Mastering Business Management and Real Estate: A Winning Strategy for Entrepreneurs
Last Updated: February 06, 2o25
Steve Nabity
February 06, 2025
Mastering Business Management and Real Estate: A Winning Strategy for Entrepreneurs
It is often said that the best entrepreneurs and business owners are adept at allocating capital. They understand what return on capital is and how to put capital to work. Entrepreneurs may either invest the money within their businesses or make strategic allocations to other asset classes. Real estate can be that asset class, though it has its risks and rewards equation.
In this blog, we will explore the parallels between managing a business and real estate. We will look at the risks vs reward equation that real estate investments offer to entrepreneurs and business owners. We will discuss some strategies needed to effectively manage real estate investments. Making real estate investments ultimately has to be aligned with the longer-term business and personal goals of the entrepreneur. For those interested in delving deeper into real estate investment management, we will share some tools and resources that help. Lastly, we will talk about how you can get started with your real estate investment journey.
The Dual Challenge of Business and Real Estate
Entrepreneurs turn to real estate investments for a variety of reasons. They may want to diversify their source of income, build generational wealth, achieve personal financial goals, look for stability from a lower-correlation asset class, or make a strategic investment as part of a business strategy. Entrepreneurs who invest in real estate may see the asset class as one that offers the potential for capital appreciation over time, a hedge against inflation, and an offsetting factor in times of market volatility. Some business owners and entrepreneurs prefer real estate for its ability to generate rental yield and a source of consistent passive income.
Even businesses offer a lot of the above benefits. A source of income, a hedge against inflation, a means to build generational wealth, and so on. Business and real estate both require strategic planning, effective capital allocation, and consistent oversight. Balancing revenues and expenses, getting the tax planning right, staying on top of negotiations, and maximizing returns are other commonalities between business and real estate investing. Scaling a business or a real estate portfolio requires informed decision-making. By recognizing such parallels between business and real estate, entrepreneurs and business owners can leverage their business acumen to navigate the complexities of real estate investing.
The Risks vs. Rewards of Real Estate Investments
Before making a real estate investment, entrepreneurs and business owners first need to understand the risks associated with and the rewards offered by real estate as an asset class.
Rewards
Income-producing real estate offers rental yields. This cash flow can generate consistent monthly income for the investor. If the property is being professionally managed by someone other than the business owner or entrepreneur, then the rental cash flows become passive income.
Real estate also has the potential to appreciate in value over time. The appreciation can happen due to upgrades/improvements made to the property which boosts the rents, market trends, certain developments in the micromarket which boosts demand, or due to inflation. Whatever the reason, an appreciation in the value of a property drives investment returns in a big way.
Real estate offers a few important tax benefits to its investors. One of them is depreciation (including accelerated depreciation) which can bring down the taxable income. The interest paid on mortgages can also lead to a deduction and reduce tax liabilities.
Risks
The rewards offered by real estate also come with some risks. The first risk is that of managing the tenants. Making sure that the leases are renewed at market rents, timely payment of rent, and maintaining high satisfaction among the tenants all require time and effort.
Another key risk is that of managing the financial side of a real estate investment. Vacancies and rent payment defaults can reduce cash flows. Having high tenant concentration can also pose the risk of default. Unexpected repairs or capital expenditures can put a strain on the cash flows further. Certain expenses like taxes and insurance are fixed no matter what happens on the income side.
Lastly, there is market-level risk. Real estate is not disconnected from the overall economy. Economic downturns can cause volatility in several sectors including real estate. While real estate might have a lower correlation to popular asset classes like stocks, its value can change unfavorably if the economic situation or the macro environment is unfavorable.
Strategies for Effective Real Estate Investment Management
While the risk from any investment cannot be completely avoided, it can be managed. It is often said that risk management is as important a skill (if not more important) as choosing what to invest in. In real estate too, there are certain strategies that business owners and entrepreneurs can follow to mitigate risk and maximize returns. Those who can balance the risks and rewards of an asset class can become successful investors of that asset class.
Risk Mitigation
One of the most common errors real estate investors make is underestimating expenses for repairs and maintenance. Not accounting for them can artificially boost the net operating income. However, when such expenses catch up, it can throw off all return projections and lead to severe financial strain. So, it’s best to be conservative when budgeting for repairs, maintenance, and capital expenditures.
Investors also need to stay abreast with the latest market trends. While it does not have to be analyst-level knowledge, one should be aware of where interest rates are, how the demand for real estate is, and any neighborhood/location-specific developments.
Lastly, many of the risks highlighted in the section above can be managed, to some extent, by diversifying the real estate investment portfolio. By investing in multiple locations or multiple types of properties such as multifamily, industrial, and retail, one can build a more diversified portfolio that offsets market volatility in any one subsector of real estate.
Maximizing Rewards
Business owners and entrepreneurs can maximize the benefits of real estate in several ways. Firstly, they can strategically invest in real estate and allocate the resulting cash flow to their businesses. They can also collaborate with experienced professionals who can source deals, conduct due diligence, close the transaction, and then manage the property on behalf of investors. That way, entrepreneurs build an additional income stream while still maintaining their focus on existing businesses.
Camp Hall – One of our portfolio Industrial properties in Charleston, SC
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Aligning Real Estate Goals with Business Strategy
There has to be a purpose for any investment. The decision to invest and the choice of the investment have to be aligned with the goal of such an investment. If an investment in real estate is being made as part of a business strategy, then the goal of the strategy has to be clear. For some entrepreneurs, expanding the business could be a goal. For others, it could be creating an alternate source of cash flow that can offset the volatility linked to business cycles.
Before making an investment, the entrepreneur or business owner needs to understand how the real estate investment will complement his/her business objective. Owning a commercial property may provide a stable location for a business’s operations. It may provide housing for employees or a place to establish a store where footfalls are strong. Business owners could use part of the space and lease out the rest to generate cash flow.
Businesses may also use the cash flow from real estate to fund working capital. This can be important in businesses that have long cash conversion cycles or face a temporary cash crunch due to the nature of the business. The cash flow from real estate can also be used to fund growth initiatives.
There are several possibilities when it comes to business management and real estate. The key is to align the investment with the purpose.
Cortland Med Center – A multifamily property in our portfolio
Tools and Resources for Managing Both Real Estate and Business
Real estate management involves several tasks. To streamline things and stay on top of it all, it is recommended that business owners and entrepreneurs use technology. Tools that help with tenant management, tracking lease agreements, important dates, maintenance requests, and rental payments are worth using. Some examples of such CRMs include AppFolio and Buildium.
The back end of real estate operations also involves accounting and finance. QuickBooks is one software worth checking out. Xero is also another tool that helps with advanced budgeting and forecasting.
Besides real estate operations, staying up to date with industry trends and insights is important from an investment perspective. CoStar is great as it offers comprehensive reports for specific locations. Institutional brokers come out with reports regularly that may be worth skimming through. Zillow is popular for tracking home price indices throughout the US.
We recommend you also check out >this guide on the 5 keys to mastering real estate investing.
