Sixteen years in the real estate investing world will teach you many valuable lessons. Some of them you learn the hard way, some by trial and error and some by pure luck. Reflecting back on the years spent learning these lessons, I can pinpoint five main areas of focus that taught me the most about how to run a successful, profitable real estate investing businesses that aligns with one of our most important core values: Keep it simple. By keeping it simple, a company can focus its efforts and identify opportunities to do more with less, without taking on a lot of the extra headache that typically accompanies growth.
1. Limit your market.
Rather than expand into other markets like a lot of other investors, we chose to be the expert in our focus area. Knowing your market helps you make better decisions when buying and selling properties. You should be able to identify up-and-coming areas of town where people are actively investing and creating real estate opportunities. Understanding neighborhood boundaries is critical — a single street can make a huge difference in property values. The ability to identify areas with high and low days on market will allow you to invest accordingly.
2. Limit your exit strategies.
There are many ways to dispose property, but by focusing on a select few methods and doing them efficiently and profitably, we found that we were able to do fewer deals with higher profit margins. By placing very specific criteria on each of your exit strategies, you can quickly identify properties you want to invest in and pass the ones that don’t work along to others who can pay you a finder’s fee. The key here is to capitalize on every lead that comes into your funnel. Limiting your exit strategies also plays into the keep-it-simple concept, as it allows you to really master the process of disposing properties in a systematic way.
3. Hire and lead a small, high-performing team.
For the first 12 years of our business, we did all of the work ourselves which, as it turns out, just leads to an endless cycle of work and stress. By identifying your own personal strengths and weaknesses as the business owners, you’ll find you are able to hire out the areas where you are weak and focus your strengths on objectives such as strategic planning, financial strategy and marketing that really help move the business forward. Hiring based on your company core values creates a culture of accountability, personal development and pride of ownership in all team members. Everyone has clearly defined roles with systems and processes in place that set them up to be successful. Key performance indicators (KPIs) for each team member are also valuable for measuring their success, as well as that of the business. Open feedback and new ideas should always be welcome and encouraged within the organization.
4. Analyze your marketing constantly.
When you spend thousands of dollars a month on marketing, it is crucial to understand how the dollars spent are affecting the bottom line. After I spent two months taking a deep dive into our marketing expenses over the course of a year, I found shocking results. High-cost, labor-intensive marketing channels that I assumed were doing relatively well were not producing as well as those I had spent much less money and effort on. Was I getting leads and deals? Sure. But when I saw what I had to spend in order to get those leads and deals, I felt a little nauseated. It prompted me to look into other numbers that were tied directly to my marketing as well.
It’s important to know your cost per lead, cost per deal, average profit by channel, conversion rates by channel and attrition rates. By studying these numbers and putting a clear picture together based on the numbers and not your assumptions, you can clearly identify what is performing and what isn’t. Then, you can make adjustments that lead to decreased marketing spend and higher profits. Cutting out nonperforming marketing channels also allows you to save time and money, increasing your company’s gross profit margin considerably.
5. Look at your processes.
By constantly evaluating the processes and systems within our business, we have been able to operate efficiently with fewer people and fewer complications. It also helps getting ahead of obstacles that can sometimes arise in a transaction. If you see that you are having repeat issues, we look first to your processes to see if you can implement or change what you are doing to mitigate the problem. In this way, you will be constantly evaluating and improving the business, which leads to growth.
By keeping it simple and focusing on these five areas in your real estate investment business, you can see that you don’t have to do a ton of deals or manage a large team of people to run a successful, highly profitable company. Running your business in a thoughtful, systematized manner allows you to work smarter, not harder, and truly enjoy the financial freedom that you desire.