If your strategy is passive income and you implement it by building up your real estate rental portfolio, you ought to run into this dilemma at some point, which you ask yourself, “do I try to grow my portfolio or stabilize it?” The answer is not as straight forward as you might think, and like all things in life, there are pros and cons in both options.

Growth

Growth mode is probably what you already have experience with. When you first decided to dive into this real estate rental business, and try to make passive income, you by default were attempting to grow your portfolio at the beginning. During this time, your primary focus is to evaluate deals, and to make purchases of rental properties. Any capital and profits that you have, your sole intention is to bump them back to buying more properties.

This is the initial “rocket fuel” to accelerate your financial freedom. You need to do something like this to carry your mission forward. You do not need to be too precise with the execution, as you are more or less just trying to move towards the “right direction” (as opposed to sitting on your couch watching TV, that can be the other direction). Growth is the essential first stage and is very much needed.

Stabilization

Once you have a decent sized portfolio, you will need to consider when will be a good time to re-evaluate the strategy. There are 2 options: Continue to grow, or switch to stabilize.

In stabilization mode, what you are getting into are the details. It is not so much about growing the portfolio anymore. In fact, in this stage, you are making a conscious decision to not buy any more properties! Instead, what you will focus on is the operation details on each property, figure out things like:

• Are the tenants paying rents on time?
• Is there an abnormal amount of repairs and maintenance fees?
• Are there room for savings with management, landscaper, or insurance?

If tenants are not paying on time continuously, should you replace them or provide some incentives to encourage them to pay on time? If the fees are excessive, are there any underlying quality issue of the property that you need to be aware of? Does your insurance agent look out for your best interest? These are all things that you can put under the microscope to inspect, and the end goal is not about pointing fingers, but more about how you can make more money.

Once a property is stabilized, you should see an immediate and obvious difference in NOI increase. And when that happens, it is time to move on to the next property to stabilize!