Getting off the plateau to reach new REI heights
There are many plateaus real estate investors often reach as they build their businesses. And each can be difficult to climb out of. The first, of course, is to buy your first property. Then it may be to quit your day job and become a full-time investor. Ten properties is often another plateau, or that time when you need to hire your first full-time employee.
All of these plateaus are worth their own article. However, this piece will focus on the plateau many aspire too: How to scale to 100 units and beyond.
It’s at this point when you need to move beyond hiring employees and actually start managing managers. It requires a new set of skills and can be a difficult transition to make.
And looking off at this much larger goal, it will set you on the right course to break through many of the plateaus that lead up to it.
The First Question to Ask
The first question to ask yourself is extremely simple: Do you even want this?
Some people may dream of owning 100 or more rentals, but not ask themselves what kind of work that really entails. Do you want to build an empire or just be financially free and live a comfortable life? There is no wrong answer here. It’s not necessarily better to grow an empire and it certainly isn’t if that’s not what you want to do.
Remember, your business should be there to serve you. You are not simply there to serve your business.
However, if you do want to build an empire, you need to stop thinking in terms of growing your business and start thinking in terms of scaling your business.
Systems and Policies
The difference between scaling and growth is summed up well by Investopedia,
“Scalability is a characteristic of an organization, system, model, or function that describes its capability to cope and perform well under an increased or expanding workload or scope. A system that scales well will be able to maintain or even increase its level of performance or efficiency even as it is tested by larger and larger operational demands.”
In other words, scaling creates a bigger foundation to build upon. Growth on top of a wobbly foundation is doomed to fall.
The first thing you need to do is to start creating systems and policies everywhere you go. I know “systems” and “policies” are just buzzwords that get thrown around all the time these days, but they are, nonetheless, very important.
Every time you run into a new challenge or problem and have to figure out what to do about it, don’t just stop there, make a policy out of it or create a system. So, for example, let’s say a tenant requests allowing an exotic pet like a snake. Do you allow those?
Don’t just decide on this one instance, make a policy out of it. This should be something consistent across all of your properties. This kind of thing will make your life much easier (and with tenants, it will keep you on the right side of Fair Housing as well).
Managing Managers and KPIs
Eventually you will have to hire people to do some of the work you cannot do yourself. And if you keep growing (or better yet, scaling), you will need to hire managers.
Having someone between you and a front-line employee can make it difficult to evaluate employee performance. This is where KPIs or Key Performance Indicators come into play.
KPIs are simple numbers that measure how employees are doing. So, for example, with a maintenance technician the number of call backs that tech receives could be one measurement. The number of work orders completed per day could be another.
No measurement is perfect, of course. For example, if a tech gets the hardest work orders, they won’t be able to finish as many per day so that KPI by itself wouldn’t be very helpful.
But if you can create a handful of such numbers, you can track employee performance without having to micromanage or just close your eyes and trust. And while you might not know what a good number is (for example, how many work orders a maintenance tech should do a day), you do know which direction is better so you can judge improvement over time. And you can also compare employees to each other.
Systems and policies allow you to keep a complicated business consistent and straightforward while KPIs allow you to manage the manager and evaluate employee performance even from afar. They are critical tools if you want to scale your real estate business.
Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on buy and hold and particularly the BRRRR strategy—buying, rehabbing, and renting out houses and apartments throughout the Kansas City area. Today, Stewardship Investments has over 300 properties and 500 units. He writes for Think Realty, BiggerPockets and The Data Driven Investor.