This is a guest article from Stacy McWhorter, one of our new authors at the Real Estate Investors Field Guide. We at the Field Guide are happy to have Stacy join us and I know the members there will benefit from her wisdom, experience and sage advice.

Just about everyone who gets the real estate investing bug starts small. Maybe they buy a single family home to rehab and sell. Maybe they do a wholesale deal or two or maybe they really stretch and buy a duplex to hold and rent out. But, they usually start small. Eventually, if they are successful, they find themselves doing many deals each year and making decent money. But, the really successful ones know something the smaller investors don’t know. To get to the next real level, you must transition from small, getting you feet wet, residential to something else.

We will talk about what that something else can be later in this article but transition you must if you are going to enjoy the freedoms that drew you to this way of life called real estate investing. And don’t kid yourself; it is a way of life even if all you do is wholesale a house here and there for a little extra money each month.

If you don’t transition, you are limited to your resources. You are limited to how many houses you can buy, fix and sell or rent. Yes, you are leveraging your labor, but you are still limited to what your labor brings. This is true, even if you don’t do any of the physical work to repair a house to get it ready for market. You are intimately involved and if you don’t do what you do, the deals don’t happen and the money stops flowing.

You might be thinking, but that is ok because I am happy with what I do and with the money I make from my real estate investments. If that is the case, I’m not talking to you… yet. But, think about this. What would happen if you were disabled today? How long would your income continue if you were unable to do anything with your investments? Yes, now I am talking to you too!

If you have rentals and you do all of the management, what happens if you can’t do it? Do they still carry their weight and make a profit? They do? Great! Then why are you doing the management now? They don’t? Hmmm, bummer, I hope you know your risks you are facing.

You must transition to the next level.

That next level can be medium to large scale residential or it can be commercial but unless you are content with the money flowing only as long as you can actively work the business, you must transition.

One way to transition to medium residential is to consolidate your holdings in a neighborhood or several neighborhoods near each other. That way, you can benefit from the economies of scale and you should be able to use one of your units to house a “resident” manager. Yes, just like an apartment building only all of the units aren’t on the same physical lot. But, your resident manager of your assembled holdings acts exactly the same way an apartment manger would. In exchange for free rent and perhaps a few dollars each month they are responsible for managing the other units and the tenants who occupy them.

An ideal configuration is twenty to thirty units in about a five mile radius. These can be houses or duplexes, triplexes or even quads but keep them near each other and keep the loan to value reasonable. Don’t expect to borrow 100% of their value and still have them produce positive cash flow each month. Aggressively work to create a golden egg laying goose and then you will truly have a business that can succeed even if you aren’t there to crack the whip and get things done.

Another nice benefit of this is since you really have created a business, when you decide you really want to slow down, or go to the next level, you have an operating and profitable business to sell. If you build it correctly, it will be worth more than they sum total of the values of the individual properties. In numbers there is strength and you could legitimately argue the business is valued based on its profit potential as well as the assets it holds to produce that profit.

So, if you are just starting out that is ok, but think about the next phase. Think about what you need to do to grow into a business that continues to make you money whether you are able (or want) to work it. Then you can set your schedule based on what you want to do rather than what you must do to make your monthly money requirements.