans that require less rigorous approval processes. Generally, if you’ve earned the individual’s trust, they’re only going to care about the deal itself. (In other words, your credit history and debt-to-income ratio are irrelevant.)
Adding it All Up
Once you figure out how to cash flow one rental property, you’ll discover that you can do it with two. And once you do it with two, you can do it with four….and so on. Real estate investing isn’t easy, but it is a game that can be played at scale. By creating a system that allows you to scale with less friction and greater efficiency, you can watch as your rental income grows exponentially.
