6 Pillars for Your Real Estate Investment Business
By Brian Pulis
Many new real estate investors are surprised to learn that there is more to industry success than simply having a strong understanding of the real estate marketplace. Naturally, you should also have substantial knowledge regarding legal processes like the California statute of limitations on real estate transactions.
The principles that are important to successful real estate investment mirror those required at all successful companies across the commercial sectors.
And when real estate investors ignore the importance of these fundamental business factors, the performance of their investment suffers.
We?re in an unforgiving market environment. Failure is costly and errors are capitalized upon by competitors and other market forces. But fortunately, we live in an age where there is so much information available for investors to utilize in order to build their business.
Those that make use of this information, as well as the guidance of industry professionals who have navigated the marketplace over many years, can position themselves for great results within their business.
Those who fail to commit to this level of business planning will place limits on their potential success. It’s that simple. So no matter what type of business you may run, it’s somewhat essential to meticulously plan ahead for the expected and the unexpected. You’re able to learn more here into effectively creating an effective plan to follow for maintaining and improving your business.
One property or one hundred; you are a business!
As part of their preparation for building a successful real estate business, owners should ask themselves several important questions.
The first is why real estate? What is it I am ultimately looking to achieve from it??
The second is How would I prepare my organization if I were opening a traditional business – what level of preparedness would be required??
The third is What challenges can I see my investment business facing in the short and long-term??
These questions will begin the process of analysis that prepares companies for entrance into the ultra-competitive real estate investment space.
I believe that a successful business is one that has a positive impact on the surrounding society. Success can be completed either with or without my direct involvement while providing myself or and all stakeholders with the cash flow to achieve our lifetime objectives.
In order to meet this high standard of business performance, I believe real estate investors should consider the following six fundamental building blocks in running their company:
- Strategic Vision (Business Plan)
- Infrastructure Building
- Knowing the numbers
- Day-to-Day Management
- Continuous Learning
As I go into detail on the business building process, some might feel as if this depth of analysis is too large in scale when they only have a couple of properties.
This may be true – but at what point do you build a strong foundation to except success?
The more prepared you are in the beginning, the greater the results will be as your portfolio expands in size and scope.
Vision: Maintaining a Focus on the Future
Whenever I speak with business owners, I like to ask them why they got into the business in the first place.
The majority of the time, truth-be-told, most don’t quite remember.
This is especially true with real estate investors where many are simply attracted to the ownership aspect and the inherent sense of satisfaction gained from property ownership.
Founding a company on a core vision is essential to maintaining focus as the organization moves forward.
Investors must ask themselves what type of company they want to own. They must also ask how they would like to position their organization within the marketplace.
By continuously keeping focused on a core vision for the organization, business owners will have a far easier time making the big decisions along the way to building their portfolio. It’s important to understand what you personally want to achieve through your real estate investing business.
For example, I often speak with individuals at industry events that are too focused on what city or property type will yield the greatest ROI. Before they make the decision on their investment, owners must first analyze how they will fit that style of property ownership into their current lifestyle.
If you have a demanding job and a busy family life, then choosing a fixer-upper investment in a town an hour’s drive away is simply not going to be practical over the long-term unless you have a solid team there to support you.
Regardless of how great the projections, spreading yourself thinly and getting involved with something way outside your experience level will almost always turn out badly.
Once owners develop that sense of practical realism about the opportunities available to them, they can then move forward in reviewing relevant opportunities. Each decision then comes down to a choice of either moving towards or away from your outlined plan.
The vision for the future should also include milestones.
What is the vision for the organization in 10 years? How many properties would you like to own/manage through your organization?
It’s important to turn the process into a series of manageable steps to prevent biting off more than you can chew in the initial business building process!
Team Building: Creating Your Business Unit
It is especially important to have a good lawyer on your team, so that if anything were to go wrong in any aspect of the business then it can be sorted quickly and efficiently. This would be a firm like Miller Law Group, which can provide a business lawyer in Raleigh, NC or perhaps finding one closer to your area but with the same high standard, so that the business gets the proper protection it needs to be successful.
But that’s just the beginning.
Who is going to answer your phone, or do your books? Who will do the due diligence on your next purchase or create your Investment Binder to obtain mortgage approval?
Most new business owners/ investors don’t have the financial resources to bring in staff to respond to each one of their business areas. But they also may not have the experience and technical knowledge to understand the various business departments and the elements involved within each.
New investors/ business owners will often find that they may focus too much on one particular area of the company, whether it’s acquisitions or operations, and then lose focus when it comes to other important elements such as accounting or marketing.
Too often I’ve seen companies suffer from reduced results through a lack of planning in key areas. Proactive investors should learn to delegate responsibility as they build their team.
But first, we need to be aware of all the areas that will require attention.
In real estate, we know that Accounting/Finance, Legal, Acquisitions, Operations, Sales, and Marketing are each invaluable elements, whether you have one property or one hundred. And each of these elements has both a real estate side and a business side to consider.
Review your available resources in each of these departments and turn to the people you know for help in building your organization.
It’s important to strike the right balance between bringing in-office team members and utilizing individual talents to move forward in certain areas of the business. To help achieve that organizational balance, consider creating a chart that outlines the various departments and the sub-categories within those departments. Get to know all the moving parts within each area and determine who will be responsible to oversee and or complete what’s necessary.
Through this process, you can then visualize required resources and move forward by assigning a name to each role within the team. I know from experience that in the early stages your name may appear in almost every role. The importance of the exercise is so that you identify each role so that they are not ignored. Oftentimes, family and friends may be a valuable resource to tap into to assist with some of these.
For example, your mother may be willing and able to receive incoming phone calls, or perhaps you have a friend or family member that is great at bookkeeping that may assist with setting the structure to handle your books. If you’re not lucky enough to know someone who has experience with bookkeeping, you could always consider contacting one of the Los Angeles accounting services, or one closer to where you live. By receiving help from an accounting service, you can ensure that all of your data will be correct and accurate. Bookkeeping can be a difficult job to do, especially if you haven’t got much experience in the area.
Infrastructure Creation Designing a Responsive System
When developing a comprehensive business infrastructure, the key is to prepare for any event that could take place at a moments notice.
Preparation can keep owners responsive to their company’s on-going demands.
There are a number of exceptional resource books and websites, as well as many education programs that can be utilized to help guide your thinking in each area of infrastructure development.
With an Organizational chart completed and you have identified all the moving parts of your business you’re now ready to create an Operations Manual. This does not need to be onerous and can be added to over time.
Years ago, I learned an important lesson that has served me many times over. I was taking a boating course through the Power and Sail Squadron and we had an instructor who was guiding us on the right way to handle a vessel in an accident scenario.
As part of this process, he asked each of us to create a list of possible scenarios and then create an answer as to how we would respond in that situation. The idea was that, by giving a thought on how to pull through each situation in advance, it will greatly improve the boater’s chances of success should they encounter that challenge on the water.
In this sense, operating a business is no different than guiding a boat across the water…
If you fail to prepare for possible scenarios, it becomes infinitely more difficult to respond when that potential scenario becomes a reality.
As business owners, we’re never able to predict what will occur as we move forward in creating our organization. But through a process of strategic planning, we’re able to put in place the vital building blocks that will provide the company a solid foundation as we enter the real estate investment space.
Knowing the Numbers: Cash is King
To work with banks and gain access to quality, long-term mortgages for our properties, it’s imperative to have strong cash flow.
The effective management of cash flow is usually one of the most difficult areas for most new business owners, and it is certainly the leading cause of stress within the modern office if not managed proactively.
So, how do we avoid this stress?
Cash is king and if we want banks to say yes then we need to have plenty of it coming in. Yet most business owners don’t truly know how much revenue it takes to operate their business profitably.
Unfortunately, many don’t know what their true profit was for the year.
To have cash flow, while operating with little stress, we must have money coming in at an equal amount if not greater than what needs to go out. That’s nothing new. The challenge usually lies in calculating how much cash we need to be bringing in and when.
There are plenty of great Property Analyzers out there that work well in establishing if a property generates cash flow. My issue with Property Analyzers is that they concentrate on the property and tend not to factor-in operating expenses such as stationery, phone expense, vehicle expense, accounting and so on.
Some of these costs may be one-time expenses, but most require a cash outlay on a regular basis. To operate any business success we need to know the numbers and have tools to monitor our progress as time goes by.
Some time spent upfront in creating a budget can go a long way in keeping you on track.
Using a spreadsheet, we can prepare a budget that determines what revenue is coming in (rents), itemize all of our expenses for each property, and then finally itemize our overhead costs. If you are looking to draw an income, you would need to include this as well.
In the process of creating this spreadsheet, you learn valuable information about your business.
You may uncover expenses that you didn’t realize you had. (A client of mine uncovered an error with their cell phone provider that in the end credited them a few thousand dollars).
Most importantly, you will have a tool that will tell you if you are steering for trouble or not.
If your bookkeeping is up-to-date, this will be quite simple to complete. If not, perhaps this is one other reason to hire a bookkeeper today.
Day-To-Day Management: Schedules are Your Friend
If you’re a business owner in today’s marketplace, you’re under a tremendous amount of pressure from various areas. How you plan your schedule will determine how you and your organization respond to the pressures you’re put under.
Investors should try to strictly follow a daily routine within their work.
Another important part of this scheduling process is learning to say no to outside influences.
Remember your strategic vision we discussed earlier? This is where it comes into play.
You cannot lose focus on the purpose of your organization, despite the temptation to try something different.
Business owners should also be in regular close contact with their team on the pressing issues affecting their organization. By holding regularly scheduled meetings with the company team, addressing their concerns and following-up with them, business leaders can drive effective operations over the long-term, on a day-by-day basis.
Next to cash flow, day-to-day management is also a great area of stress.
There’s just not enough time in a day to do everything you want or feel you need to do.
I have identified three areas that are important to superior management.
Time Management A day planner is essential, but what’s more important is how you discipline yourself to stick to it.
The biggest culprit is distractions that come from so many angles.
Learning to be selfish with your time and saying no more often can save many hours in a week. Work to your agenda and not to that of others.
Under Promise/Over Deliver This has been something I have witnessed many times as being a leading cause of spending time in an inefficient manner. A side effect of over-promising is chasing your tail trying to meet the perhaps unachievable expectations you set.
In today’s global market, eyes are on us from the sidelines observing our actions and slowly formulating an opinion. It’s from here where amazing future opportunities materialize.
A career is never a straight line; if you’re like me, you will look back at all the things you did over the years and see that your previous positions and action was a dress rehearsal for what you’re doing now.
Slow and Steady Often, while building my businesses, I found myself with an unsettled feeling that I wasn’t aggressive enough or pushing myself hard enough.
What’s important is to take action but to ensure the steps you’re taking are solid and not based on a weak foundation. Business is competitive and real estate investing tends to attract competitive individuals.
Pushing ourselves outside our comfort zone is imperative to growing while satisfying ourselves without biting off more than we can chew.
Oftentimes, less is more.
Continuous Learning: Evolve With Information
Like physical fitness, continuing to educate yourself and expanding your network pays huge dividends over time.
Be open to learning and pushing yourself to be the expert in your field.
All five previous success steps I have discussed depend heavily on this final step.
For example, your vision will expand by surrounding yourself with brilliant and inspired people. Networking provides the ability to expand your team with individuals who are like-minded. The education component assists with understanding the different departments and the infrastructure to put them into place.
As a business owner, staying informed is vital to the overall success of your business. What changes in the marketplace could have a positive or negative effect?
Upcoming changes such as banking rules, government regulations, tenant laws or infrastructure upgrades could affect your bottom line.
I especially like industry-specific networking groups where you have an opportunity to meet with many people and share experiences. It’s a great way to keep your thumb on the pulse and hear things early to give you ample time to navigate your business.
All aspects of our business are influenced by the time we put into learning and networking.
To me, time spent here is relative to the results I can expect to achieve.
Brian Pulis has been in business for 30+ years and got into Real Estate investing in 2002. A REIN member since 2003, Brian and his son Kyle co-founded Pulis Investment Group, which offers investors a Hands-Free, RRSP eligible opportunity to invest in apartment buildings. Contact Brian at firstname.lastname@example.org