As each year draws to a close—even as early as October or November—my focus turns more and more to evaluating my performance that year as a full-time real estate investor and planning how to improve the next year.
It’s always enlightening to look back at the goals you started with and begin to assess, “OK, so if that’s how this year is going to finish, is that how I thought or hoped or planned it would finish? And looking at where we exceeded or fell short of our goals and expectations, what are we going to do different next year?
Our audience is primarily part-time investors or those considering becoming part-time investors and in either case likely have a full-time career in some other type of profession. Whatever that business may be, their companies probably have been talking a lot about 2016 and they’ve been discussing sales targets, new budgets, new goals and new objectives and new performance measures for 2016 based on their results in 2015. The key point is that your investing business is no different and the thought process and the mentality and the focus as we close one year and head into the next year is just the same. Because this is also a business, as we’ve talked about, and it needs to be treated as a business to be successful.
As regular followers of this blog and my podcasts know, I am a HomeVestors franchisee in Dallas and have been for quite some time. We’re also known as the “We Buy Ugly Houses” people. And we’re all full-time investors who run large-scale, full-time investing businesses in residential real estate. One of the great things is that we meet every December at a large annual event. It’s a time for us to reflect on the current year and celebrate and recognize and reward those achievements that we’ve had this year and then we prepare for the next year as individual franchisees and as a franchise network as a whole.
We had that event recently in Phoenix and it was wonderful. And this year my business received the Rising Star Award, which is given to a franchise that shows continuous growth over the prior year. This is the third year in a row we have received this. And while that may not be a monumental achievement, it is something I am proud of, and it does show that we have had continuous and ongoing growth, year over year, for the past three years.
The first year that we received the award, there were a ton of franchises that showed growth over the prior year, one year running. The second year we got the award, that pool of franchises that had shown consecutive growth year over year, for two consecutive years, had shrunk a little. And then this year, that pool of franchises that have now shown continuous and ongoing growth for three consecutive years had shrunk even further—and significantly.
HomeVestors also recognized those franchises that had grown continuously for four straight years, and five straight years and beyond. And believe me, those pools of eligible franchises had shrunk even more dramatically.
Slow and Steady As She Goes
As I flew home from Phoenix after this event, I realized that there’s a strong correlation between that winnowing process and the old story of the tortoise and the hare.
What I mean is that I’ve seen many, many investors come out of the gate full speed ahead into a dead sprint—like the hare—excited and full of energy and great aspirations, only to fall short and fail, whether it was because they depleted their capital too quickly or didn’t have enough, or they made silly mistakes or bad decisions in an effort to achieve massive growth quickly. Or they lost interest or underestimated the fact that this business takes a lot of work .It takes a lot of time. It takes a lot of blood, sweat and tears in order to be successful, and perhaps that’s not what they were willing to invest or to devote—for whatever reason.
At the same time, I’ve seen a lot of the tortoises in the business—and I characterize my business that way, as evidenced by this three years of consecutive growth that we were able to recognized for. We moved slowly, methodically, carefully and intelligently and we pace ourselves and we prepare ourselves, and we set realistic objectives and then we develop plans that will enable us to achieve our objectives. Underneath those objectives is our desire to sustain and grow and improve consistently, year to year, in order to
ultimately build a sustainable and ongoing business that provides the lifestyle that we want.
And we don’t get the glitz and the glamour of the fast sprint of the hare, but we enjoy the benefits of a long-term, sustainable business, the recognition of growth year over year, as the tortoise, in the tortoise and the hare race. And that just points out the value of planning, reflecting and focusing on building a successful, sustainable real estate investing business.
And that really ties to our topic today, as we bring it all together, and look back on one year and look forward to the next, and plan to ensure that we end up with another Rising Star Award. Yes, last year was a great one for our business, but the challenge now is how to do even better.
Our Business “Bucket List”
In our business we do that by focusing on three primary “buckets” or areas of improvement. These are the big levers that we’ve got to pull in order to ensure that we improve over the prior year, as we have done the past three years.
I encourage all investors, whether full-time or part-time, to look at these in the same way that we do. Those buckets are:
No. 1: Volume. What are you going to do to increase your volume next year? What are you going to do to increase the number of houses you buy next year? Maybe you bought three this year. Well, what are you going to do to be able to buy four next year? Maybe you bought 33 this year. Well, what are you going to do to buy 37 next year? So one of the three big levers is your volume. And keep in mind, that’s the number of units or number of houses purchased. It’s a key lever when looking at how are you going to improve and grow your business for the upcoming year.
No. 2: Profitability. Keep in mind I use the term “profitability” versus “profit” intentionally. You can generate profit all day long by increasing your volume; the more houses you buy, the more profit you generate. And that’s logical, and that’s a given, barring any mistakes you might make. But profitability is not necessarily driven by volume. It’s driven by your own internal efficiency and productivity. For example, if you were buying homes last year and renting them out and earning $300 a month in cash flow off your average rental house, what will you do next year in order to earn $320 a month (or whatever the magic number might be for you)? Same exact house, same exact asset, same exact resources, but what can you do internally to improve your productivity and efficiency and increase the profitability of that asset? You’re not acquiring more assets; you’re just reflecting internally or inwardly and determining how you might do better with what you already have in order to improve profitability.
So I encourage you, as an investor, to look at profitability in addition to volume.
No. 3: Operational excellence. This third and final lever to pull and to look to improve your business in 2016 is also very internally focused. And I’ll stress that sometimes the internal focuses are the most difficult ones because you have to reflect upon yourself and you have to challenge yourself and ask yourself some tough questions and, ultimately, probably make some tough decisions. It’s not easy to admit that some of the things we do perhaps aren’t optimal or aren’t right and that’s where the operational excellence comes in — through your systems and your processes and the tools that you use to improve your operation. And I always say that we want to be a nuts and bolts operator, we want to be efficient, we want to be productive, we want to have systems, processes and tools in place that enable our businesses to run consistently and successfully through all different types of scenarios and that takes a strong, internal reflection. So that is the third bucket.
Volume first, profitability second and then operational excellence third.
10 Tactical, Practical Ways to Drive Improvement
Now, if those are the three key levers, let’s take some time to talk about 10 tactical, practical things to look at to drive improvement in those three areas and in your business in 2016.
No. 1: Your exit strategies. There’s a good chance this year you focused on maybe one, maybe two, maybe three exit strategies. But were they the best ones? Maybe you were a wholesaler and it’s time to start rehabbing. Maybe you were a rehabber and it’s time to start keeping some properties for rent. Maybe you have not done any seller-financed deals and that is another exit strategy to add to your war chest for next year. There’s also lease-options, there’s subject-to; there’s all sorts of exit strategies when it comes to residential real estate investing. We all gravitate toward one or two, but we all need to challenge ourselves as we grow and develop and improve our capabilities, our resources and our knowledge that open the doors to new exit strategies that can help your business improve. And these will directly impact the profitability component of your business that we talked about earlier.
No. 2: Your marketing. In this business, marketing is key. And I have said many times, marketing is my single largest business expense, year after year. It’s the heart and soul of a real estate investing business. When you stop marketing, you stop investing. And there is direct mail, there’s Internet, there’s radio, TV, billboards, there’s tons of websites such as Craigslist or other wholesaling websites where you can market properties or buy properties. There’s even the old newspaper. All of these are viable real estate investing marketing forums and you need to be doing several of them. And if you’re not doing any of them, you need to start. These are the key to growing your business. I do every single one of them. And don’t sit back and complain that you’re not getting good deals, or you’re not finding good houses, if you’re not fully leveraging all the different marketing tools that are out there today. Ultimately, these will drive your volume.
No. 3: Your lending sources. “Cash is king.” It’s a worn-out phrase but it’s so true in our business. You have to have capital to be a successful real estate investor. There’s banks, there’s private money, there’s hard money, there’s credit lines, there’s your ability to refinance your existing properties that you hold as rentals. Pull cash out in order to be able to go buy more and increase your portfolio. Once again, we do all of these in our business and we have relationships with all sorts of different individuals who provide this sort of capital to our business to grow. And if you, as a real estate investor, felt hampered or constrained in 2015 because you didn’t have capital, look at all these resources and go out and uncover and identify the one you’re not leveraging and go after it. This will drive your volume in 2016.
No. 4: Systems and processes. In 2016, we’re going to implement a new lead management software tool. It’s going to help us improve and get to that operational excellence. It’s going to help us manage our incoming leads, which are sellers looking to sell, it’s going to help us to ensure we’re following up, that we’re communicating and we’re executing and we’re not leaving any opportunities untouched. And I encourage you to look at your systems and your processes—whether it’s technology-related or not—what opportunities do you have to implement tools, which may be software, or processes, which are simply doing things better and differently to improve your internal operational excellence.
No. 5: Sources for properties. Buying properties and identifying sources for properties is so critical in our business and there are so many ways to do it. There’s no excuse to sit back and say, “There are no good deals out there” or, “There’s nobody willing to sell for the prices I’m willing to pay.” You can advertise direct-to-seller; you can become knowledgeable and experienced in the various auction forums, whether online or on the actual courthouse steps. You can get out there and do dig-leading, which means hanging door-hangers or calling people who have homes for sale by owner. You can pursue probate listings. You can scour the MLS. There are so many sources for properties.
There are websites out there today that just market wholesale cash properties. Don’t sit back and complain there are no good deals if you’re not out there looking for them and identifying sources for great investment properties for yourself. This is going to drive your volume.
No. 6: Diversification. Is it time for you to diversify? Are you ready to buy your first multifamily property? Whether that’s a duplex, or a triplex or a fourplex, or a small apartment building. Are you ready to buy a commercial property—maybe a small strip center, or are you ready to buy a self-storage facility? All areas of real estate investing that will provide diversification to your real estate investing business. We’ve entered into the self-storage business. There are a lot of similarities to single-family residential real estate investing. This, in turn, drives your profitability.
No. 7: Delegation. Is it time to start delegating things in your business? You’re a busy corporate professional, perhaps, with a part-time investing business. Maybe you need a virtual assistant. Maybe you need someone to go buy properties for you, versus doing it yourself. Maybe you need some administrative help in the form of a coordinator. Maybe it’s time to delegate some duties in order to grow your business in 2016, and in turn, drive some operational excellence.
No. 8: Strong partnerships. Are you partnering with people who can help you grow your business? Maybe you want to partner with another investor on a rehab. Maybe there are investors out there who are buying properties who aren’t able to sell them and you could sell those properties for them. Or maybe there are investors out there who are successful at selling properties but they need you to go out and find them and buy them. There are tons of ways to partner and tons of partners out there that you can interact with and find in your local real estate investor clubs and other sources. And this partnership tactic is going to help you drive profitability. There are things out there that you can do and people out there you can partner with to leverage your talents, your available bandwidth, to drive more profits into your business.
No. 9: Training, education and networking. I mentioned to you I went to our national convention for HomeVestors recently in Phoenix, and we do that every year. And I’ll tell you, I have never missed a convention. I will never miss an opportunity to interact with, socialize and learn in the presence of other investors. And I take advantage of every opportunity I can to network, to get training for myself, to educate myself, and to do everything I can to improve my knowledge and my experience and my understanding of real estate investing. And it is critical, especially for you part-time investors who are learning and growing and have aspirations to go full-time. What are you going to do this year to learn more about real estate investing? What courses, what clubs, what Masterminds, what mentor, what self-study, what convention, what course are you going to attend, go to or invest in, in order to drive your operational excellence and ultimately grow your business?
No. 10: Vendor upgrades. You’ve probably got a Realtor you’ve partnered with. You’ve probably got a title company, an insurance provider, a lender, a property manager … tradesmen who paint, who install carpeting, who do roofing … plumbers, electricians, etc. What can you do to evaluate, “Am I partnering with the best possible vendors to drive my business forward in a quality and sustainable way?” And as you evaluate your vendors, you may need to make some tough decisions and make some changes, but in turn, you’re going to drive and pull that lever of operational excellence and profitability as you find vendors who will do a better job at a better price.
Check the List Again and Again
You’ve got these 10 tactics, and they all apply, whether you’re a part-time investor and just getting started and wondering, “Gosh, what am I missing?” or you’re a full-time investor who thinks you’re all topped out and done and wondering “How can I improve my business?” Run down this list. Maybe you’re a part-time investor and you’re anxious and excited to go full-time and you’re wondering, “What do I need to do to make the transition from part-time to full-time investing?” – run down this list. You will unlock what areas of your business need to be improved and make that happen. And if you’re just getting started, this is a great checklist to help you understand what it takes to be a real estate investor.
Now for some final thoughts on the practicality of all of this: Don’t get overwhelmed. Take three of these, attack them in 2016, commit yourself to growing your business volume, improving your business profitability, and achieving excellence through operations and you’ll find great success this year.
Listen to Kevin’s podcast here:
http://www.blogtalkradio.com/kevinguz/2015/12/18/improving-your-residential-real-estate-investing-in-2016
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