3 Golden Rules for Starting a Real-Estate Investment Business
Use these three rules to create a sustainable real-estate business.
There are numerous ways to create, develop and begin a new real-estate business. While it may sound easy, creating a long-lasting profitable business is hard. According to data from the Bureau of Labor Statistics, as reported by Fundera, a staggering 70 percent of business eventually fail.
What can you do to ensure your real-estate business is not one of these statistics? Follow these three golden rules, and your real-estate investing business will have sustainability and longevity:
Always start with the end in mind
A good rule of thumb when beginning a business in real estate or creating any new business is to start with the end in mind. Ask yourself what your dream business looks like. It’s more than okay to have grandiose expectations — in fact, I recommend it. The most successful people always dream big. Visualize everything you want to accomplish. If you don’t fully understand the end goals, then you can’t create a detailed plan to achieve them.
Understanding and visualizing your desired outcome will allow you to create a roadmap for success. You’ll be able to develop a plan by working backwards from your goal and then set measurable milestones that'll allow you to track your progress. What type of real-estate business do you want to end up with? A fix-n-flip business runs very different to a buy-n-hold business or a wholesaling business. It’s important to know your end goals in order to create a successful roadmap.
Know your numbers
Your numbers will make or break your business. Every seasoned real-estate investor knows the importance of understanding their ROI or the computations needed to make the best purchase decisions. But many newcomers neglect their business numbers. You have to track your operating costs, expenses, and profit and loss reports. If you’re not good with calculations, that’s fine — find someone who is and have them report to you weekly. If you don’t know your company's operational metrics, then you can’t make adjustments when needed.
Personally, I’m updated every Monday on the status of each division. We have a large firm, so that takes up half of my day, but it’s worth it in the end. Business owners should know exactly how well their business is functioning at any given time. For instance, our rehab division is fueled primarily by direct mail marketing campaigns. We know exactly what type of mailer works and how many we need to send in order to maintain our current growth trajectory. This year we added in online advertising for the same rehab division, and the additional marketing expenses changed our return on investment. If we hadn't tracked our numbers, we would have no idea on the amount we can spend on this new campaign to not only remain profitable, but be able to calculate scaling the division.
Scale, scale, scale
If you're not scaling and growing your business, then it’ll never reach its full potential. Think about it like this: You’re walking to a destination, but you stop walking before you get there. If you were to look down at your watch, you’d see the time ticking away. This is the same with business. If you're not moving forward, then your business is moving backwards. We have a limited time on this earth to achieve greatness, so your goal should be to scale and grow with every decision you make.
Marketing is a key factor in scaling a real-estate company. Regardless of what real-estate niche you’ve decide to pursue, you’ll need a well-crafted marketing campaign to build a sustainable business. Every good marketing plan is subject to what we call a “bell curve." A bell curve is a metric used to find the perfect mix of expense versus profit in any given campaign. For instance, if your firm is using online advertising to generate leads, at some point you won't be able to spend any more money to acquire more leads in a given area. You’ll reach a point where your cost per conversion data is almost perfect and spending more actually doesn’t provide any more leads. This is the sweet spot on the bell curve. If you’ve been tracking your numbers accurately, you’ll find that in order to profitably scale past this point you’ll have to make a change to the business. This can be as simple as adding in a new area or as complicated as created a new niche to pursue. Scaling your business should be an ongoing goal, but knowing when to scale is extremely important.
By following these three golden rules, you’ll always know where you're going, you’ll dare to dream big and you’ll never stop trying to be bigger and better than you were yesterday.
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