Managing Rental Portfolio Growth

I’ve said it once I’ve said it a hundred times, although the IRS may consider rental income as passive, the ownership and management of rental property is in practice, a part time business.

If you’ve read my last few blogs, it should be clear by now that rental property investments require near constant monitoring, decisions and action by the owners. Even if a property management company is handling the day to day, investing in real estate requires a commitment.

For those rental property investors like my wife and I who have day jobs and a family, the challenge of keeping up a rental property side business is real. Thankfully, my wife who has worked as a stay-at-home parent for most of our 21 years of marriage, takes a very active role in running the business.

Between the two of us we probably put in on average 20 hours a week tending to the investments beyond our day jobs. Some weeks many more!  It may be as simple as updating a spreadsheet, securing materials or making appointments for repairs or having a discussion about a tenant, but there is always something.

So how big do you want the investment to grow? This is an important question to consider before jumping into rental properties. One should set goals for a rental property investment before that first purchase. We probably didn’t do the best on this crucial step!

I recall thinking when we first started out it would be nice to end up with around a dozen units. By my fuzzy math, twelve units would give us the ability to meet future financial goals including early retirement and paying for our kid’s college.

We are currently at 17 rental units! I really can’t offer the rationale on why we went from two to seventeen in a little over a decade. I think it mostly may be due to the addictive nature of real estate investing! Regardless, another reason to love rental property investing is the almost inevitable growth of the portfolio.

As you can see, we really didn’t have the best laid plans for managing growth but somehow managed to “right size” effectively. Check with me in about 10-15 years! Who knows, we may have moved away from rentals by then. As for now though, we are very content with managing our units and aren’t seeking to acquire anymore. But we still want to grow the business…

How’s that work? Certainly, growth implies the acquisition of more properties. Our basic business model initially was to grow our portfolio by investing the net income from our properties into taxable investment accounts and then use that compounding growth to invest into other properties every few years for the first dozen years.

A snowball effect in simplest terms. Reinvesting our rental profits meant that the majority of our acquisition costs didn’t come from day job earnings or tapping into savings. The business essentially grew itself!

We didn’t even think for a second about taking a draw for over 10 years.  But now we are taking draws and have decided to not pursue any more properties for the time being. How can we still grow our business?

Rental property investors can continue to grow the profitability of their portfolio by constantly creating efficiencies in almost every aspect of the operation. Additionally, another important part of growing is protecting against loss by adequately safeguarding the investment.

The bookkeeping I covered in my blog last week is the primary tool real estate investors must use to make informed decisions on how to best grow their investment. 

In my new book, Collect Rent, Don’t Pay It, A Beginner’s Guide to Rental Property Investing, I share how we grew from two to seventeen units and continue to grow even though we’ve stopped acquiring new properties for the time being.

I cover the profit growth that comes from refinancing, managing expenses, streamlining operations and protecting investments. That is my context for “growth”.  Going from purchasing duplexes to 100-unit apartment buildings is certainly another form of growth but not my area of expertise!

I have a feeling the majority of rental property investors are like us. “Mom and pop” just seeking to grow and protect their investments for future financial goals. As much as we love rental property investing, we just aren’t ready to go all in and give up our day jobs!

That being said, most of the concepts we’ve used over the years and share in Collect Rent, Don’t Pay It, could easily be applied to grow a rental property business from the teens to the hundreds of units. Who knows, perhaps we will get the itch to start acquiring more properties some day!

To learn more about the lessons we’ve learned from investing in rental properties, check out my new book Collect Rent, Don’t Pay It! A Beginner’s Guide to Rental Property Investing, for sale now on Amazon!

Want to learn more about the financial truths that have helped our average American family achieve success? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truths to Build Wealth on sale now at Amazon!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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