What is a "System"?
I hear the term “Systems” tossed around a lot with real estate investing. As in “I am working on building my systems” or “I need to improve my systems”. But what are systems anyway and why do you need them?
In short, a “system” is a process or standard that you can easily repeat across your projects to save you time, money, and effort. A system should be specific enough that it can be re-implemented without much thought, but also allow you some flexibility if the project requires adjustments.
It is important to know that there isn’t one system for end-to-end real estate investing, but rather, there are systems for different phases of investing. The systems that will be important to you depend on your flavor of investing. For example, the systems important for wholesaling properties will be different than the systems important for buy-and-hold investing. Even within a single type of investing, the systems you implement will vary. For example, if you complete your own property management, the systems you will need to devise will be different than for an investor hiring a property management company.
To help illustrate systems a little more, here are a few examples to consider. I also highlighted the benefits each of these example systems can provide your business.
Example #1: Sourcing Deals
System: Software to track leads, correspondence, and campaigns.
Benefit: Will help you follow up on leads, organize all your communication with prospective sellers, and analyze the effectiveness of your email/mail campaigns.
Example #2: Calculating Cash Flow
System: Spreadsheet template with built-in formulas and assumptions covering things like insurance, taxes, and vacancy rates while highlighting performance metrics like operating margin and cash flow.
Benefit: You can easily plug in the specifics of each new opportunity and quickly see if the deal meets your goals. You can also easily compare multiple opportunities to see which may provide the best return.
Example #3: Selecting Finishes
System: Selecting standardized paint colors, tile, hardware, lighting, doors, etc.
Benefit: Saves you time from re-selecting finishes for each project. By using a standard set of finishes across projects, you will know the cost, the suppliers, and how it will look when completed.
Example #4: Property Maintenance
System: Using the same set of contractors for maintenance and repairs.
Benefit: You will gain experience with their service, quality, and price. This will save you time from screening and getting bids from new contractors for each project.
An important thing to keep in mind when identifying or setting up systems, is to craft them to fit your strategy. Don’t implement systems just because other investors are. Implement systems because they are important to your strategy. For example, if your strategy is to buy 100 units per year, you will want to focus on implementing systems to help you source and track deals. However, if your strategy is to buy 1-2 units per year, spending time implementing deal sourcing systems may be overkill.