Three-Steps to Scaling a Commercial Real Estate Investing Business
Once you’ve created a commercial real estate investing business and have made several successful deals, you might feel like you’ve hit a perceived ceiling in the number and types of investments that your business can make at its current size. If so, it may be time to scale your business. Many real estate investing businesses make the mistake of believing that growth and scale are the same thing. Your business can grow by adding a single commercial property investment each year. However, scaling this type of business requires a completely different set of skills.
When you scale a business, you can create a sturdy foundation that supports future growth. Whether you want to eventually manage hundreds of commercial units across the country or would like to expand to international markets, there are three basic steps that you must adhere to if you want to effectively scale your business.
1. Maintain Clarity of Vision
In order to effectively scale a commercial real estate business, it’s important that you maintain a clarity of vision with everything that you do. The first thing that you should do before working on scaling your business is to determine how big you want to be and why you want to scale to this particular size. The size of your investing business will determine the exact types of systems that you need as well as the number of people that you should hire.
Clarity must be had in several different areas, which include your expected ROI, the size that you want your business to be, and potential outsourcing. Without a clear vision in place, you will likely scale at a slower pace than you would like, which only serves to waste time and money. The size of your company is likely the most important aspect of scaling a business. If you aren’t clear about the intended size, you may end up hiring too many employees.
While you’re working on identifying how large you want your investing business to be, it’s important that you understand the risks that come with scaling a real estate investing business. If you hire less employees than you require to manage each property, you may find yourself in a situation where you’re unable to effectively manage all of the properties that you’ve invested in, which increases the possibility that one or more of your investments would fail.
To understand just how dangerous it can be to scale too quickly, a study that was performed by Startup Genome found that startups that focused on high growth have a failure rate of nearly 75 percent. This high rate of failure is due mainly to premature scaling, which is why a clarity of vision is integral to successful scaling. To properly scale a real estate investing business of any size, focus on how you can improve the internal processes that you’re currently doing instead of looking solely at what’s next.
While a clarity of vision is important when you’re trying to hire the right amount of people, your vision should also be used to attract top industry talent. Experienced and reputable professionals will invariably be able to choose which company they work with, which is why your investing business must be appealing to the talent you seek.
Whether you’re hiring an accountant or property manager, being able to demonstrate a clear vision about how your business will scale in the coming months and years is critical towards making sure that the individual chooses to work with your company. While you might have been involved in the finer details of every previous investment that your business has handled, this might not be possible if you plan on substantially scaling your business. If your company is set to make dozens or hundreds of investments in commercial real estate, you must be confident that the hires you’ve made are the right ones.
2. Determine Your Strengths
In order to scale your real estate investing business, you should have a firm grasp on the strengths that you have when it comes to making investments. Ask yourself what you’re specifically good at and what you like to do when investing in real estate. Once you have identified what your strengths are, you can focus on these while incrementally outsourcing every additional task to other people.
No matter how efficiently you work, there aren’t enough hours in the business day for you to handle every facet of your real estate investing business. When you scale an investing business, you’ll need to start delegating tasks and outsourcing some of the work that needs to be done to locate, assess, and manage properties that you want to invest in. While it can be difficult to separate tasks by strengths and weaknesses, the investments that you’ve already made should give help you better understand what your strengths are when it comes to investing in commercial properties.
Maybe you’re effective at identifying properties that would make good investments and provide you with a steady return. If you prefer managing the properties that you invest in, consider taking a more active role in some of your properties. For any tasks that you might be unfamiliar with or don’t have enough experience to handle, delegate these tasks to some of the employees you’ve hired.
It’s also highly recommended that you outsource some of the less important tasks to third parties. For instance, property management companies can be hired to manage your properties. Once you’ve delegated all of the activities and tasks that you won’t be taking part in, you can begin to scale your business. The foundations will be in place to handle the immediate growth that your business will encounter as it scales.
3. Hire the Right Team
Nothing is more important than hiring the right team for your real estate investing business. Each task that an employee handles will be essential for the continued success and growth of your company. Buying commercial real estate is a difficult and time-consuming process no matter how experienced you are in making these types of investments. Whether you’re investing in office space or retail properties, you’ll want a core team by your side who you can be confident will continue to effectively manage your company as it scales.
As touched upon previously, make sure that you incrementally outsource tasks that you aren’t necessarily good at to other employees. If you have a clear vision of what your business will be like once it scales, your company should be appealing to prospective hires. Some of the hires that you might want to make when preparing for scaling your business include:
- A leasing agent
- A turnover coordinator, which is a position that’s usually held by the property manager
- A rehab coordinator to measure the budget vs. the actual cost
- A maintenance technician
- A construction manager if the building has yet to be developed
- Real estate agents
By doing your due diligence with each employee, you should be able to make some great hires. With reputable and experienced individuals in each important position, you can trust your employees to do the jobs they were hired for without feeling the need to micromanage them. While some aspects of buying commercial real estate and managing the properties you invest in will need to be learned on the job, two qualities that aren’t teachable are ethics and drive. When you screen potential hires, do so based on those two qualities.
Now that you understand the steps that are necessary for properly scaling a business, you should be able to start this process with the confidence that mistakes will be kept to a minimum. Keep in mind that the protocol you use for managing a single property is the same protocol you’ll use when investing in 50 properties. With a strict set of guidelines in place, scaling your real estate business should be a straightforward process.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.