As an independent investor, scaling your rental portfolio poses a series of challenges.
Having said that, there are typically two general paths that investors follow. One is to increase number of units through purchasing larger commercial properties (multi-family, apartment buildings etc), and the other is through simply acquiring more properties. This article covers these two general cases, and whats shared by each and our perspective of how to address those challenges.
Increasing Density (Commercial Properties)
Many investors start with condos, and single family homes and expand to multi-family over time. A smaller set of investors make the jump to 5+ unit buildings, namely due to their being a bit of a different playbook to operate. Namely:
- Larger up front capital - Large properties requires up front significantly more capital up front, and that can dissuade a number of investors from making that jump
- Different Financing Requirements - Commercial properties usually served by different loan products, which are often offered by different divisions, potentially even entirely different companies.
- Liability - At the point someone purchases commercial property, you're likely having to make different considerations in terms of legal entity, insurance types etc.
- Increased Competition - Many investors find it much harder to find compelling acquisition targets, simply due to the much smaller level of inventory.
Increasing # of Properties
A slightly more difficult approach is to scale by continuing to purchase smaller units, and scaling through sheer # of properties. Although, many playbooks stay the same, e.g. maintenance approaches, other facets change, namely:
- Commercial Financing - using portfolio lenders
- Acquisition Approach - In order to continue to purchase properties at an attractive buy-in price, many portfolio owners expand their search area, often crossing multiple geographies.
- Managing portfolio through 3rd party property management companies. Having 1, 100-unit apartment complex is significantly different than having 100 SFH's across 5 states.
- More Sophisticated book-keeping
Scaling through Property Management Companies
Assuming your strategy involves purchasing many properties, potentially across many geos, you're almost certainly going to have to leverage property managers.
The difficulty then becomes, how to get insights across the property management companies.