Big Rocks or Small: Where to Focus Real Estate Investments
InsightInvesting Strategies

Big Rocks or Small Stones: Where to Focus Your Real Estate Investments

Investing Strategies Big or Small

Should you focus your attention on big deals or smaller ones? This is a question that applies not only to part-time real estate investors, but full-time investors as well.

Let’s take a look at how you can determine which one is best for your circumstances.

To provide some perspective, I’d like to share an anecdote from my personal experience.

I recently was parked in front of a commercial building while waiting on another individual who was inside the building. I didn’t have the radio or my cell phone on, and it was actually kind of nice. It allowed me to admire and really focus on the large stone column that my parked car was facing.

The pillar, supporting a portion of this building, was built with all different sizes of stones and rocks. Some of them were big rocks, and some of them were small stones. Together they formed this huge column. It was strong and unwavering. At the same time, it was architecturally appealing.

I got lost in the mixture of all the small stones and how they fit in between the big rocks, and how it all came together in this ornate pattern. I couldn’t help thinking that it probably would have been easier, quicker and maybe even a lot less expensive to build that huge column out of just big rocks versus what I was looking at—all these big rocks with these small stones strategically and ornately placed throughout.

Everything Fits Together for a Reason

Because I am a real estate investor and owner of a HomeVestors franchise in Dallas, my thoughts went straight to my life first as a part-time, now full-time, real estate investor. Looking at that pillar reminded me how each deal—whether big, like a big rock, or small, like a small stone—fit with all the other deals to ultimately create my real estate investing business as a whole. It occurred to me that just as these big rocks and small stones fit together to serve a purpose in the foundation of this building, the big deals and the small deals fit together in my real estate business in multiple ways.

First of all, the big deals and the small deals all fit together to create a real estate investing business that’s appealing, exciting and rewarding to operate.

Number two, they fit together to form a sustainable business. What I mean by that is that it can stand the test of time, over the long term.

Finally, I concluded that my big deals and small deals, taken together, have created a strong business. And by “strong,” I mean consistently productive–producing the desired results day in and day out over time.

Let’s dive a little deeper into these three elements.

No.1—An Appealing, Exciting and Rewarding Business

We have all seen businesses that look great, or profitable, from the outside. This may be the retail business that’s in your own neighborhood that you drive past all the time. You may be a little in awe that they continue to operate and be successful. Then one day you wake up for work, and you drive by, and they are closed. Why?

Quite often, these businesses do look great—from a distance, but when you look closely, they have internal gaps and voids that really damage their integrity and stability. A real estate business can be very much the same.

Maybe you know someone with a real estate business who is doing great big deals that you hear about all the time, but they do not have the small deals in between to fill in the gaps, to fill in the voids, to create stability and consistency. Though that business may look great on the outside, it may not have the structural integrity that is needed to support and sustain it.

Don’t get me wrong—the big deals are wonderful, but you also have to be pursuing some of the smaller deals in-between. The big deals are quite often few and far between. You’ve got to have something that keeps you busy in the interim, keeps you growing, keeps you developing, keeps you challenged and keeps educating you.

These small deals serve that purpose, and they’ll also help prevent negativity and discouragement from creeping in. These are kind of the small stones that you fit in between the big rocks that ultimately provide you with a business that’s appealing to own, run and operate, day in and day out.

No.2—A Sustainable Business That Stands the Test of Time

Let’s talk about point number two, a real estate investment business that’s sustainable and can stand the test of time. The big deals are few and far between, like I said, just like the big rocks in that stone column that I observed and admired. Sometimes the gap in between those big deals can be long, or wide. Those gaps can be very crippling, especially in our business, which is so cash-flow-intensive.

It may really hurt you as a real estate investor when that cash flow disappears in the interim between those big deals. It’s the small deals that fill those gaps, provide the support for your business during those troughs or slower periods and allow your business to survive over the long haul. Ultimately that’s our goal—to build a business that can sustain the ups and the downs, the peaks and the valleys.

When I am doing the smaller deals, I’ll admit, sometimes I find myself questioning, “Is this worth my time?”  “Is this juice worth the squeeze?” I quickly can rationalize these smaller deals by equating them to their value to my business.

Here’s an example: Many investors often walk past these smaller deals, whether because of pride or some other reason. But I look at those smaller deals and say to myself, “If I do this deal, it will fund my advertising budget for the next month.”  Or, “I can pick up this small stone and do this small deal, and it will fund the make-ready that we need to do next month on that rental property that’s recently gone vacant.”

When you start to translate the smaller deals into the business value that they can create, all of a sudden it makes a lot more sense why they are important to your business. It enables your business to be more sustainable and to stand the test of time. Without these smaller deal flows, or that capital that they generate, you will not have a business that is capable of surviving the troughs that will occur between your big deals. That can be very crippling. But these small deals, or these small stones that you can pick up, are a great way to generate the continuing revenue and profit you need.

No.3—A Business That Produces Results Day In, Day Out

Finally, let’s talk about how these small deals create strength in my business and produce the results that I desire. Just like those small stones wedged in between the large rocks on that large column are critical in providing the strength for that pillar, those small deals are just as critical in providing the strength for your real estate business.

Keep in mind, those small deals add up to be big deals. Small deals keep you strong in your experience, and they will keep you strong in your education, and they will build your network. Small deals, just like the small stones, support the big deals.

They provide you the capital that you need when that big deal comes along. They provide you with advertising money, rehab money, down payments, etc. I find that it’s the small deals that help me refine my skills and fund my business expenses, build my network and quite often even lead to referrals that result in those big deals, or those big stones, that we all desire.

So don’t underestimate those small deals and the role they are going to play in strengthening your business and producing the results that you desire. They are a critical, critical element in that big column and in your real estate investment business.

In conclusion, I stress again, though they may not be as fun, and they may be a lot more work than they appear to be worth, don’t underestimate, overlook and walk past the small deals. They complete your business, they keep it active, they keep your business engaging, and they keep your business personally satisfying for you as an owner, and as an operator, and as an entrepreneur and as an investor. They ultimately help to create that lifestyle you’re seeking as a part-time or full-time real estate investor.

They fuel your business, they keep it sustainable and allow it to survive over time, outlasting the valleys, troughs, competition and the different market cycles. They give your business the stability to stand tall like that tall column, despite all the pressures and headwinds that you will face as an investor in your business.

So I repeat: Don’t skip over the small stones. Don’t walk past them as you seek out the big rocks and the big deals. Those small stones, or those small deals, are equally as important to your business as the big ones.

You can listen to Kevin’s podcast here: