How Small Real Estate Businesses Make Big Profits
In the real estate private equity business, we are in, you either have small shops or bigger shops. So, this means either a 2-3 partner team with no employees or 2-3 partners with 20 plus employees. If you do your own property management too, it can mean hundreds of employees. Each of these approaches is very different, and there isn’t necessarily a right way. So, what we’ll discuss in this article is how we successfully navigate and thrive in our business with only two partners and no employees.
The important thing to keep in mind is that we are only able to do this because of the handful of 3rd parties that we have behind us, such as our property manager, attorney, CPA, etc. This said, technology has allowed us to do a lot with less manpower like the implementation of our investor portal, CRM, task manager, and scheduling system. As partners, we successfully and effectively split responsibilities and are able to manage all this together as a small but mighty fighting machine.
The key benefits of a small real estate investment shop
As we said before, there is no right or wrong way to manage your real estate investment business. But, in our experience, we have found that there are a handful of benefits to managing a small but mighty team. We’ve listed some of those benefits below.
No employees mean we charge fewer fees to run our business, while still charging enough for continuous improvement of our systems.
We can do smaller deals. Usually, there is a minimum size deal some larger shops have to hit to support their overhead, which usually is 10 million or many times more. We can go much lower and still turn a solid profit.
We can do fewer deals to keep the machine moving which translates to more selectivity on property selection.
We can look at deals in the $3-10 million range that tend to be more mom-pop investments, and therefore usually better opportunities to bring better returns to us and our investors.
We can leverage creativity and malleability because we have no bureaucratic layers. We respond to changes in the market more quickly.
Investors have easy access to principals, thus making them more involved in the process.
The above benefits have allowed us to thrive. By working in that $3-10 million space, it’s allowed us to buy good real estate deals that continue to help us beat our projections and achieve great returns. Of course, we can still do larger deals than $10 million effectively. This doesn’t mean we will never have employees but we will strive to keep the team small. Ultimately, we have proven now through a couple of years and a handful of properties that this works exceptionally well.