If you’re thinking of developing a vertically integrated approach when investing in real estate, it can be helpful to understand how it works. Some investors opt for this strategy to gain a greater level of control over their investment. At the same time, the trade off is often that it can be challenging to scale. You might be so absorbed with one project that you aren’t able to carry out multiple projects.
Here are some points to think about if you are considering a vertically integrated approach in real estate investing.
Understand the Concept of Vertical Integration
Vertical integration in real estate means owning and managing multiple stages of the investment and development process under one umbrella. This model contrasts with a setup in which an investor or entity focuses on one aspect of the value chain, such as property acquisition or construction. A vertically integrated firm may be able to streamline operations, which could be an advantage.
Develop a Strong Acquisition Strategy
Acquiring properties is often the foundation of real estate investment. For a vertically integrated approach, investors will typically look to develop in-house expertise to identify, analyze, and move forward with transactions. Some investors may bring this skill with them, and then rely on a team for other functions. If you hire someone, you’ll want to look for an individual with a deep understanding of market trends, zoning laws, and property valuation. You can also leverage technology such as data analytics tools to identify emerging opportunities that align with your business goals.
Consider Construction Capabilities
Some investors prefer to manage construction, as it can provide benefits such as quality control and cost efficiency. If you hire an experienced project manager, they can oversee everything in the construction process from permits to zoning and contractors. You might be able to buy materials directly from suppliers to reduce expenses.
Think about Costs
It can require a significant investment upfront to build a company that handles everything in-house. You may need to hire an extensive team and find that your time becomes focused on a single project. If you decide to outsource, you could bring in expertise as you need it. One benefit of this would be that you could leverage a larger platform that might be able to offer cost savings or other efficiencies. When deciding which strategy to follow, you can think about how much control you want to have.
Integrate Property Management
If you decide to bring management in-house, your firm can expect to handle leasing, tenant relations, maintenance, and financial reporting. Your staff might also advertise vacancies, carry out showings, bring in tenants, and negotiate leases.
You’ll want to hire a dedicated maintenance crew or build partnerships with reliable service providers. You can also develop systems for tenant communication, which could help to build strong relationships and lead to renewed leases. Keep in mind that it can take time and considerable effort to create systems that run smoothly.
If you’re thinking about a vertically integrated approach to real estate investing, you’ll want to evaluate your level of experience and expertise. You’ll also want to be aware of the upfront costs to oversee various stages of projects. You might decide to uplevel your skills or build your network before moving forward with a vertically integrated approach. When you’re ready, you can work with others to create a business model that aligns with your overall goals.
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