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Written by Rene January 2021
Do you own real estate that you rent BUT:
...you outsource the property management?

Or

...you do the property management?
The above contrasting examples highlight two different extremes of REI (real estate investing). 

Would you be shocked to know they're both flawed? 
To distinguish the difference between these extremes, and to highlight “a better way,” I’ll use the seven colors in the light spectrum.
RED
ORANGE          YELLOW
GREEN
BLUE            INDIGO
VIOLET
I find there are three primary landlord categories: the outsourcer, the do-it-yourselfer, and the virtual landlord. At the first extreme is RED, the outsourcer. To the other extreme is VIOLET, the do-it-yourselfer. And centered in the middle of the spectrum is GREEN, the virtual landlord. 

Here’s my breakdown of the three primary REI colors.
The Outsourcer:
…will pay others to run their entire rental operation and are willing to sacrifice profits to gain more time. For the busy or long distance landlord, it’s natural and most desirable to want to outsource everything. However, there’s a sharp distinction between delegation and abdication. Delegation only occurs when the landlord has their own systems and checklist that are provided to someone else to follow. Abdication occurs when the landlord doesn’t know what they’re doing and hopes the hired person has their own systems. This can result in a false sense of security. If the outsourcer does not stay actively involved, a consequence is complacency. It’s important to note that delegation does “not” relinquish responsibility. For example, if the property manager does something wrong or overlooks a safety concern, the outsourcer will still be legally liable in court. The outsourcer is susceptible to dependency if they don’t have their own systems and understanding. An oblivious outsourcer also risks things creeping and as a result could end up paying for costly mistakes.

Here’s a list of what outsourcers often pay:
  • Property management
  • ​Accounting
  • ​Lawn care
  • ​Pest control
  • ​Legal services
The Do-It-Yourselfer:
…will singlehandedly run their entire rental operation to gain more money. They usually have the time (or assume they have the time) to do their own property management. For the frugal landlord, it’s an easy trap to fall into. It might seem like performing your own property management will save the most money, but without the proper systems it’s futile. Not to mention it’s self-contradictory to the whole idea of REI. Landlords don't get into REI to have less free time. Consider this question. If you were to appraise your personal free time, how much would it be worth to you? If you had to give it an hourly rate, maybe it’s $100, $1,000, or $10,000 per hour. Don’t get caught spending too much of your precious time working in your business. That’s what systems are for. The benefit of building systems is that they scale your effort while multiplying your free time. However, it does cost money. Do-it-yourselfers get so caught up on saving money they sacrifice their personal freedom and risk burning out. Do-it-yourselfers that work harder opposed to smarter eventually end up becoming tired landlords and are prone to early exits (i.e. selling rental units before building sustainable property management systems).

Here’s a list of what do-it-yourselfers often do:
  • Property management
  • ​Rehabbing and all minor repairs
  • ​Banking, bookkeeping, and taxes
  • ​Landscaping and extermination
  • ​Paralegal and business administration
The Virtual Landlord:
…sits in the driver’s seat of a self-driving property management machine. The ultimate virtual landlord contributes their personal time analytically, for its highest and best use, e.g. to perform only the most essential activities that ensure long-term business sustainability. The virtual landlord will contribute their profits strategically, for its highest and best use, e.g. to outsource key areas of their rental operation to maintain one systematic business ecosystem. And will keep oversight to ensure all activities are performed as directed. It’s crucial for the virtual landlord to use technology to automate as much as possible. Every area of their rental operation is vetted and optimized. The virtual landlord is the captain of all their REI operations.

Here’s a list of what a virtual landlord pays for and does:
  • Property management; pays for some services and performs other services
  • Outsources many business operations with specific directions and oversees proper execution; for example: 
  • Outsources showings, but ensures adherence to tenant screening systemization
  • Outsources rehabbing, but ensures adherence to one unified-rental rehab standard
  • Outsources repairs, but enforces a three-step delegation system for rental tenants
  • Outsources lawn care and pest control, but ensures the companies adhere to automatic billing requirements
  • Outsources accounting, legal, and taxes to specific REI business firms, but ensures adherence to asset protection and legacy planning
In summary:
  • The outsourcers will spend money to get more time.
  • The do-it-yourselfers will spend time to get more money.
  • The virtual landlords will spend just enough money and time to maintain a system that maximizes their long-term real freedom.
What now? 
Build a sustainable REI future for you and your family by following a repeatable process. The trick is to use the ABC (Automate, Balance, Control) formula and multiply it over and over in all aspects of your rental business. Long-term you will see an ongoing pattern of success. It’s not only good for you, it’s multi-generational (e.g. legacy planning and family inheritance). Consider what you want to leave behind. Do you want your REI endeavors to end with you, or do you want to leave a self-driving moneymaking vehicle behind? If you truly want “lasting” freedom, for your family, and your family’s family; keep things simple and sustainable. Let each generation repeat the process in a continuous feedback loop of real freedom. There’s no substitute for ingenuity, so be inventive and enjoy the autonomy!

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