Jordan from Dallas, TX called in asking about the keys to scaling and growing your assets as a small real estate operator, and if it’s important to look for larger deals or stick to smaller nickel and dime opportunities.
To start, we’re still buying a lot of small deals and aren’t afraid of doing the work to close them. A lot of big shops only do big deals, but they’re harder to compete with because they get the best debt terms and have the lowest cost of capital. We find really great deals in the $2M-5M range, they’re too big for a casual investor but too small for big players.
There are four major keys to scale, and the first three work in balance: deal flow, debt, and equity. Deal flow is simply how many deals you can find that fit your buy box, debt is the amount of money and terms at which you can get money from lenders, and equity is capital coming in from investors. One of these three will always be hard in real estate. Either investor appetite is low, banks are harder to lend from, or deal flow is dry. The market has been so hot that the bottleneck has been deal flow for the past 5 years.
The key to scaling is focusing on the bottleneck and working through it. We have a full acquisitions team at Bolt Storage that spends their time looking at deals, doing competitive analysis, analyzing cash flows, and seeing what we can offer. We’ve invested money to establish deal flow.
As debt is getting tighter, we’re working hard to find other lenders. Cheaper debt means you can pay more for a property, which makes you more competitive. But you probably won’t find the best terms with the first or second bank you talk to. I’m also actively recruiting new investors via Twitter, my podcasts, my email list, and my networks.
We’ve scaled by working our butts off on all three of those factors, and one of them will always be a problem for the market. If all of them were easy, everybody would be doing this.
The fourth component is operations, which is our competitive edge. We are very good at operating and making a property more valuable, and that’s why we can go out and buy so much. We’ve seen facilities multiply in value in just a few years of ownership because we can drive revenue and cut costs.
Scaling isn’t easy. It takes years of really hard work, you have to know how to run a business, hire, manage, and take on risks. But if you can nail these four factors, you can create generational wealth.
P.S. If now is the time to start your own journey, the real estate community is for you. I weigh in on almost every post, and there are a lot of people smarter and more accomplished than me.
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P.S.S. Record a voice memo for any question you have about small business or real estate and email it to [email protected] and I’ll answer it on the show
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