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Scale Up Rental Property Equity

October 08, 2021

How to Become a Large Rental Property Company

Maximizing revenue and profits is an obsession for many successful property managers. If you’re reading this post, you’re likely keen on growing your rental property portfolio.

All the most successful property investors started with a few properties and learned how to grow their equity holdings.  The more serious and professional of them approached their business in a specific big picture way. And they grew faster.

It’s this big picture orientation that small investors may not understand or they lose the vision of. Landlords focus on rental income whereas real estate managers focus on how to make the most of their equity.  The goal however is to grow your business. When you grow, your property management software will become very important to that success.

Where are the Profits in Rental Property?

Small landlords may toil when they hang onto low profit properties that are likely not to improve. And consider the most unfortunate ones this past year who have tenants who aren’t paying rent and where they can’t raise the rent to cover costs and improvements. They may not be on the path to profitability and growth.

Small portfolio owners may have bigger ambitions. You’ll hear many of them in property investment forums ask members how they can grow their business, manage specific tenant problems, increase cash flow, cut taxes and financing costs, and reduce expenses and raise the rent. They get caught up in minor improvements and can’t see the forest for the trees.

 

Profit on Rental Properties

Screenshot courtesy of wealthfit.com and Fortunebuilders.com

Let’s go back to rental property owners original goal: to make money.

Property Turnover is the Key to Big Profit

The most important way to grow may be to turn over properties over time (buying and selling, not turning over tenants), with smart acquisition, financing, improvement, and management strategy. The process is the strategy (which your investor/lender will approve of)  and sees you end up with a large portfolio of really profitable properties.

Small landlords call that process trading up. Some go from single family house rentals to multifamily properties. As you grow your doors, you’ll be more reliant on your property management platform.  Choosing an easy to learn and operate platform, which offers automation of work is important.

Coach Carson  explains the process of trading up very well. Joe Biden plans to ruin the party for investors, but his 1031 exchange changes are not law yet. The GOP may oppose the reduction. Find out more about tax management and turning over property at CoachCarson.com


Coach Carson trade up plan. Screenshot courtesy of coachcarson.com

The strategy or process for mid to large real estate investment companies is much more complex with concepts and practices that are well beyond the scope of this blog post, but Coach Carson’s approach makes it understandable for small business property owners. See his tips on buying properties, financing, and building equity.

Smart-minded rental property investors grow profits using a strategic process with 8 core activities discussed below (And we’ve got a list of helpful portfolio growth resources at bottom that may assist with your growth).

Focusing on the Core Decisions

The web is full of helpful ideas or tactics that can aid in increasing cash flow and profits. Often, they are isolated improvements and cost cutting tips that carry marginal benefits, not substantial growth in yields and asset value.

Some property managers will adopt a property management software and begin to implement small improvements in each aspect of business from accounting to maintenance to staffing costs. Property management platforms such as ManageCasa are amazing as a foundation for automating and optimizing management and building value. In fact, you can’t grow without it.

Top companies have managers who are business minded – they do what’s good for the big picture. They acquire the right assets (residential, office, commercial, retail), optimize them, and then turn them over for incredible profits. They don’t manage for rental income or for management’s sake. They are geared to profit and ROI.

Here are 8 Keys to Excellence:

  1. timing entry into the rental property market and buying at a good price
  2. choice of rental properties
  3. smart buying and selling practices to upscale your portfolio
  4. intense focus on business key performance indicators (KPIs)
  5. tax management and minimization
  6. tenant value proposition and rent price maximization
  7. tenant acquisition and retention
  8. strong marketing and building demand via the right target audience

If you analyze each area of your business, you’ll find most of them have limited ability to raise revenue. Cutting costs and maintenance bring limited returns.

The biggest source of growth for your portfolio likely comes from managing them as a financial asset, just as a mid to large sized rental property management company would.

Keeping Your Mind on the Key Goal: ROI Growth

Everyone calls the big property rental companies heartless and that they give the industry a bad name.

That’s debatable of course, but the lesson for us, is in how they choose and manage assets to grow value. Cheating tenants isn’t the way to grow value. If their acquisition manager doesn’t believe a building won’t be a high return asset, has awful tenants, or can’t be optimized, they don’t buy it.

If it doesn’t or won’t generate profit, they don’t sit on it. They are into “portfolio management” which means a focus on property turnover as they keep trading up to better, higher performing properties. Unsuccessful property owners sit on properties and desperately labor over them trying to make them profitable.

Those who make the biggest profits improve their properties, raise rents, streamline management costs using Proptech, and constantly market their properties to others who are willing to pay them a premium. They aren’t afraid to sell if they can get their price. Pride and fear don’t factor in. They sell at a premium and move onto the next project.

Some of them develop excellent inhouse staff as part of their asset optimization process. Now they can work miracles.

It’s the same for any business owner. Turning over assets after improvement and superior management bring the best returns. Many of these companies manage tens of thousands of rental apartments and houses and do it very well. They’ve got great people and great property management systems.

Yet they view ownership as a process of generating and building value (for investors).  At the end of the day, they are forced to keep investors happy and thus they must adopt excellent, profit building processes. Turnover means continuous growth in ROI for owners/investors.

The biggest profits come via buying multifamily units or a cluster of houses, rehabbing them, finding good renters, automating rental management, and then selling them for a 30% to 100% gain. Compare that to a 12% rental yield. And by the way, they likely enjoy the 12% rental property yield too!

It’s All About Buying and Selling

The point to be made is that property management is just a piece of this major profit seeking strategy, that saw them begin with a small number of low profit properties and end up with a massive portfolio of highly profitable assets.

That is how you get rich in rental properties. One of our clients has experienced this exact journey and now manages tens of thousands of rental units. Their knowledge about the business is very sophisticated. They chose ManageCasa to resolve their pressing management needs. Smart choice.

Their financing power rose, costs fell, and buying opportunities grew. At some point they found themselves as owners of exceptional and highly profitable rentals and they realized they needed a platform such as ManageCasa to make management as smooth as silk.

They came to the conclusion that property management efficiency was a key to generating value and reaching their business goals.

Find out more about how to choose the best rental property, improve revenue, cut costs, attract good tenants, and optimize property accounting and rental payments. So much to optimize, but no worries when you use choose ManageCasa as your property management software.

Learn more about ManageCasa and how it will help you identify the most profitable properties, reduce management costs, and help you achieve your investment goals. Schedule a Demo today!

 

Property Portfolio Growth Resources

Bonus: Online Resources to help you choose and turnover properties, grow profit, and scale up!

Tipster’s tips on buying rental properties:     retipster.com/10-rental-properties-5-years/
How to Buy Rental Properties:     moneyunder30.com/formula-buying-rental-properties
What is the best type of rental property?    managecasa.com/articles/best-type-of-rental-property/
Building rental property portfolios faster:     biggerpockets.com/blog/build-real-estate-portfolio-fast-the-stack
How to Scale your property portfolio fast:      mynd.co/knowledge-center/19-strategies-to-scale-your-rental-property-portfolio-quickly
Best Markets to buy rental properties in the US:     fortunebuilders.com/best-rental-property-markets/
How to Avoid taxes when you sell your rental property    investopedia.com/articles/personal-finance/121415/how-prevent-tax-hit-when-selling-rental-property.asp
How to Sell your rental property:       getwhatyouwant.ca/guide/selling-investment-property-complete-guide
Best time to sell your rental property      financialsamurai.com/when-is-the-best-time-to-sell-rental-property-three-target-ages-to-consider/
How to sell a rental property with tenants    nolo.com/legal-encyclopedia/tips-selling-property-with-existing-tenants.html
The 5 Profit centers of Rental property:    wealthfit.com/articles/ways-rental-property-investing-makes-profit/
Top KPIs to evaluate:     managecasa.com/articles/property-management-kpis-metrics/
How to Grow Rent Yields:     https://managecasa.com/articles/grow-your-rental-yields/
How to Generate continuous leads from tenants and investors:     managecasa.com/articles/online-marketing/
How to Capture Higher Quality Tenants:     managecasa.com/articles/improve-tenant-acquisition/
How to hire a Property Manager:    https://managecasa.com/articles/hire-property-manager/

 

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