Project managers are an often overlooked and under-appreciated group of people. If you’re unfamiliar with project management, you may not even realize what they do, or how important they are to the success of businesses in every sector! What do they do, exactly?
It’s a tough job, without a doubt! Did you know, though, that real estate investors can learn a lot from the project management field? We can glean wisdom from their strategies and responsibilities and apply it to real estate investment — making our work more effective and impactful.
3 Strategies Investors Should Adopt from Project Management
In-Depth Risk Management
Both real estate investors and project managers are intimately acquainted with the idea of risk management. For real estate investors, managing risk effectively is critical to maximizing your returns, ensuring the longevity of your investment properties, and preventing unnecessary costs.
Even for turnkey real estate investors, managing your risk is essential. But how do we actually do it? How do project managers do it? Let’s break down some of a PM’s steps in managing a project’s risk.
(You can find a detailed breakdown of each of these steps here.)
Evaluate Your Risk Tolerance
A piece of advice we should all follow is to embark on any venture not “risk-free” but “risk-aware.” Risk is inherent in every investment, project, and decision to some degree. We begin by determining our risk tolerance. Traditional wisdom says not to invest any more than you are prepared to lose. This is why, when it comes to stocks, there are different levels of risk and volatility to consider. In general, the higher risk yields a higher reward.
It’s important that real estate investors understand their personal tolerance for risk. This will affect their investment strategies not only as they decide how to invest, but how to grow their portfolios as well. For project managers as well as investors, knowing how much risk you’re willing to take on directly impacts your decisions and trajectory.
Be sure to check out our article: Building a Real Estate Investing Strategy: Minimize Risk in Your Investments
Make Your Action Plan
Project managers carefully outline their “plan of attack” for any given project. In the same way, real estate investors need to cultivate a sense for their future and how they intend to get there. When you are a passive real estate investor, it is all-too-easy to neglect planning. If you’re not careful, you will fall into the temptation to remain truly passive.
Even passive investors must put forth the effort to grow their portfolio and their own success. What does that look like, exactly?
For the most part, your action plan should be about how you want to grow. Think about the how, when, and where of acquiring more investment properties. Consider the money you may need to save and acquire, and what you use your passive income for.
When you know you want to purchase a certain number of properties in a year, or two years, five, or ten — you can better allocate your resources to achieve those goals on time.
The Critical Chain Method
In project management, one of the biggest delays on a project timeline can be the availability of resources. The critical chain method was created, then, to minimize these delays. PMs begin by outlining a project schedule that identifies “critical chain” tasks. These tasks then receive the first pick of allocated resources. In the end, this method may result in a longer timeline initially, but the predictions are much more realistic.
So what can real estate investors learn from critical chain project management (CCPM)?
Successful investing demands a knowledge and stewardship of your resources. Wisely planning property acquisitions, evaluating portfolio performance, and anticipating costs make a way for a strong career in real estate investment. In the same way that a project manager identifies a “critical chain,” so must investors.
What must you have to reach your short and long-term goals? How much will it cost you — in time, money, and other resources? Understanding what it really takes to succeed is among the first steps to getting there.
Analysis and Evaluation
Analyzing results and methodology as a project manager is about mitigating future risk and fine-tuning your systems of operation. As real estate investors, we must have a cultivated sense of hindsight. That is, we should always be looking back to see what we can do better.
That may involve continuing your education so that you are more fluent in the world of real estate investing (allowing you to engage with other professionals and make more informed decisions), going over your portfolio with your adviser, or tracking year-over-year portfolio performance.
As a real estate investor, you must know which investments are solid and which ones could be traded for something far better for you personally.
There is a temptation, again, to remain truly passive. If you want success and long-term wealth, however, you must engage with your portfolio and the professionals managing it to ensure that you are on the path you want to be on.
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