{"id":3651,"date":"2022-11-19T04:44:30","date_gmt":"2022-11-19T04:44:30","guid":{"rendered":"https:\/\/frankbuysphilly.com\/how-to-build-effective-systems-in-your-real-estate-business\/"},"modified":"2022-11-19T04:44:30","modified_gmt":"2022-11-19T04:44:30","slug":"how-to-build-effective-systems-in-your-real-estate-business","status":"publish","type":"post","link":"https:\/\/frankbuysphilly.com\/how-to-build-effective-systems-in-your-real-estate-business\/","title":{"rendered":"How To Build Effective Systems In Your Real Estate Business"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<h2 class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/h2>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">If you are like me, I suspect you\u2019ve heard a good number of gurus, or even seasoned, well-meaning investors, give the following advice in some form or fashion:<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cSystems and policies are essential. If you want a business that works, you need to have systems and policies. You need to have those systems and policies, and you need to follow those systems and policies because systems and policies are absolutely essential to have and follow. Systems and policies!\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">While it is certainly true that systems and policies are extremely important as I will elaborate on further shortly. Of course, just saying that isn\u2019t particularly helpful. The \u201chow\u201d part is often missing, unfortunately. So, in this article, I will at least sketch out an outline of how to approach building systems and policies for real estate investors.\u00a0\u00a0<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Why Systems and Policies Are So Important<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">First and foremost, the reason systems and policies are so important is because it\u2019s a massive waste of time and energy to simply reinvent the wheel over and over again. Indeed, even the simple act of\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/en.wikipedia.org\/wiki\/Decision_fatigue\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">making decisions can be exhausting<\/span><\/a><span data-preserver-spaces=\"true\">, and so if there is a solution ready to go for a given problem (i.e. a system or a policy), you can execute that solution with little thought and devote your mental energy to something else.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Systems also make it easier to delegate tasks, as employees and contractors won\u2019t have to continually ask for directions. They also allow you to maintain quality control and standardize outcomes throughout the various parts of your business. Furthermore, they make it easier to stay on the right side of the law as treating someone (particularly a prospective or actual tenant) differently than another one could amount\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/6-tips-staying-compliant-fair-housing-laws\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">to a violation of Fair Housing<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But the most important reason for systems and policies, at least in this author\u2019s humble opinion, is that they lay the groundwork\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.youtube.com\/watch?v=ecOeb71MmWs\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">to scale your business<\/span><\/a><span data-preserver-spaces=\"true\">. It\u2019s important to remember scaling is not growth. Instead, scaling is what facilitates growth. Investopedia\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.investopedia.com\/terms\/s\/scalability.asp\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">defines it as follows<\/span><\/a><span data-preserver-spaces=\"true\">,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cScalability refers to the ability of an organization (or a system, such as a computer network) to perform well under an increased or expanding workload. A system that scales well will be able to maintain or increase its level of performance even as it is tested by larger and larger operational demands.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Growth for the sake of growth is the philosophy of cancer, which, left unabated, will eventually kill its host (the business). Only through scaling (which relies on systems and policies) can the foundation be laid to \u201cmaintain or increase\u201d the \u201clevel of performance even as it is tested by larger and larger operational demands.\u201d\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Only through scaling can you truly and sustainably grow a business. And even if you don\u2019t want to grow that much, systems and policies will make your life a whole lot easier, shrink your liability and increase your profits.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">The Key Point To Remember<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">I can\u2019t think of anyone who has actually said this, but I do think there is an underlying assumption that many entrepreneurs believe you build your systems, and then you build your business. Or perhaps, you start off by building your business by going from one whim to the next, and then you realize you need systems, so you add those, and then you go back to building your business.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">If I could ensure that this article accomplishes one thing, it would be to permanently remove this idea from your mind.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Business does not work in such a sequential manner. Instead, you should be building your systems and policies in lockstep with your business. It\u2019s an iterative and never-ending process. As you expand your business, you should be expanding and updating your systems and policies. It never ends. Don\u2019t expect it to.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Learning and Borrowing From Others<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Of course, that doesn\u2019t mean you need to start from scratch and feel your way through the dark to only learn from hard-fought (and expensive) experience.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">There are plenty of good sources to learn from, including\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/advanced-real-estate-scaling\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">here<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0at BiggerPockets. You should be regularly reading articles (on real estate and business in general), reading books, listening to podcasts like the\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/podcasts\/real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">BiggerPockets Real Estate podcast<\/span><\/a><span data-preserver-spaces=\"true\">, and attending meetups and conferences. You should definitely be involved at your local Real Estate Investors Association or BiggerPockets meetup groups and ask seasoned investors about their various systems. Trust me, people love to talk about themselves. They\u2019ll open up.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">There are also four books, in particular, I would recommend reading when it comes to systems and policies. Any business owner should read through these:<\/span><\/p>\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Myth-Revisited-Small-Businesses-About\/dp\/0887307280\/ref=tmm_pap_swatch_0?_encoding=UTF8&amp;qid=1666367806&amp;sr=8-1\" target=\"_blank\" rel=\"noopener\"><strong><em><span data-preserver-spaces=\"true\">The E-Myth Revisited<\/span><\/em><\/strong><\/a><strong><span data-preserver-spaces=\"true\">\u00a0by Michael Gerber<\/span><\/strong><\/p>\n<p><span data-preserver-spaces=\"true\">This book outlines the importance of thinking of your business like a franchise owner would, creating the policies that could be handed to someone else in another market to replicate.\u00a0<\/span><\/p>\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Checklist-Manifesto-How-Things-Right-ebook\/dp\/B0030V0PEW\/ref=sr_1_1?crid=2IGRNRE6GJ0IF&amp;keywords=the+checklist+manifesto&amp;qid=1666367833&amp;qu=eyJxc2MiOiIxLjg0IiwicXNhIjoiMS4zNyIsInFzcCI6IjEuNDMifQ%3D%3D&amp;sprefix=the+checklist+manifesto%2Caps%2C99&amp;sr=8-1\" target=\"_blank\" rel=\"noopener\"><strong><em><span data-preserver-spaces=\"true\">The Checklist Manifesto<\/span><\/em><\/strong><\/a><strong><span data-preserver-spaces=\"true\">\u00a0by Atul Gawande<\/span><\/strong><\/p>\n<p><span data-preserver-spaces=\"true\">Gawande highlights the incredible improvement all sorts of organizations have made by simply having and following checklists for recurrent tasks. You should definitely start making these. We have developed checklists for creating scopes of work, screening residents, moveouts and deposit disposition, analyzing properties,\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/due-diligence-ultimate-guide\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">due diligence<\/span><\/a><span data-preserver-spaces=\"true\">, and financing properties, etc. Having these and following them dramatically reduces mistakes and oversights.<\/span><\/p>\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Traction-Get-Grip-Your-Business\/dp\/1936661837\" target=\"_blank\" rel=\"noopener\"><strong><em><span data-preserver-spaces=\"true\">Traction<\/span><\/em><\/strong><\/a><strong><span data-preserver-spaces=\"true\">\u00a0by Gino Wickman<\/span><\/strong><\/p>\n<p><span data-preserver-spaces=\"true\">Wickman goes over creating an EOS (Entrepreneurial Operating System) that covers every part of your business and then hones and streamlines them as best as possible.\u00a0<\/span><\/p>\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Scaling-Up-Companies-Rockefeller-Habits\/dp\/0986019526#:~:text=Scaling%20Up%20(Rockefeller%20Habits%202.0)%20is%20the%20first%20major%20revision,the%20growth%20of%20a%20firm.\" target=\"_blank\" rel=\"noopener\"><strong><em><span data-preserver-spaces=\"true\">Scaling Up<\/span><\/em><\/strong><\/a><strong><span data-preserver-spaces=\"true\">\u00a0by Verne Harnish<\/span><\/strong><\/p>\n<p><span data-preserver-spaces=\"true\">Harnish might as well take the torch from where Wickman leaves off when it comes to scaling. He particularly highlights the importance of creating\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/key-performance-indicators\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">key performance indicators<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0(KPIs) to monitor and improve performance throughout your company.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">As a bonus, I would also add\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Getting-Things-Done-Stress-Free-Productivity\/dp\/0143126563\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\">Getting Things Done<\/span><\/em><\/a><span data-preserver-spaces=\"true\">\u00a0by Gary Allen to systematize your own life.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Of course, if you are a new investor, you don\u2019t need to read all of these before you get started. But I would definitely get on reading them as soon as possible.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Laying the Groundwork<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">As soon as you can, you want to start building systems, even if that\u2019s before you get started. (Although you should not use a lack of systems\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.youtube.com\/watch?v=Oj-mKF1xVA8&amp;t=\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">as an excuse to procrastinate<\/span><\/a><span data-preserver-spaces=\"true\">, again, building systems is a never-ending process.)<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">You should start by identifying your core processes. As Gino Wickman notes in\u00a0<\/span><em><span data-preserver-spaces=\"true\">Traction<\/span><\/em><span data-preserver-spaces=\"true\">,<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">\u201cIt\u2019s surprising how productive this step is. This exercise creates clarity of thought that is then put down in black and white\u2026just by calling your processes by a consistent name, you reduce complexity and increase efficiency in the organization.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">So, for example, in our business, we have the following core processes. Yours will likely be a bit different, but this should make it clear what you are aiming for.<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Acquisition<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Financing (private loans upfront)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Refinancing (bank loans on the back end)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Accounting<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Rehab<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Turnover<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Property Management<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Maintenance\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Human Resources (hiring, firing, etc.)<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">We have then blocked these into several departments. So, I oversee acquisition and refinancing. My brother oversees human resources and assists in acquisition, and my dad is in charge of finding private lenders (financing). Thus, in our main office, we have four other departments that report to us:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Property management<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Maintenance<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Rehab and Turnover<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Accounting<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">I don\u2019t have the space here to go over each component of each department, so we\u2019ll hyperfocus on one aspect to give a general idea. In this case, we\u2019ll look at how a typical turnover is handled through the property management and rehab departments.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Our process is as follows, with the department in charge noted in parenthesis.<\/span><\/p>\n<ol>\n<li><span data-preserver-spaces=\"true\">Visit the property and evaluate condition and damages (Rehab)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Create a scope of work for repairs during the same visit (Rehab)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Do a deposit disposition based on damages noted (Management)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Send that scope of work to one or more contractors (Rehab)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Evaluate the bids and make a decision (Rehab)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Verify work is completed and take marketing pictures (Rehab)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">List property (Management)<\/span><\/li>\n<\/ol>\n<p><span data-preserver-spaces=\"true\">This process requires several checklists and policies embedded within it. For example, we have a scope of work template in Excel for writing up scopes. We have a bid template in Smartsheet we send out to contractors. We have a deposit disposition template as well as a master availability list that shows everyone in the organization where things are at as the property proceeds from the management department to the rehab department and back.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Some of these templates are available free of charge. BiggerPockets itself has a\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/landlord-forms\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">long list of landlord forms<\/span><\/a><span data-preserver-spaces=\"true\">, including applications and leases you can get for free. If you are a real estate agent, your brokerage and the MLS should also have such forms.<\/span><\/p>\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n<div class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 w-full \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find an Agent in Minutes<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\"><strong>Match with an investor-friendly real estate agent who can help you find, analyze, and close your next deal.<\/strong><\/p>\n<ul class=\"has-slate-800-color has-text-color\" style=\"font-size:16px\">\n<li>Streamline your search.<\/li>\n<li>Tap into a trusted network.<\/li>\n<li>Leverage market and strategy expertise. <\/li>\n<\/ul>\n<p><\/main>\n<\/div>\n<div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n<picture class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md sp-no-webp\" title=\"How To Build Effective Systems In Your Real Estate Business 2\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.webp\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.png\" type=\"image\/png\"><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.png\" class=\"object-cover w-full relative z-20 my-0  shadow-xl rounded-md sp-no-webp\" title=\"How To Build Effective Systems In Your Real Estate Business 2\" alt=\"find an investment-friendly real estate agent\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Agent-Finder-Block-2.png\"\/><\/source><\/source><\/picture>\n<\/div>\n<\/div>\n<\/div>\n<p><span data-preserver-spaces=\"true\">As you standardize your processes, you should also standardize your materials. Use the same paint colors (or just a few), vinyl, countertops, appliances, etc., for your rehabs and turnovers. This will make it simpler to acquire and replace these items and also make it more likely you can simply make repairs or do a touch-up rather than a full replacement.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Now, this probably sounds like a lot. It is. You may be just starting, and the idea of having departments could sound ludicrous to you. That\u2019s completely understandable. It was how I would have felt not too long ago. Remember, building systems is an iterative process. Build your systems for you in the meantime, and soon enough, you will be hiring others who you will want to make sure to follow those very same systems. Trust me, you will need to be continuously building and changing your systems and policies as you grow.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Indeed, we have a whole smorgasbord of old Google sheets and Word documents in what we refer to as the \u201cGoogle Docs Graveyard\u201d meandering about the cyberspace. There will be plenty of false starts and curveballs no matter how well laid your plans are.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">The Iterative Process of Building Systems and Making Policies<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Again, there\u2019s only so much you can do upfront. As you go, you will run into all sorts of problems that you hadn\u2019t thought of nor planned for. These unique problems, however, are great opportunities to systematize your business.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Indeed, with each new decision you make, you should attempt to create a system or policy out of that. Don\u2019t just fly by the seat of your pants as problems get thrown at you. Yes, it takes more time in the beginning to systematize and\/or create policies. But this is a\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/impactivestrategies.com\/coveys-quadrant-2-is-the-most-fun\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Quadrant II activity<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0(important but not urgent), as Stephen Covey discussed in his classic book\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Habits-Highly-Effective-People-Anniversary\/dp\/B086DD5KSJ\/ref=sr_1_1?keywords=7+habits+of+highly+effective+people&amp;qid=1666373024&amp;qu=eyJxc2MiOiIyLjg2IiwicXNhIjoiMS44NCIsInFzcCI6IjEuODUifQ%3D%3D&amp;s=audible&amp;sprefix=7+habits%2Caudible%2C113&amp;sr=1-1\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\">The Seven Habits of Highly Effective People<\/span><\/em><\/a><span data-preserver-spaces=\"true\">. These are the tasks that reduce the amount of time you need to spend on such issues going forward.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">These Quadrant II tasks \u201cmaintain or increase\u201d the \u201clevel of performance even as [your company] is tested by larger and larger operational demands.\u201d<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">These Quadrant II tasks are the ones you need to prioritize.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">To give you an idea of how this works, here are a few examples we have had to deal with and the solution we have come up with:<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Problem 1:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0Cockroach infestation at a house three weeks after a tenant moves in.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Policy Solution:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0If infestation is within the first month of tenancy, it\u2019s on us (they were likely there when the tenants moved in), afterwards, the cost is on the tenant.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Problem 2:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0Tenant constantly pays late, clogging up management resources.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Policy:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0Allow for one payment plan per year. Afterward, an eviction notice will be filed, and the tenant will either need to pay the whole balance or set up a time to leave.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Problem 3:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0A maintenance order takes way too long, and it was our fault.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">Policy:<\/span><\/strong><span data-preserver-spaces=\"true\">\u00a0In such cases (when it\u2019s not so egregious, we would consider a rent discount), we offer a gift card to their favorite restaurant (which we ask for when they sign the lease) to smooth things over.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Of course, not everything can be systematized or made into a policy. On a recent portfolio purchase, a tenant gave notice to leave to the seller while we were under contract. Their lease, however, went for another six months. The seller had been soft about enforcing lease terms, so the tenant thought it would be fine. And they just got a house under contract to buy and couldn\u2019t afford both the mortgage and the lease. In this case, we asked the seller to prepay two months of their rent, and we would call it good and let the tenant out of their lease. He agreed.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">You can\u2019t really create a policy for such a specific situation, but you can for many. And you can create broad outlines of how to respond to really unique circumstances (i.e. if, while under contract, the seller wants to let a tenant out of their lease, we expect to be compensated for it). So, while it\u2019s impossible to cover every scenario, and you certainly need to leave room for flexibility when it comes to many decisions, you can still systematize and make policies for a lot of ground.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">And that will go a long way to scale your business and facilitate future growth (and continued sanity).\u00a0<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Key Performance Indicators<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">As you go, you will want to start developing KPIs for each major area of your business. Broad indicators for your company are pretty simple and should include things like:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Gross Income<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Net Income (after operating expenses)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Cash Flow (after debt service)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Change in Income Year over Year<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Occupancy Rate<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Delinquency Rate<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Units Bought this year<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">But these indicators are very broad and don\u2019t tell you a lot about why things are the way they are. Thereby, you also want to nail down KPIs for managers, or in the high likelihood that you don\u2019t have managers, departments, or areas of your business.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">While it\u2019s true that you may not know whether the number you get with any given KPI is good or bad, you know what\u2019s better and what\u2019s worse. So you know which direction things are going and also have something to aim for, which clarifies your (or your manager\u2019s) goals.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Here are some examples that we track for different departments:<\/span><\/p>\n<h3><span data-preserver-spaces=\"true\">Acquisition<\/span><\/h3>\n<ul>\n<li><span data-preserver-spaces=\"true\">Properties Acquired<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Units Acquired<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average All-in Price per Property<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average ARV<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Rehab Estimate<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Rehab Actual\/Rehab Estimate<\/span><\/li>\n<\/ul>\n<h3><span data-preserver-spaces=\"true\">Turnover<\/span><\/h3>\n<ul>\n<li><span data-preserver-spaces=\"true\">Total Rolling Days of All Properties in Turnover (at end of the month)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average Days from Possession to a Finished Scope (for month)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average Days from a Finished Scope to Market Ready (for month)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Projects Completed that Month<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average Cost of Turnover<\/span><\/li>\n<\/ul>\n<h3><span data-preserver-spaces=\"true\">Property Management<\/span><\/h3>\n<ul>\n<li><span data-preserver-spaces=\"true\">Deposits in Month<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Deposits Minus Moveouts<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Percent of Potential Rent Collected (i.e., delinquency)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Lease Renewal Percentage<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Occupancy Percentage<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average Rent Increase<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Total Rolling Days of Properties Available for Lease on Market (at end of the month)<\/span><\/li>\n<\/ul>\n<h3><span data-preserver-spaces=\"true\">Maintenance<\/span><\/h3>\n<ul>\n<li><span data-preserver-spaces=\"true\">Closed Work Orders (in month)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Work Orders Outstanding\/Closed Work Orders<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Average Time to Complete Work Order (in that month)<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Number of Work Orders that took Longer than 48 Business Hours to Visit<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Call Back Percentage<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">Those are, of course, just what we do. Yours don\u2019t have to be the same. But they do give you a good idea of how things are going. And while monthly anomalies shouldn\u2019t be surprising (particularly with things like \u201cAverage Cost of Turnover\u201d), these aberrations should work themselves out over the long run and give you a good idea of how things are going.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">And if you do have managers, they are a great way to evaluate their job performance without micromanaging or blindly trusting them.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">One last note here, in order to track your KPIs effectively, you need to have quality accounting. In addition, in order to sell at top prices and get banks to lend to you or just know whether you\u2019re solvent, it\u2019s critical to have your accounting in order. This is not something to skimp on. Make accounting a priority and either learn accounting or, better yet, outsource or hire someone capable of doing it.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">I can\u2019t tell you how many times I\u2019ve seen small investors selling a property with horrible accounting. Such a state of affairs not only reduces the value of their asset but it makes it all but impossible to scale.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Conclusion<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Systems and policies are essential for scaling, and scaling is essential for growth. But again, the biggest takeaway here is not just that systems and policies are good and necessary, it\u2019s that building them is an iterative process that never ends.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Don\u2019t be scared or overwhelmed by the thought of them. Every entrepreneur starts with zero systems in the same way every real estate investor starts with zero properties. But in the same way, you don\u2019t intend to stay at zero properties, you should intend to grow your systems alongside your company. Back forth, around and around, forever and ever.<\/span><\/p>\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:30% auto\">\n<figure class=\"wp-block-media-text__media\"><a href=\"https:\/\/store.biggerpockets.com\/products\/rental-property-investing?utm_source=blog&amp;utm_medium=blog%20banner\"><picture class=\"wp-image-137023 size-full sp-no-webp\" title=\"How To Build Effective Systems In Your Real Estate Business 3\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing.webp 450w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-300x300.webp 300w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-150x150.webp 150w,https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-200x200.webp 200w\" sizes=\"(max-width: 450px) 100vw, 450px\" type=\"image\/webp\"><source srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing.png 450w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-300x300.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-150x150.png 150w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-200x200.png 200w\" sizes=\"(max-width: 450px) 100vw, 450px\" type=\"image\/png\"><img decoding=\"async\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing.png\" loading=\"lazy\" class=\"wp-image-137023 size-full sp-no-webp\" title=\"How To Build Effective Systems In Your Real Estate Business 3\" alt=\"rental property investing\" height=\"450\" width=\"450\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing.png 450w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-300x300.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-150x150.png 150w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/03\/rental-property-investing-200x200.png 200w\" sizes=\"(max-width: 450px) 100vw, 450px\"\/><\/source><\/source><\/picture><\/a><\/figure>\n<div class=\"wp-block-media-text__content\">\n<h3>Find financial freedom through rentals<\/h3>\n<p>If you\u2019re considering using rental properties to build wealth, this book is a must-read. With nearly 400 pages of in-depth advice for building wealth through rental properties,\u00a0<a href=\"https:\/\/store.biggerpockets.com\/products\/rental-property-investing?utm_source=blog&amp;utm_medium=blog%20banner\" class=\"rank-math-link\"><em>The Book on Rental Property Investing<\/em><\/a>\u00a0imparts the practical and exciting strategies that investors use to build cash flow and wealth.<\/p>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-build-systems-in-your-real-estate-business\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article If you are like me, I suspect you\u2019ve heard a good number of gurus, or even seasoned, well-meaning investors, give the following advice in some form or fashion: \u201cSystems and policies are essential. If you want a business that works, you need to have systems and policies. You need to have those [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3652,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33,1],"tags":[],"_links":{"self":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts\/3651"}],"collection":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/comments?post=3651"}],"version-history":[{"count":0,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/posts\/3651\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/media\/3652"}],"wp:attachment":[{"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/media?parent=3651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/categories?post=3651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/frankbuysphilly.com\/wp-json\/wp\/v2\/tags?post=3651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}