How To Scale Your Real Estate Investments
Once you start investing in real estate, you may be looking for ways to expand. If you’re thinking of scaling, keep in mind that it can take time and you may decide to establish a track record first. After an initial investment, you might be able to access capital and uplevel your game, though you’ll want to avoid overleveraging as you evaluate new deals.
Consider the following guidelines as you move through your own real estate investing journey.
1. Start Small and Build a Solid Foundation
Scaling often begins with an initial step, and a small investment could help you learn and gain experience. When I spoke with Drew Brenneman, founder of Brenneman Capital, on my podcast “The Insider’s Edge to Real Estate Investing,” he shared his path from buying his first property to building a portfolio of over $200 million. His initial investment was a duplex, purchased while he was still in college. He saved money from his high school entrepreneurial ventures and focused on acquiring cash-flow-positive properties. “I had the money, the numbers made sense, so I bought the deal,” Drew said.
2. Leverage Existing Assets
Once you’ve made your first investment, you may be able to use it as a springboard. Drew scaled by refinancing his properties, pulling out equity, and reinvesting in additional deals. You might follow a similar path, or you could take different steps depending on market conditions or your business plan. That said, in today’s environment, it may be more difficult to do cash-out refinancing, as lenders are becoming more conservative with the proceeds. On my podcast, Chris Powers, founder and CEO at Fort Capital spoke of using data analytics to know the addressable market.
3. Build Long-Term Relationships
Reputation is a key component of success in real estate, which I discuss in detail in my book, “The Insider’s Edge to Real Estate Investing.” You’ll want to reach out and build relationships with brokers, lenders, partners, and others in the industry. If you show that you’re active and reliable, you can establish credibility in your local market. You can then draw on that as you expand into others.
4. Choose Markets Carefully
You’ll want to carry out adequate research before moving into a new region. You can check data related to a city, and look for trends that will help you understand long-term potential. Drew transitioned from investing in Chicago to targeting Sun Belt cities like Phoenix, Dallas, and Austin, which offered advantages including strong population growth and job creation. Chris Powers – very good at data analytics, mapped out every prospect to acquire, 12k properties that might fit criteria, know your criteria for acquisitions, know what the addressable market is.
5. Work with the Right Team
As your portfolio grows, so will the complexities of managing it. You might decide to invest in technology, bring in additional partners, and hire staff to help. If you build a strong team, you’ll be able to accomplish more together and share the successes. Many larger owners begin to bring property management in house and will become vertically integrated. They might even handle development in house as well.
6. Be Ready to Pivot
As we saw during the Covid pandemic, markets can change quickly, and you’ll want to be able to adapt as needed. Staying informed and continually increasing your real estate knowledge can help you make decisions that align with your business plan. As Drew pointed out, “Scaling isn’t just about buying more—it’s about buying smarter.”
7. Keep Long-Term Goals in Mind
While you may choose to sell some properties, there could also be benefits in holding on to your acquisitions. Over the years, the assets could continue to grow in value and provide returns that outperform the market. Your business plan might include long-term objectives, such as creating a portfolio that can be passed to the next generation. Selling assets to acquire larger assets, when done in a tax efficient manner like using a 1031 exchange can be a great way to level up. Simply selling and paying the full tax ramifications can hinder your equity for future acquisitions.
Scaling in real estate investing is both an art and a science, and if you have the Insider’s Edge, you’ll increase your chances for long-term returns. You’ll want to be strategic in your planning, and be ready to act on opportunities when they come up. By starting small, leveraging assets, and building strong relationships, you can lay the groundwork for an expansive portfolio.