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Buying and managing a commercial real estate portfolio involves time and work, which both increase as you add rental properties.
While traditional factors are still in play—location will always be relevant—investors must also address the complexities of larger operations.
“Scaling a commercial real estate portfolio doesn’t happen overnight—it takes time, strong relationships, the right market conditions and a cash-flow strategy,” said Kaj Lea, Head of the Pacific Northwest and Central Region, Commercial Term Lending at JPMorgan Chase.
Our team draws on extensive experience and market knowledge to help you grow your rental portfolio with the right tools and solutions.
Here are three tips to help you build a rental portfolio.
As investors buy multifamily properties, they should look at transit, jobs, schools and amenities. They should also consider the new property’s location in relation to the rest of their rental portfolio for several reasons:
Knowing the local market can give you an edge, as you’re generally aware of what’s happening in your community—both good and bad. Venturing into a new area means new taxes, zoning requirements and regulations. For example, cities prone to wildfires, tornadoes or other disasters may have rules and regulations in place to reduce the impact of those disasters. Likewise, rent control regulations vary by location.
“It’s helpful to geographically concentrate your properties because you understand the market conditions,” Lea said. “If something affects one of your properties—like a municipal code—it’s going to impact all of them.”
Adding apartments in the same area can help improve economies of scale for management and maintenance. That proximity can help owners forecast expenses, schedule routine maintenance and respond quickly to emergency repairs. And there are some significant savings in bulk, whether it’s the cost per unit for routine cleaning or the cost per unit of toilets by pallet.
“You’ll get to a point where individually ordering washers and dryers from a big box store no longer makes sense,” Lea said. Instead, you can begin shopping for wholesale appliances and other apartment amenities in bulk. “Everything is about scale and trying to create efficiencies.”
Jotting down the numbers or using a simple spreadsheet may have worked when you were managing a few multifamily properties. But as you grow you should turn to digital treasury tools to streamline rent payments and accounts payables and receivables.
“You don’t want to be trapped on the computer managing your cash flow, banking, bills and investor payouts,” said Rob Philpott, Commercial Term Lending Treasury Services Regional Manager at JPMorgan Chase. “Digital treasury tools can put time back into your day so you can focus on your properties and tenants, whether that’s filling a vacant unit or renovating the building.”
“It may never seem like the right time to make the switch to digital,” he said. “But when you are ready, it’s critical that you have a bank beside you that specializes in that type of transition.”
Philpott also emphasized the importance of working with a treasury team that understands commercial real estate. “Banks tend to focus on the industry where they have the most clients. If commercial real estate isn’t it, the bank is less likely to develop tools tailored to property owners’ and managers’ needs,” he said.
As your commercial real estate portfolio grows, so should your team. For example, when you own a handful of multifamily properties, you may be able to serve as your own bookkeeper and property manager. But if your rental portfolio grows to 50 or 100 properties, that strategy isn’t tenable.
That’s when you should consider hiring heads of property maintenance and finance who have the expertise to help you manage the day-to-day tasks of owning and operating multiple properties.
You may also want to hire an accountant and consult with a lawyer. “Having solid legal and financial advice beyond your banker is really important,” Lea said. “Accountants and lawyers can help you navigate rules, regulations and tax concerns associated with expansion.”
Whether you’re acquiring a new property or refinancing an existing one, you have several bank and agency financing options.
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