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by | 07, Jan 2023

Are You Ready To Scale Your Real Estate Investing?

How do you know if you are ready to scale your real estate investing?

Do you have a triplex or a quad, and you’re thinking about scaling up to a 10 unit? How do you scale up from a 50 unit to a 100 unit building?

In this episode, hosts Anthony and Dan discuss how to know when you’re ready to scale up your real estate portfolio. They share their personal experiences with scaling quickly and the importance of having systems and processes in place before expanding.

How do you manage your new properties? Are you raising the capital yourself?

Tune into this week’s episode of Multifamily Investing Made Simple, In Under 10 Minutes, for valuable insights on how to successfully grow your real estate business.

Tweetable Quotes:

“If you don’t have your systems identified right then… you’re gonna have a very hard time making whatever jump that you’re trying to make, because the system that got you here is not gonna work to get you there.”– Anthony Vicino

“I think doing more than a double in a year is probably gonna be a bit aggressive for most people.” – Dan Krueger

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five rules of investing

The Five Rules of Investing

*Transcripts*

[00:00:00] Anthony: Hey, welcome back to the podcast Dan. Let me ask you one of the hardest questions you’re ever gonna have to answer in real life. Sure. What’s your favorite car? Red. What is your maiden? What’s your mom’s maiden name? You trying to get into my bank account? No, no, no, no, no, no. I mean, but if you ha if you had a dog, what would, what would your dog’s name be?

[00:00:38] Dan: Cornelius. That’s, . That’s a fancy name. Fancy dog, .

[00:00:44] Anthony: He’s a, he’s a gentleman. That dog Sodan. Okay. Maybe that’s not the hardest question you’ve ever had to answer, but here’s a question that people all, all of us have to answer at some point. Last four of my social, I mean, if you just wanna give that, I could

[00:00:56] Dan: just give Mym so much in trouble what you’re trying to

[00:00:59] Anthony: get.

Maybe you [00:01:00] just gimme all the digs. Sure. Okay. Okay. But the question that we all eventually have to. As business peeps, as investors is, uh, how do you know when you’re ready to scale? Like when is it, when is it right moment scale?

[00:01:14] Dan: What scale? Your enterprise. Okay. Yeah. Whatever that could be. So assuming you are a, a real estate investor, you’ve acquired a property or two.

Yeah.

[00:01:24] Anthony: Let’s, let’s look through the lens of maybe. You, you have a triplex or a quad. You started really small. Um, good for you. Kudos. And now you’re like, okay, I got my feet wet. I understand I’ve been managing this thing myself, kind of, you know, living in the property. But how do you know when you’re ready to like start scaling up to say a 10 unit or 20 unit?

And when you had that next threshold, like how do you know when you’re ready to go to a hundred units? Do you know what I mean?

[00:01:52] Dan: I think I do know what you mean. So I could speak from personal experience because my intent from the get-go is to scale as quickly as possible. And the way I did it was [00:02:00] a six unit in year one.

That was the only thing in year one. Then in year two I got an eight unit, a few months later, a 15, and then a few months after that five. Oh, so year you went backwards, you

[00:02:12] Anthony: regressed, you’re like, oh, I went

[00:02:13] Dan: too far. Gotta go back. Well, that five unit just kind of popped up, kind of. They kinda just gave it to me.

Um, fun fact, just. Wrap up a refi on that. Took it from 413,000 to 720. Holy moly. Not too shabby. It’s pretty good. Yeah. Too bad you can’t get much of a cash out refi now with rates for the route, but still it’s nice to know the money’s there. Yeah, exactly. Anyways, off topic. Um, so for me, my intent was to scale as quickly as possible and I probably scaled quicker than I should have.

Hmm. But I think doing more than a double in a year is probably gonna be a bit aggressive for most people. Even if you’re going from one property to like one quad to two quads. Um, That’s probably doable I guess. But I guess the main thing you want to have in place is the systems and processes. Cuz if you’re struggling with one thing, you add another one on [00:03:00] whether it’s one quad and then you have two.

Or if you have one quad and you then get a 20 unit. If you don’t have the systems and processes in place, it’s just gonna get infinitely worse and more stressful. And, Probably Implo.

[00:03:12] Anthony: I agree that doubling every year is a pretty good size to aim for it. In fact, that’s about what

[00:03:17] Dan: we’ve done. That’s what we’ve been doing, and I’ve always felt like we’re right on the edge of, of every time.

Yeah. Like we’re pushing it, it’s doable, but I, I feel stretched. Mm-hmm. . But that’s a good spot to be, I think.

[00:03:27] Anthony: Yeah. But to your point about the, the systems, what’s really interesting is if right now, wherever you are, if that’s in a two unit, a 10 unit, a 20 unit, if you don’t have your systems kind of identified right.

then you’re gonna have a very hard time making whatever jump that you’re trying to make because almost always your system that got you here is not gonna work to get you there. Mm-hmm. , the system itself is, is going to break, but it’s in having the system already there and then trying to fix that broken system, that’s way easier than just kind of running rough shot through, [00:04:00] through the whole game and then realizing as you get to, to this point where it all just kind of spirals into chaos.

and then you, you really can’t do anything to fix it at that point, besides just pump the brakes, compromise all the growth, and then just try to like put the wheels back on this

[00:04:15] Dan: damn thing. Yeah, and I will say that we’re talking about this, uh, from the perspective of owner operators who manage the properties themselves.

Mm-hmm. . So let’s just say for example, you’ve got a hundred unit apartment building that’s your one asset and you have a third party manager who’s doing a great job. , assuming you can find the capital to get a second one of those, that’s a much easier jump to make with a nice, large, um, uh, qualified property management company than it is to go out and find all the people to, to manage it yourself.

That’s, that’s something that, that’s gonna be a little bit different I think

[00:04:55] Anthony: in this, this that’s a good distinction. Cause in this, this is an area we’re presuming you’re an owner. [00:05:00] up until at least a hundred units, I would say. Yeah. Like you’re, you’re kind of bootstrapping it, doing it on your own. And, and the reason for that is because in our experience, there’s no such thing as a good third party property manager.

Sorry guys. No such thing. Um, the ones that are okay are if you’re dealing with really large complexes, right? They tend to be more professional, have better systems, and better reporting. overall, that’s, that’s passable. But if you have a 20 unit and a 15 unit and a and a 10 unit and you’ve been kind of bootstrapping as you go, you’re not gonna find a good third party manager to, to run those for you efficiently.

Um, or you know, in a way that’s gonna make you feel like your property is being maintained to the highest level. Mm-hmm. .

[00:05:44] Dan: Yeah. So we’ll just kind of put that aside. This is all kind of based on you go out, you buy your first small property. , you’re doing everything yourself. You want to go get that second one.

First thing I think we should say people look at is what are your systems and processes? [00:06:00] Mm-hmm. , you gotta have those. And then there’s the, the funding side. Like how do you actually go, you gotta get the money, buy something twice as big, so you’re probably gonna have to raise some capital at some point, unless you’ve just got money flown in from somewhere like crazy.

[00:06:13] Anthony: Yeah. The, the, the caveat I’ll say here. Regardless of where you’re gonna get the capital, um, we can talk about like how to, how to scale capital raising, but I think the more important thing is, regardless of what you’re jumping to next, as you’re scaling, you need to make sure that you have the ample capital reserves.

And so if you’re gonna raise capital, that’s, that’s good. That means you have access to the ability to put money into like CapEx and reserves and, and all that, right? But if you don’t want to go that route and you just want to do your own money, your own refinance, and then keep rolling it forward, just fight the urge to pull the, pull the trigger before you actually have enough.

you know, you’re like, Ooh, I’m, I, I could get into this next deal. I won’t. I’ll be a little bit thin on reserves, a little bit thin on CapEx, and in the very, very, very, very beginning. Presuming you don’t already have a lot of assets and a lot to [00:07:00] lose if you’re young, let’s say, sure, roll the dice, you can.

You can go a little bit thinner, like you go back to zero, not a big deal because you weren’t too far from zero to begin with, so you can afford to take that risk, but. As you start getting further along, you need to make sure that you’re not just jumping too soon into the next asset that you can’t quite fund fully.

Yeah, that’s another

[00:07:18] Dan: good point because early on you’re gonna be tempted because you, you want to get into the next deal really quickly. You’re gonna be tempted to do it as soon as you have enough cash to close on it. But another thing that you have to realize that’s it’s tough to, um, come to terms with early on is that every single asset you add, Is going to increase the probability of some sort of unexpected thing that’s gonna pop up and cost you money that you weren’t planning on having to spend money on.

So that first asset, okay, you probably get through without any major issues. The second, third, by the time you get to, you know, 10 different buildings, whether they’re quads or, or 10 units or whatever, there’s gonna be something, there’s gonna be a roof, the caves in, there’s gonna be a fire, there’s gonna be, uh, some, some [00:08:00] sort of issue.

And that’s never in the budget. So it’s always best to be heavy on cash and you know, take a little bit longer to get into a deal so that you can weather those storms as opposed to always being cash poor and asset

[00:08:13] Anthony: rich. Mm-hmm. . Yeah. And it doesn’t scale very well in the beginning because I remember doing the mental calculation on this in when I got that triplex.

I was like, okay, if I put about 15, 20,000 aside for reserves, that’s pretty good. Like that was a good rule of thumb that people were kind of suggesting in that size. But then as you add the next duplex or the next triplex, you might not need another 2025 for that building on its own. Maybe now you just put another 10 and you kind of treat like one big large slush fund of, now I have 35, 40 k kind of put aside.

That seems to be like what the, the bigger pockets. was very much advocating. And I, and I think that that probably works up until the moment when it doesn’t work, and I don’t know what that threshold is where suddenly you’re like, okay, [00:09:00] now we need to start that having slightly different reserve situation.

I

[00:09:04] Dan: think that can work for a very long time actually. Mm-hmm. . But the issue is, uh, if you’re just using your own capital, that’s great. If you’re raising money from investors, you don’t do it that way. Yeah. Then, then you’ve, you’re, you’ve got an issue there. Yep. Because you know whose money. , right. Um, if it’s all just your money and it’s, you know, like some of these guys we buy properties from who’ve been buying them with their own money since kinda how they do the nineties, that’s what they do.

Mm-hmm. , I mean, it’s like, you know, they have their own entities for each building and they keep their, their financials separate. But at the end of the day, if this building’s gotta pay for that building’s roof, it’s like, whatever. They’re all by the same guy. Like, that’s fine, but if you’re raising capital, no slash fund don’t do that.

[00:09:40] Anthony: Yeah. And I would say if you, if you think in the beginning there’s any chance that you’re gonna raise capital in the future and that you’re gonna. Go the more organized, professional, systematized route of having in-house managers that you hire and bring in. I would try and get away from that world as soon as possible.

Mm-hmm. . Um, unless your goal is, I [00:10:00] don’t ever want to have partners. I’m cool. This is, I’m just gonna build my portfolio myself and have my own slush fund, then, then that’s probably an okay way. Mm-hmm. .

[00:10:07] Dan: Yeah. It’s tough to undo those, uh, those systems if they’re in place early on. Mm-hmm. and then you start to effectively manage money for other people, you’re gonna have to go back.

change a bunch of stuff. Yep.

[00:10:17] Anthony: Cool. So I don’t know if that answered the question, but I think we’re at time. I think this was, you know, a thing. Yeah. Figure

[00:10:22] Dan: out your systems. That’s the answer to

the

[00:10:24] Anthony: question. That’s the answer. Definitely. Um, figure out your systems. Make sure you have ample reserves. Those are the two things.

If you have those two things in place, pull the trigger. Make the jump. It’ll never feel like the right time. That’s, that’s a hundred percent true. I don’t care how much money you have in reserve, I don’t care how good your systems. You’re never gonna feel ready to make the jump, uh, to two x. Yeah, kinda like having a kid.

Yep. Yes. Just gotta get it out and , you know?

[00:10:49] Dan: Is that what they say? Just

[00:10:50] Anthony: gotta get it out. Get it outta there. . I don’t know. Clearly I don’t have a kid, so. Yeah. I don’t know what to talk about. All right. So that’s gonna do it for us everybody. We appreciate you taking, uh, [00:11:00] this time out of your day. That was my.

Can’t have it back. You can’t get it’s over. No refunds. No, no. Take Backies. So, uh, if you enjoyed this, leave a review if you didn’t, don’t. And, uh, we’ll see you guys in the next episode.

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