The Optimize Phase! How To Increase Revenue in Real Estate

So you've built your portfolio, you've stabilized it. Now you should be at your cash flow goal. But how do we actually get to the point where we pay off all of the debt? We have no liabilities whatsoever on our balance sheet. We own all this real estate. Well, you can't do that with just a simple stabilized portfolio. There's no way there's going to be enough cash flow to pay off all the debt before all the loans are due. So what do you do? We now enter optimize phase. This is where we look back through our stable portfolio where everything is leased, all the maintenance is done, and we go, what improvements can we make to optimize the revenue of this asset and push the value of this asset? What this does— and then we're talking things like, it's beyond, hey, we're going to fix the roof. It's, we're going to do new windows, we're going to do new siding. Let's go to stone countertops. Does this property merit stainless steel appliances? Do we do nicer flooring? Do we need to add additional units to the building? These are all optimizing questions. Things beyond stabilizing the asset that you bought. When you've pushed income to the max that it should be on the property or can be on the property, you've optimized. And this is where you actually build your debt hammer, which we're going to cover in next week's video on how to build your debt hammer and actually have a full debt-free portfolio, which by the way is when you win the game. So optimize is going to be taking these little pieces throughout your entire portfolio and going, okay, you're just asking the question, What can I do to invest in this property to optimize the amount of money that it spits out and the quality of life for our tenants, both reducing vacancy and increasing rental income? Now, what we never want to do is over-improve a property. So how do we determine that? So in the optimize phase, what we want to do is do a quick bit of research, and you can usually do this on Apartments.com or other websites, but we're going to look at what do the other units around us look like? What are our neighbors renting for similar buildings? The most important thing here is I want my building to be nicer. I don't need it to be the best thing of all time because we want to provide entry-level housing. That's something Cody and I specialize in. If you want to provide higher-end housing, you still want to have nicer housing than your neighbors. You want to have the best product in your sector. So if I'm looking at the properties around us in Moses Lake, most people don't have stone countertops and I may not need them. It's a 50/50 on whether it makes sense on the property I'm doing. However, if we have the same flooring as everyone, the same countertops as everyone, maybe we come in with nicer cabin— cabinetry, and I know we have the best bathtub surround mix because I've seen a bunch of gross ones and people do this nasty tile thing. I know that we look really, really clean there. What can we do to set ourselves apart from what everyone else is doing? It could be something as simple as, hey, we're going to upgrade to stainless steel appliances, or we're going to add dishwashers where other units do not have those. The little things like that that say, hey, this place is just a little bit better than everything else in the price point. The other thing Cody and I are going to do is we're going to match or come in right below the pricing of our competition. What this does is this saves on vacancy. No one will leave an apartment if you are nicer than everything else in the price point and you cost a little bit less than everything else in the sector. If you can eliminate vacancy, you will typically make a lot more money than if you get max rents but have more turnover. So the first thing we're doing here is we are optimizing for the longevity of our tenant mix. The second thing we're doing is we're making sure that we command the rent that the property should be able to bring in. I do not want to be competing with everyone else. I want to win the game. Optimization is where you win the rentals. You keep your buildings near 100% occupancy pretty much at all times. Now you will have certain tenants that leave, and that does happen. Sometimes people buy their first home, they move to a bigger market, they get a new job somewhere else. Whatever it is, outside of those extraneous circumstances, no one will ever really leave your spaces. You'll rent for long, long, long terms. Less turnover means more money to you, the landlord. From here, what you get to do is you start getting to stack cash in the optimized phase. Stabilize, you can get your cash flow goal. Optimize is where you really get to ask yourself, how much do I want to pay myself and how much do I want to start allocating towards paying off debt? And again, we're going to get to that strategy in a future video, exactly what that looks like and how to craft it so that it lowers your risk. By the way, it's not the Dave Ramsey debt snowball. A lot of people think that's what we're going to talk about. It's not. Spoiler alert. We do this a little bit differently, but this part is so important. So many people will stabilize and they just start paying themselves. And they do the minimum maintenance on their property. And that's where you get these mom-and-pop landlords who have nice but tired properties. And one day they end up selling them. The kids don't want the properties. They were always okay. Stabilize is so important, but optimize is where you really get to be proud of your property. The other piece that we love about optimize, when we optimize a property, the exterior paint is perfect. The inside is just like how we want it to look. It feels great to be inside the apartment. People are proud to live there. You actually start to improve the city that you're investing in. We did this with Moses Lake. It's so fun and rewarding to drive the streets and go, hey, that building over there and that building over there and that one down the street, we've repaired these. The city actually looks and feels better. On the hotels that we're converting, we took all the transient— and some of them were really rough hotels and we turned them into nice rentals where people like to stay. All of a sudden, neighborhoods are safer because of the project we did. Optimize is really personally rewarding where you actually get to give back to communities as well as maximize the revenue of your business. This is the optimization phase. If you think you want to skip this phase or you don't think it's necessary, you want to stop at stabilization, you'll end up like most other landlords. When Cody and I first wrote this out, when we first launched our course, We had 3 phases. We had build, stabilize, debt hammer. We learned really early interviewing owners that you will never build enough cash flow if you only stabilize your existing portfolio. That is where you start to get into slumlord territory, and that is exactly what we want to avoid. Absolutely stabilize, absolutely make sure the building is doing what it's supposed to do, but then go out and make it better. It's going to be better for you financially. It's going to be better for the community you invest in, and ultimately it's going to help push values. Don't skip this step. Optimize, optimize, optimize. If you want to learn more, check out multifamilystrategy.com or our free course in the link below. It's about 10 minutes. It's going to give you all the basics you need to get started.