Expansion

When one decides to invest, in most cases, he/she starts out by themselves or with a partner or two. The over-head expenses are minimal and only a few systems are put into place. However, over time as the amount of contracts increase and the number of projects grow expansion is required. The question is, how do you know how big to expand or if expansion may be too soon. This has been asked and will continue to be asked by all wholesalers, investors and all other entrepreneurs.

When one mentions expansion in relation to real estate, it may mean a number of different things. It could mean taking on more renovation projects, taking on employees instead of only commission workers, getting an office space or bigger space, a more sophisticated CRM system, hiring a project manager to supervise the projects, etc. First, check your current “structure” and make sure that everything that is currently in place is scalable. As a small to mid-size operation the system you have in place now may not work on a larger scale. You want to streamline your operation now and find out if it is truly ready to be taken to the next level. Real estate, specifically investment real estate, is not the easiest business to streamline unless you pick a niche and only focus on that niche. As an investor you know there are tons of ways to put a deal together. Every month even the REIA puts together a meeting focusing on different ways one can invest in real estate. Most real estate investment companies I have met focus and structure their company behind one niche, such as flipping houses, but still continue to do other things when the opportunity presents itself. For example, if a person focuses his/her business on buying, fixing and flipping properties he/she will still wholesale, subject-to, rent, owner finance, etc. a property if the opportunity was presented and it made sense.

Now for the major question, are you financially ready for expansion? Growing is exciting and sounds great, but can you and/or your business handle the additional financial responsibility that comes with expansion? If your intention from the start is to grow a business you must have all your financials in order, especially in real estate. Yes there are ways to invest in real estate without your own credit or money but in the end someone’s credit and/or money are required. As a business owner you want to have the credit to be able to lease a bigger space, take out a larger line of credit, carry more than only a few mortgages, borrow money and much more. Some would argue that you do not need credit if you use private lenders. I would then ask, how many private lenders want to lend to a person who cannot prove to be historically financially responsible and maintain a respectable credit score. Keep in mind that as a business owner you may also end up with a debt to income ratio that is not favorable to institutional lenders and private funding/lenders are going to be a great resource. With that said they too are seeking profits and are interested in lending to profitable businesses and dealing with responsible borrowers. Make sure this includes you and your business.

When it comes to expansion it involves having a system, the right people and the financing. When all these things come together accordingly the business will grow. Look to align yourself and your business in win-win situations and growth will be inevitable.