How to Scale Your Real Estate Portfolio So You Build Wealth

Dave:
Almost everyone who starts a business does it because they’re good at something, whether that’s baking bread or fixing cars or it consulting. But if your business grows, there’s eventually going to come a point where you are no longer spending most of your time using that original skill or passion that got you started. Instead, you’ll be managing a team and focused on strategy. And in this respect, real estate is just like any other business. Even if your superpower is analyzing deals or renovating houses, or dealing with tenants, you’re eventually gonna need to learn an entirely different skillset if you want to keep expanding your portfolio.

Dave:
In today’s Deep Dish episode, we’re talking about scaling, and we have two experts on hand to help us out. It’s Kathy and Rich Fettke. You may know Kathy as a co-host of the On the Market podcast. She’s often also on this podcast, and her and her husband, rich, who’s a great guy, as you’ll see, are serial entrepreneurs and real estate investors who run a successful business together. And from their experiences running that business, they have a new book out called Scaling Smart. You can find it at biggerpockets.com/scaling Smart. And I’m super excited for this conversation because as a real estate investor myself, this question of how to scale is something I think about almost constantly, and it’s really come up a lot recently for me. So I am going to be a little bit selfish and ask Kathy and Rich for a little bit of coaching myself.

Dave:
But really, I think I’m gonna ask some questions that I think apply to a lot of us listening who have gotten started investing in real estate, but don’t know exactly what to do next. Specifically, the things I wanna learn is the difference between growing and scaling some of the most common mistakes investors make as they expand. And how I can learn management skills when my original expertise was real estate and analytics. And I need to grow a bit beyond that. So I think this is gonna be really fun. I’m excited for this episode. Let’s bring on Rich and Kathy. Rich and Kathy Fettke, welcome to the show. Thanks for being here.

Rich:
Thanks for having us.

Dave:
Yeah,

Rich:
Great to be here.

Kathy:
Yeah, great to be here. Feels like a party.

Dave:
This is so fun. I get to talk to Kathy all the time, but Rich, it’s great to have you on the show. Final. Have you been on the BiggerPockets podcast before?

Rich:
Yeah, I was on before. I guess it was about two years ago, which was a blast with Dave and Rob and, uh, had a good time. But really looking forward to the, the Dave Meyer host <laugh>.

Dave:
Yeah. Well, I’m happy to have you guys here. This, this is gonna be a lot of fun. So we are gonna talk about scaling, and you both just wrote a new book called Scaling Smart. Congratulations, by the way.

Rich:
Thank you.

Dave:
And one of the key tenets of this book is the distinction between growing and scaling. Can you explain what the difference is in your eyes?

Rich:
So the difference between growth and scaling, uh, I think it’s a really important difference. Growth is important. You know, it’s the big buzzword in business, but growth is when you’re pouring more resources into growing your business, more money, more people, um, all that. And scaling is when you get to a level where you, you have some growth, but scaling is where you do it more economically. With, uh, taking something and multiplying, for example, a great way to look at it, be like, you could go and give a talk to 10 people, or scaling an easy way to use technology would be doing a webinar to a thousand people. So that’s a way to just one example of scaling overgrowth where you can, you don’t have to use as much resources, um, but you can grow your business and your outreach exponentially.

Kathy:
Yeah. Another example we’ve seen so many times, because at Real Wealth, we work with 15 different property managers, property teams across the country, and we’ve watched them implode over the years. Yeah. Over the 20 years we’ve been doing this growing too fast. And, and as they would grow their property management, for example, they would bring in more employees and more overhead and more costs, but the income wasn’t keeping up with that. And pretty soon you’d see them start to take money out of the deposit reserves and, you know, and, and then they’re just getting over their skis until they would implode. We’ve seen it over and over again. So that hopefully tells the difference of, of growing, just growing for, for what, you know, to go grow yourself broke. Yeah.

Dave:
So would it be fair to say it’s, it’s about sort of efficiency and operations where you’re say, taking what you got and making it run smoother rather than putting more capital into your investing portfolio, for example?

Rich:
That’s a big part of it. Yeah. It’s really about leverage <laugh>, it’s about leveraging your team, leveraging your greatest strengths. So I think that’s the key to scaling Smart. You know, you can scale a business for sure. Um, we called our book Scaling Smart, because it’s just a different way. It’s where just like a smart home where it’s customized to your preferences or a smart car or any of that. Uh, same thing with a business. You can scale a business a smart way, where it’s designed around you, you design it around your lifestyle, you design your business around your life instead of your life around your business, which so many people do it backwards, and they have, they don’t create any time for themselves, and they don’t create true financial freedom or freedom of time.

Kathy:
Yeah. I mean, another example, we just did our first book signing last night in Dallas. We’re here at the Oh, congrats expo. And, um, somebody who came to the event, uh, is a property manager, also an investor, owns commercial and residential and has a family. And we asked, what, what’s your goal? And we said, um, a hundred million dollar company. And the first thing Rich said is, why? For the sake of what? For the sake of what?

Rich:
Yeah.

Kathy:
Like, what do you want? And you know, at the end it was at the end, he’s like, well, what I want is, um, more time with my family. I want, I want this my family. And I asked them, have you, have you asked your family if they want a hundred million dollar business? <laugh>? Have you asked them what they want? Because a lot of times they don’t. This isn’t a conversation that, that people maybe have together. So we wrote the book, the first two chapters are about you. What is it that you really want? And how do you design your business to support that? Versus what happens too often is the business becomes this beast and you’re supporting it. Mm-Hmm. <affirmative>. And it takes over your life. We wanna flip that so that you know where you’re going and the business takes you there.

Dave:
Well, this sounds great, but it’s a lot easier said than done. And I was just curious, why do you think that is? Because when you say it, it sounds so obvious. It’s like, of course you come up with a goal and build backwards, but myself included, so many people do it the exact opposite way. Why do you, why do you think most people get this wrong?

Kathy:
Oh, man, rich wrote a great chapter on it.

Rich:
Yeah. Back in the day, back in the eighties, I was a competitive bodybuilder, of course, right? <laugh> with my flaming red mullet and my baggy pants and, and fanny pack.

Dave:
Oh, I’ve seen the videos. They’re amazing <laugh>.

Rich:
But back then, uh, it was really interesting because I, I had what so many of my fellow gym rats had was Big Auryxia. We called it Big Auryxia back in the day. It’s like the, um, anorexias, um, brother in a way. And it’s like, no matter how big you get, the smaller you think you are, it’s this weird condition in a way. It’s a mental condition, it’s body dysmorphia, so you think you’re not big enough. And we see the same thing in real estate. We see the same thing in business. So many of our friends come to us saying, I’m not big enough. You know, I want this many doors, or I want a hundred million dollar portfolio, or a hundred million dollar business. And it’s a, it’s this weird addiction. So it does get hard when you’re trying to 10 x your business in a year.

Rich:
Life can be really hard and business can be really hard. It’s taken us 21 years to 10 x our business a couple times, but we’ve done it over 21 years. So it’s, um, more of a, a smart approach to it, slowing down a little bit. But coming back to that, it’s, it’s not easy. It’s, we’re not saying it’s easy. It takes focus, it takes determination. Being an entrepreneur, it takes a lot of that. But if you truly want to be an entrepreneur, then you need to look at how you can scale your business and how you can have talented people working for you, doing the jobs that you’re not great at, so you can focus on what you’re really good at and what you love to do. And if you don’t have that, if you haven’t designed your business that way, you’re not creating freedom for yourself.

Kathy:
Yeah. I mean, in, in our relationship, I would say I’m the one who suffers more from big auryxia than rich <laugh> business wise.

Rich:
Mm-Hmm.

Kathy:
<affirmative>, I just, it’s always, I’m the visionary. I, I have new ideas, I wanna do big things. And I’m the one that grew our company bigger than it was, than it was able to handle. We didn’t have the systems to support it. In 2008, uh, I had a different business partner, partner. I was, uh, 2008, a hard time for anyone, but we did not have the systems in place to be able to handle growth like that. So, uh, that kind of fell apart. And I asked Rich, rich, who’s a business coach and has a business degree and had been coaching executives and big corporations for years. And I just said, can you, can you coach me? Let, do you think that would destroy our marriage? Or, you know, can you be my partner and put all that expertise into what we’re doing? And, and then he did, he brought in systems. And as a visionary, I fought, I kicked and fought the whole way through that. But, um, you know, it really started with the visioning. And, you know, we talk about this, we hear about this, but, you know, what do we collectively want as a company? Where is this company going

Rich:
Collectively? Meaning us and the employees? Mm-Hmm. <affirmative>.

Kathy:
Yeah. He sat us all down. He made us turn off the phones. The phones are ringing off the hook. I was like, we don’t have time for this, rich, we got work to do <laugh>. He’s like, no, no, no. We’re we, we need to get very clear on what this company’s about. What are our values, where we’re headed, where we wanna be in three to 10 years, and what that’s gonna look like. What’s the structure? What’s the org chart? And, uh, so we took the day off and, and did it. And that was a game changer.

Rich:
Yeah. So it’s like Kathy said, it, it, let’s start with you as that first section. And it’s looking at you as the business owner or the portfolio owner, however you wanna look at it, starting with you about what’s important to you. What do you see in the future If everything turns out just right and then you apply that to your business, then you say, you go into the second part and it’s, what’s my business about? What do I want this business to look like? What is our purpose of the business? Who do we serve? How are we making a difference? What kind of impact is this business making? So starting with a purpose from there, you get very clear on your mission for the business. Like, okay, if that’s our purpose, like for us, it’s helping people create real wealth, which we define as having money and freedom to live life on your own terms.

Rich:
That was since day 1, 21 years ago, we put that flag in the ground. But then you go into the mission. So you say, okay, for the next three to five years, what’s the measurable specific mission that we wanna accomplish as a team? And that drives your team. It gives, um, motivation, it gives, creates better teamwork. And then from there, you go on and you get the clarity of the vision with the whole team. All those things I think need to happen first about what’s the business about the why, how do you wanna design it? Then you can go into creating your processes and your systems and hiring your a team and your organizational structure.

Dave:
Well, let me first say that you’re very brave, Kathy, to invite your spouse to coach you. I

Rich:
<laugh> very brave.

Dave:
I don’t know if I would do the same thing, <laugh>, to be perfectly honest. Um, but it’s clearly worked out for both of you. But more importantly, I, I think I love what you’re saying. I think this is probably a situation that plagues most entrepreneurs, but it seems very prevalent in real estate investing. I don’t know if it’s because of social media and you’re constantly comparing yourself to other people, or, you know. Yeah, I think a lot of people wind up chasing money and door count because it’s easily quantifiable and it is not easy to count how much, how many great days you have or how much time you spend with your family. You know, that’s sort, sort of a fuzzier thing to try and measure. And so when you ask someone what their goal is or what they want, they’re just like, oh, a hundred million dollars. And like, that sounds great, but, uh, to your point, it, it’s not always beneficial to you. And it can actually lead you down a pathic it you further from what you’re actually trying to, to do. Yeah. We do have to take a quick break, but as a reminder, if you’re enjoying the show, you can hear Kathy co-hosting the on the Market podcast from BiggerPockets with me on YouTube and on all the podcasts platforms twice a week. So go check it out.

Dave:
Welcome back. We’re talking with Richie Cathy Ecky about how to scale a business. Maybe you guys can give us some, some examples here. I’m curious what type of investor, what type of, let’s just say real estate investor let benefits most from implementing these types of systems.

Rich:
I mean, if anyone who wants to treat it like a business, which I think you should treat your real estate business like a business, right? So that would mean a business has employees and it has people and it has a team. So anyone who has a team or wants to have a team and wants to grow that team, it really, it comes down to the people. You know, you can’t have a self-managing business without self-managing teams running your business. And you can’t have self-managing teams if you don’t have a self-managed leader overseeing those teams to free you up as the portfolio owner or the business owner, wouldn’t you say?

Kathy:
Yeah. Yeah. I mean, just an example would be, is there anything, Dave, you’re, you gotta be a busy guy. You’re doing so many things, um, and also managing a real estate portfolio. Is there anything within your real estate business portfolio that you’re doing that you don’t really love doing?

Dave:
Pretty much all of it. <laugh>, all of it.

Rich:
What, what is it that you love about it? There, there’s gotta be something that

Dave:
You, no, just kidding. Just kidding. I, I love like the acquisition part. And I, I love the portfolio management piece is actually my favorite. I like playing with what I have, seeing if what investments are most optimized for me selling the ones that aren’t working. Reallocating capital. I really dislike operations, to be honest. I don’t like running the day-to-day stuff. I don’t like doing taxes. I don’t like any of that, right? I, I never really, I did self-manage for 10 years. Um, but I never really love that. So there’s probably some stuff I could stand to outsource, but just outta curiosity, would you count me? Like, would I be a good candidate for this? Because I don’t have a team. I know I have, I guess in the nomenclature of BiggerPockets, I have a team, I have an agent, I have a property manager, but they don’t work for me full time. So does this stuff apply to me?

Kathy:
I I really think it does. I mean, the book is really written for someone who already has a small business and they’re losing their mind. ’cause maybe they’re employ they, they’ve lost control basically of their employees or of the business, or

Rich:
They’re overwhelmed.

Kathy:
They’re overwhelmed. Uh, but that, you know, you can feel that as an investor. So the first chapter, again, just comes down to what are you doing it for? Like, what, what is the ultimate goal? And not forgetting that it’s very easy to forget why we’re doing something. And it’s like, you may have way overshot your original goal and then not even realized it. And just again, have that problem. I need more, I need more, I need more when you’re already there. So the first step is really like, what, what am I trying? Am I trying to create more free time? Am I trying to replace my current income? What, what is that personal goal? And then what, how is the business going to support you in that? So once you’ve gotten clear on that, then you can look at all the functions of your business, this business that you’ve built to support your personal dreams.

Kathy:
Mm-Hmm. <affirmative>, look at all the functions of it, and then create that org chart. Even if that org chart is just your face on every position. Mm-Hmm. <affirmative>, right? You know, now you, you know that you’ve got an acquisitions person, you’ve got an asset manager, you’ve got the book, you’ve got the finance person, right? Right. Now that might be all Dave. Uh, but you can, once you have figured out all the jobs you’re doing and put it on an organizational chart, then you can look at the ones, the things that you really don’t like doing. And you’re really not that good at that, you know, someone could do it better than you. Mm-Hmm. And now you’ve freed up your time. So to me, the goal would be how much time, this is what I wanna calculate, have I freed up to do the things that I love and am really good at? You know? And that, that’s the booster, that’s the superpower that takes everything to the next level, including your joy.

Dave:
I that it is a terrifying idea to try and put a, a name to every role that you have to play as a, as a individual investor. <laugh>, it’s, it’s gotta be like 20 different things, right?

Rich:
Yeah.

Dave:
But I imagine that just spelling it out and having, you know, 20 of my own face staring back at me, <laugh> would be, would be pretty telling. Like,

Rich:
Yeah,

Dave:
Of course there are things that I can’t do Well if I’m doing all 20 of those things. Uh, and, you know, I, I totally subscribe to this belief. I personally, I think I’ve said this to you Kathy, on other shows, is that I, I have a limit. I only spend 20 hours a month on my real estate portfolio. That’s just like, yeah, the max, I’ll do, but I’m still trying to do 20 jobs at those 20 hours. So that’s probably not a super efficient way to do it. So maybe it was just use me as an example. Like, what, what would I do next? So let’s say I, I lay it out there and I see that I am doing, you know, acquisitions, I’m doing, uh, analysis. I don’t do property managers, but I’ve managed the property manager. You know, I manage all these other people, right? Like, where would I go from there to try and figure out how to make my business more efficient? Because this is, just, to be honest, this is a super relevant question for me. ’cause I’ve set this limit of 20 hours a month, but I do wanna grow my portfolio. And so the only way to do that is become more efficient. So help me.

Rich:
Yeah. You, you gotta think ahead. You gotta look to the future too. But the actual tactical part of it is doing exactly what Kathy said. Where are you right now? Lay out that org chart, if you will, of your business and the different roles. And then what you want to do is look forward three years from today and then build another org chart, an organizational chart for that portfolio. Your business. Again, it is your business, whether you’re a flipper or a self-storage operator or a syndicator, or you own a service business, it doesn’t matter. You lay that organizational chart out three years in the future and you say, okay, if this business was designed perfectly, the way I would design it right now, who’s in this role? Who’s in this role? Not the people, but what are the roles? What are the titles? And then you start coming from today, you look at your org chart today and you say, okay, what’s my next hire? And you choose one of those positions and you say, okay, my next position here is gonna be Q4 of this year. I’m gonna hire this position. And then you go seeking out. And that’s, so we go into a lot into that, like how, how to recruit, how to hire, how to onboard the perfect person for that position.

Kathy:
And, and we put a whole section kind of called, um, uh, nerding out. What, what is it? Let’s get nerdy. Let’s get nerdy. Yeah.

Kathy:
Yeah. Uh, so what’s different today than when we started is technology. Yeah. So you can scale so much faster today because of technology. You can fill these positions with people that are just working part-time for you, you know? Mm-Hmm. <affirmative>, you can, there are, like, you can get a, a finance person, a bookkeeper. We use a company called Belay, where we just hire a bookkeeper who manages all our entire portfolio and they’re trained on it. They’re specifically trained on being great bookkeepers. Mm-Hmm. <affirmative>. And we only have to bring ’em in for a few hours a week.

Dave:
Mm-Hmm. <affirmative>.

Kathy:
Um, so there are so many more resources out there for people. So you don’t have to go out and find a full-time, anything, you know, you could, you could get a part-time, CFOA part-time marketing person. Um, there’s, there’s lots of ways for you to fill in those boxes with people who already know how to do it, and in fact, know how to do it way better than you.

Rich:
Yeah. We hired a whole legal team of outsourced legal, you know, specialists, which is amazing. Um, we have a PEO for our company now, a professional employment organization that handles all of our payroll and HR and all that stuff that we don’t want to do and don’t have the knowledge to, you know, yeah. You know, labor laws and all that stuff. So yeah. There’s so many resources today, they’re easy to find.

Dave:
That’s a great thing for everyone listening to, to take home right now, is that it doesn’t have to be a full-time employee. Maybe, depending on your, your vision and what you’re trying to accomplish, maybe hiring full-time employees is in the cards for you. But it sounds like even if you just need some help or want to take something off your plate, you could still use this system to try and make your, your life a bit more efficient.

Rich:
That’s the thing is so many people that we talk to complain about all the jobs they need to do and how they don’t have enough time and how it’s like, they don’t want to grow their business because it’s gonna create more stress and overwhelm. And so that’s it. You need a system where you can start taking step one, step two, step three to actually scale that. Um, but it, it takes some time, you know, it, it’s to really implement, it’s gonna take you a solid year to really, to really create that self-managing business.

Kathy:
Yeah. I mean, 10 years ago, you know, when, when we were growing, um, we, we do annual meetings where we look at where we’re gonna be in 10 years, in three years, and the team wanted to, to really grow and, and I burst out into tears. I was like, I’m already busy. I’m already overwhelmed. The last thing I wanna do is grow. And yet, 10 years later, here I am and I’m doing less.

Rich:
Mm-Hmm. <affirmative>.

Kathy:
And yet we are growing faster. So why, you know? Mm-Hmm. <affirmative>, how on earth did that happen? Because the vision of it in my mind was hell, you know, no overwhelming. If we’re 10 x, that’s 10 x more hours of my time. I don’t have, and I’m not getting younger. So th this, this was the key and it really was what Ri Rich brought to the table is bringing in leaders who are as aligned, uh, with the vision as you are. And how do you do that? How do you get people so excited they can’t wait to get to work? Well, generally it’s not because they wanna just make you rich and have you live your dreams. <laugh>, that’s not usually how it works. Mm-Hmm. <affirmative>, they’ve gotta be bought in too. And so the way that we figured out how to do that, we used to have kind of a commission based thing because, you know, as you know, we, we help people build real estate portfolios nationwide. So we have three, uh, investment counselors on, on our staff, and they would, it would be kind of a round robin of leads, and one person might get a really high net worth client and the next round robin person gets someone who has no money and can’t do anything. So there was like competitiveness and people trying to grab it was just icky.

Rich:
Mm. And

Kathy:
Then we’re like, okay, let’s change it to where everybody benefits. Everybody benefits through this profit sharing. And, and so if you got the million dollar client, and I didn’t, I’m still gonna fill in for you if you’re on vacation or whatever. Mm-Hmm. <affirmative>, I’m gonna help you with this client because guess what, <laugh>, we’re all gonna benefit. So Rich put together working with some professionals on how to do that profit sharing program. And it’s unbelievable. Every employee feels like it’s their company. Like they’re, it’s an entrepreneurial spirit because they, the entire team wins when we win.

Rich:
Mm-Hmm.

Dave:
<affirmative>.

Kathy:
Not just, not just the owners. <laugh>,

Dave:
This is, this is so true in any, but I, incentive alignment is <laugh>, I’ve talked about this. I just ran, I just always rant about this <laugh>. But I think incentive alignment is like one of the most important things in any business. Like, you have to make sure that everyone is mutually gaining when you gain, otherwise, it just creates tension between people. Mm-Hmm. <affirmative>. Yeah. Then this is someone on your team, like you’re suggesting, or even with a contractor, or even with a tenant, honestly. Like, you wanna create these situations where everyone can win together so you’re not opposing each other. It’s just so much e everything just goes so much smoother and is so much easier. So I, I love that example. I think it, it is such a better way to have a sustainable business that grows profitably. It’s also just a more fun work environment, to be honest. When you’re working with people who you feel like have your back and that you can go to for help, and you can be, you know, vulnerable around and ask, you know, be honest with rather than feeling competitive with

Rich:
Right.

Dave:
Drawing on my own experience, I struggled with this to be perfectly honest, when I was first trying to figure out how to get myself outta the business. And I, you know, have a bunch of people that I work with, no full-time employees. But for me, there was two major hurdles that I would love your advice on for anyone listening. The first is just giving up control was really hard. You know, like you think, or at least I thought I knew everything <laugh> and that no one would be able to do things as well as I did. Uh, that was obviously incorrect, but that’s what I felt at some point. And then the second part was, it was just hard to start paying people. I, I think, you know, I’ve sort of gotten this mindset that I would do everything myself because it was super efficient. So one, is that a common, I, I imagine they’re common hurdles, but have, do you see that often? And two, like what advice do you have for people to get around some of those mental blocks

Rich:
About paying people?

Dave:
I think it’s just about scaling in general. It’s like you have to give up some of your revenue. You have to give up some control. And at least for me, that was pretty daunting.

Rich:
Right? Yeah. It’s scary. It’s tough. It’s tough for us too. Yeah. I mean, we’ve definitely been through it, still go through it. Um, when you look at some of these, you know, bringing on executives in our company now, it’s like that, it’s a pretty big annual salary. But if you flip that over too, there’s also looking at that old thing about what’s your time worth? So you really gotta look at Dave. It’s like, you know, what’s your time worth? If you look at what is your annual revenue that you bring in, or your salary and how much you making per hour, then it’s like you start to look and you say, wow, I can hire this person for $35 an hour compared to what it costs me an hour. That’s gonna free me up to focus more on what I’m good at, what I do best. And that’s gonna be bring more money into the company or to the portfolio. I think it’s like, it’s simple math, really.

Kathy:
Yeah. Part of the book, we inter, we just interviewed lots of really successful business people. Mm-Hmm. <affirmative>. This isn’t all about us and, and our company Real Wealth. It’s about, um, many, many business owners and their stories. And, um, one was Jillian Hellman of Realty Mogul. She started her business at 122

Rich:
Mm-Hmm. <affirmative>

Kathy:
And had no idea what she was doing. Like, like many of us. And, um, in the beginning, oftentimes the mistake people make is they’ll hire somebody cheap.

Dave:
Mm-Hmm. <affirmative>,

Kathy:
You know, does family or friends or somebody who needs a job and it’s like, oh, I don’t have to pay them very much. But also that person maybe doesn’t know what they’re doing. So then you’ve actually paid a lot because often you have to clean up the mistakes or do a lot of training. Mm-Hmm. <affirmative>. And that’s just kind of how new businesses start. Everybody just tries to figure it out and wears different hats. The turning point to really scaling, and Jillian explains this really well, is the moment that you decide we’re gonna go for it and get, bring in a specialist, someone who really, really knows how to do this and has done it before. Mm-Hmm. <affirmative> and we’re gonna splurge, but they would only do a three month, um, contract. So you’re not hiring someone full-time. We do it still

Rich:
Today. Yeah.

Kathy:
It’s just a three month contract. Let’s see if we work together, let’s see if you got what it it takes. Here’s the metrics, here’s what we need you to do. And generally, if that person can either be in sale, if they’re in sales and can bring in more income, maybe it’s an acquisitions person, you’re not gonna do any deals if you don’t have anything, you know, if you don’t have any deals. So, um, whatever it is, like if, if, if you are a sales person, you might need more to bring in your first person is the structure person because you need to be outselling and you can’t deal with structure. That was for me in mortgage when I was a mortgage broker. I could bring in the deals, but I did not have the time to do all the paperwork. So great. First hire for me, but what if I’m the systems person and I’m not good at sales? You need that money person to get out there and bring in the business.

Rich:
Mm-Hmm. <affirmative>,

Kathy:
Do what you are best out and bring in other people that are the best at what they do, and only put ’em on a three month contract. So it’s not gonna be difficult to let them go with really clear metrics.

Rich:
Yeah. As an independent contractor, a 10 99, and then if they pass the test and they, they’re a true A player, then you grab ’em as an employee <laugh> and put ’em on an incentive plan and everything.

Dave:
That’s great. Practical advice, just a way to mitigate risk and again, create mutual alignment. Like if they can contribute to your business and they like working there and you like them just the same, it just works out forever. That’s great. We do have to take one quick break to hear from our sponsors, but we’ll be right back. Welcome back to this week’s Deep Dish episode. Deep. I’m curious, in your work, rich, as a coach at Kathy, you both have talked to so many investors. I’m curious if there are any themes that you’ve seen among what people’s goals are or their vision is or, or what their why is, like what are some of the common things that real estate entrepreneurs are looking to achieve? Mm-Hmm. <affirmative>.

Kathy:
Well, it’s really funny. I did write a chapter on this and, and I’m super guilty of it myself, is we usually go into real estate because we want freedom. Um, and we want more time with our family, and we want more time for the things that, the things that we love to do and the people that we would love to be with. That’s why we want to leave our careers and, and, um, start our own businesses generally to be in control. And then somewhere along the line we forget that. And, and our, and the business takes over our lives and we don’t even remember why we did it. And we end up working more than we were when we had normal jobs. Um, we, we are the worst possible bosses we could ever have to ourselves because can just be so, so busy and completely lose track of why we did it.

Rich:
Mm-Hmm. <affirmative>.

Kathy:
But almost every person we talk to says they do it for their family.

Dave:
Mm-Hmm. <affirmative>.

Kathy:
And that’s when we say, really, did your family want this? I, I sat with a very, very high net worth fund manager with her family. Her kids were there. She had just sold a fund, made millions of dollars. It was more than anyone needed. They were happy they had enough money. And she was just sitting there saying, I think I’m gonna start another fund. And her kid looks at her and goes, no, <laugh>,

Kathy:
No.

Kathy:
And she goes, why not? I want to. And he’s like, no, we have the money now to do the things to travel, to be to. And she, she just didn’t listen to him and she did it. She did it anyway. Do you know what I’m saying? And

Dave:
So, oh, a hundred percent. My wife had to stop me from writing a third book this summer, <laugh>, I don’t even know why I was gonna do it. I just like put a second one out. I just sat down and just started typing. And she was like, what the hell are you doing <laugh>? Why are you doing

Rich:
That? Yeah. Yeah. I thought you just said that was the hardest undertaking. Yeah, yeah, exactly.

Kathy:
Success is very exciting. And, and, um, and it can play into ego. And so that is a section we wrote on check, checking your ego,

Kathy:
Why am I doing this? And trust me, this is something I have to do on a regular basis. That’s why people say to meditate, to get back to your center on a daily basis and to, to spend time together, look each other in the eyes and come up with plans together every year, sit with your family and, and, and look at are we on track to what we really want or not? Because it’s easy to get distracted and it’s easy to let the ego run the show. I, I will be at events like I am at right now and I feel like, oh shoot, there’s people here way more successful than me. I’m not doing enough. I need to do more. And then, you know, thankfully I’ve got this guy who’s like, his constant question is why.

Rich:
Hmm.

Kathy:
Why? For what? You wanna work more? Is that what you want? You want? Or do you wanna go to Europe? With me,

Dave:
Europe,

Rich:
It sounds way better. Yeah. It’s all, the bottom line is it’s all about sustainable growth. You know, you can have growth or you can have sustainable growth and sustainable growth. We just, you can keep going. Here we are 21 years later with our business and we have sustainable growth where things aren’t melting down. You’re not having infighting, you’re not having employees quit. You know, we’ve had employees for 15 years and, you know, at our business. Yeah. So that, that’s the bottom

Dave:
Line. That’s super cool. And that’s something to be very proud of. Not just the bottom line, but you know, the relationship you’ve make and the lives that you are impacting in terms of your employees who clearly love working for you, which is super cool. But this is, to me, just such a breath of fresh air. I find that with people in our industry and not necessarily, you know, regular investors. I’m talking about the real estate education industry here for just a second. So what we all do, which is talk about real estate, that there is like sort of an epidemic of people not knowing when is enough, you know, or, or what they’re even doing. And I think that gets portrayed on social media all the time. And it, I think unfortunately sometimes gets passed through the rest of the industry for people who are just starting, or people like the, the people who will benefit from your book, who are starting to scale up. They see some of these examples, um, of people who just keep going and going and going. And don’t get me wrong, there are some people whose true goal is to become a tycoon, to become a mogul. And if that’s your goal, you should go for it. I I totally support that.

Rich:
Right.

Dave:
I think the, the problem is when people start doing that, because they don’t know what else to do at their time.

Kathy:
Yeah. I mean, then again, there’s nothing wrong with growing and, and scaling. And when you have learned that, then it’s not overwhelming. Then what you’re doing is empowering. You’re, you’re creating leaders. You’re, like you said, you’re building people up and creating jobs. Uh, it’s just if you don’t have that in place and you, you don’t have the vision Mm-Hmm.

Dave:
<affirmative>

Kathy:
And the, the mission and values and you’re just chasing money like you said, then, then that’s when you get, can get overwhelmed. And that’s when things go down. We were seeing it everywhere. I’m doing a presentation at a multifamily event and I, I thought I’d do a little research. So I went on real deal and looked typed in foreclosure and the list goes on and on and on and on and on and on and on and on and on is for pages of, um, multifamily projects that have gone into foreclosure through syndications. And, and those people are, you know, they, they went on this, this ride thinking, isn’t this exciting? We’re gonna have a a billion dollar company or a $2 billion company. And sure they did, and now they don’t. Mm-Hmm. So, right. And it’s, it’s everywhere. It’s huge When we’re in that exuberance phase of the market, you know, we talk about market cycles all the time, right? There’s this exuberant phase where people start doing things that they know they shouldn’t.

Dave:
Mm-Hmm. <affirmative>,

Kathy:
But everybody else’s. So it’s like, oh, okay, we’ll just skimp a little on the underwriting. ’cause that group did, and that group did. And there was very few of us who held steady who were like, I’m not doing it. I’m, I know we have our values so to speak. We know our underwriting, this doesn’t make sense. We’re not doing it. And we sat it out, and I can’t tell you every day was like, why can’t I find a deal? Why can’t I do this? Mm-Hmm. <affirmative>, why is this not working

Rich:
With jealousy and envy,

Kathy:
Jealousy and envy? And why is everybody else doing a deal? So it, it, it exuberance phase requires a tremendous amount of self-discipline for sure.

Dave:
Yeah, totally. FOMO is a real thing in this industry because the people do really cool stuff. Uh, and especially in those exuberant times, it can be really overwhelming. I remember like 2021, I’d just be reading about these like 21 year olds who bought 87 units. I’m like, wow, I suck compared <laugh>.

Kathy:
These, you say that so many times. Like, what’s wrong with me? What’s wrong with our team? Why can’t they under

Dave:
Write? Yeah. Or we suck. Totally. But now I I, I actually have been reflecting on that a lot recently, is like, I did stay the course and I think I was pretty disciplined. And I don’t know if those people went belly up. I have no idea. But I’m just happy because I don’t have any stress right now. Like, I’m not worried about my portfolio personally because I stuck to what I knew was sort of in line with my long-term vision. Um, and, uh, it sounds like your book is going to help all sorts of people stay on course for their long-term vision. So thank you guys both for writing it and thank you for joining me today. I guess before we get outta here, do you have any last advice on how, uh, for our audience about scaling Smart?

Kathy:
Yeah, I just, I wanna follow up with what we just said that, uh, you know, the only reason I had discipline this time around is I didn’t, the last time <laugh>. So in, in 2008, we got, we, we went through a terrible, terrible time with foreclosures and short sales and it was difficult. So for those of you out there who are in it right now, who are in the, in the Tumblr, you know, just like trying to figure out how to get out of this situation. It’s not easy, but I tell you what, you will be a much better investor next time. Don’t give up. Don’t give up. Just, just learn from it and keep on, keep on moving because we didn’t give up.

Rich:
Learn from these old people.

Kathy:
Learn from how can say, yep, now I know why. Now I know why it’s important to stick to these underwriting guidelines or whatever. Don’t give up. Get through it. It’ll be okay. Yeah. <laugh> and read and read Scaling Smart, that will help for the next

Dave:
Phase. <laugh>. Well, those lessons are incredibly valuable and why the, they’re so important for people and entrepreneurs to be a part of community and have a network so you can learn from people who have succeeded but also made mistakes in the past. It’s equally important to learn from both of those types of lessons.

Kathy:
Yes, sure.

Dave:
Well, rich and Kathy, uh, congratulations again on the book. The book is Scaling Smart. It is of course available on the BiggerPockets Bookstore or on Amazon. We’ll put links to all that below. We’ll put links to all of Kathy and Rich’s information below as well. Thanks again for being here to both of you,

Rich:
Thanks you so much for having us on. It was great.

Dave:
And thank you all so much for listening for BiggerPockets. I’m Dave Meyer. We’ll see you next time.