How do you grow your real estate business effectively?
It’s a question you may ponder quite often.
The answer begins with being deliberate about your path and designing goals. This requires that you:
Know where you’re going
Know how you will get there
“To help us with designing goals, we like to use something called start-stop-keep. This allows you to establish a direction for scaling your real estate business,” says Nathan Trunfio, President of Direct Lending Partners.
To utilize start-stop-keep, answer the following questions:
- What should your real estate business start doing?
- What should you stop doing?
- What should you keep doing?
“I also tell real estate entrepreneurs to think about their BHAG: big, hairy, audacious goal. What makes your palms sweat? Think big. You can’t scale your business if you don’t aim big,” states Trunfio.
As Wayne Gretzky says, “you miss 100% of the shots you don’t take.” So, set goals and take action.
In this article, we’ll discuss all you need to know about how to grow your real estate business.
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“SMART lays the groundwork to focus your efforts, to measure your results, to hold yourself and others accountable, and to, at the end of the day, increase your probability of achieving your goals,” says Trunfio.
Specific: For example, how many real estate deals will you do this year (five, 10, 20, etc)?
Measurable: You can’t just say you’ll improve construction management. You should instead say that you aim to improve by facilitating your renovations and flips within 75 days. You can measure that!
Achievable: Do you have the capabilities to achieve this goal? Do you have the people, time, and resources needed?
Realistic: If you only did two real estate deals last month and have two in the pipeline, is a goal for seven real estate deals this month realistic? You should be ambitious. However, keep your goals grounded.
Timely: Every goal must have a timeframe. Hold yourself accountable by specifying a date by which your goal will be completed.
By setting specific goals, you understand what plays you have to make to get down the field. And that’s how you win the game!
Do you smell what the “Rocks” are cooking?
What are we talking about? Are we talking about the Rock?
No, we’re talking about Rocks—the key to establishing priorities at your business and gaining traction over the next 90 days.
This idea, Rocks, is actually taken from the book Traction and the EOS platform. It’s a strategy for getting a grip on your operation so that you can achieve quarterly objectives.
At Direct Lending Partners, when we do goal-setting at the individual and organizational level, we use Rocks. Throughout each quarter, each team member has three “Rocks:” They set three specific professional goals, as well as three personal goals. The company also has four to six Rocks, or goals, for the organization as a whole.
“Have very achievable goals as well as stretch goals. Push yourself and your team,” advises Trunfio. “When you have clear goals within a time period, it enables you and your team to focus intently on the mission. Studies have shown you’re 42% more likely to achieve goals if you write them down.”
So, establish goals. Write them down. Hold each other accountable. You’ll be surprised by all that you accomplish.
Know your real estate KPIs
If you don’t know the numbers, then how can you make good business decisions? To scale your real estate operation, you must identify key performance indicators.
“We encourage real estate investors to first know their break-even number,” states Trunfio. “What amount of money do you need to make to break even itself? How much do you need to start earning profits?”
For example, if you previously made $120,000 per year but have decided to pursue a career as a real estate entrepreneur doing multi-family deals, you should build that $120,000 into your break-even number.
“How can you gauge if you’re running a successful real estate business if you don’t know your break-even point?” asks Trunfio. “How can you gauge your level of scale? You have to know the metrics, from marketing and conversions to property management efficiency and revenue per square foot.”
Avoid the common pitfalls of real estate investing
Knowing the pitfalls you could encounter is key to knowing how to grow your real estate business. Here are five common pitfalls to be aware of as you scale your real estate operation.
- Is my real estate business prepared to scale?
- Can I scale profitably?
- Do I have the right people to scale?
- Do I have the right operations to scale?
Remember: It’s not about whether you do scale in the real world. It’s about whether you could realistically scale your operations. For instance, could you build a new home in 100 days or renovate a home in six weeks?
“The important part is that you are growing consistently,” attests Trunfio. “Scaling is not a one-time action. Where we see a lot of real estate entrepreneurs fail at scaling is they take their eye off the ball and they take their eye off their discipline. They don’t commit to doing things over and over the right way in order to create a business that’s scalable.”
Success in scaling requires discipline and thinking in the long term. After all, getting rich doesn’t happen overnight.
“The biggest question is: Are you committed to scaling? You need discipline to make any improvement or change,” asserts Trunfio. “Once you build that into a habit, you’ll execute seamlessly because it’s a part of your routine.”
“Not having capital is usually one of the most common pitfalls people fall into when trying to scale,” says Trunfio. “You must have a good capital plan for your real estate business. Sure, you may know how much money you need for closing. But do you know how much you need for renovations, how much you’ll need for holding costs, and how much you’ll need for disposition?”
Understanding how to grow your real estate business involves knowing the exact costs of each deal. It also involves having the right capital partner. You need lenders and investors that can execute quickly and enable you to close good deals.
“You also must have reserves,” stresses Trunfio.”You can lay out the best plans in the world, but you can’t execute 100% on all of them. You’ve got to have reserves for when things don’t go exactly as planned.”
You can’t cut corners and ensure the same quality. Do your due diligence. And do it right.
When you do your diligence, use conservative estimates—not ‘pie in the sky’ estimates. Not everything is always the best-case scenario. You should:
- Accurately vet the asset’s value to see if you’re truly buying at a discount.
- Get the scope of work list correct – walking through and making sure you didn’t miss any items.
- Calculate renovation costs after receiving bids.
- Consider the amount of time the deal will take, from acquisition to renovation to disposition. This necessitates an honest analysis of your own abilities and the current market.
“If you don’t do deep due diligence and consistent due diligence on all your acquisitions, you’re going to run into some bad deals. And one bad deal can really derail you from scaling your business,” warns Trunfio.
Having the right people in the right positions is absolutely critical. It’s how you mitigate internal risks and get the most out of everyone.
For instance, if you have a person who doesn’t fit your culture, or they make the work environment toxic, they’ll bring everyone else down.
The numbers back this up too. According to the U.S. Department of Labor, hiring the wrong team member costs businesses an average of 30% of that person’s annual salary. Furthermore, a positive company culture leads to happy team members, and happy team members are 12% more productive (University of Warwick study).
Having the right operations is critical as well. You need marketing and sales in tandem, and you need a plan for driving in leads and converting those leads.
“Too many real estate investment companies don’t have a thorough lead generation and sales plan. It’s a huge pitfall. To scale the business, having a good marketing plan, having a good ability to drive in leads, and having a solid strategy for closing those leads is essential,” affirms Trunfio.
Have you ever read Jim Collins’ book, Good to Great? Collins discusses the Hedgehog Principle, this idea that you focus your efforts on your areas of expertise.
If you want to know how to grow your real estate business, keep this principle in mind. You can’t develop shiny object syndrome and chase other endeavors (especially if you don’t excel in that area). Stay focused on the goals you’ve set!
“If you want to truly understand how to grow your real estate business, remember you need belief, discipline, and a plan. If you’re getting distracted by other items consistently, you’re not going to focus on your goals. And you’re not going to be able to scale,” says Trunfio.
How to grow your real estate business this year and beyond
You know now how to grow your real estate business. By laying out an intelligent business strategy, you can set your team on a path to sustainable growth.
However, developing the right strategy only represents part of the plan. To succeed at growing your real estate business, you and your team need discipline and a culture of transparency and accountability. You must set quantifiable milestones and move at a sustainable pace. If you can do that, there is no limit for where you can take your real estate business.
Want to learn more about scaling and how to grow your real estate business effectively? At Direct Lending Partners, we’re here to help. Call us at (484) 285–8830, send us an email, or click the link below.