How Real Estate Investors Use AI and Systems to Scale Their Portfolio Without Burnout

Palak Shah (00:00)

You mentioned AI and you mentioned team. And I think those are the two key things right now that we have at our disposal. Number one is really having a solid team. The thing that I hadn’t realized when I first started—we’ve been at it for 10 years. At this point, we have a portfolio of companies and hundreds of doors. Our businesses have crossed eight figures. And so when I think about myself a decade later doing all of this, the biggest thing that I had to learn is to grow myself as a leader.

Dylan Silver (02:04)

Hey folks, welcome back to the show. Today we’re joined by Palak Shah, a Philadelphia-based investor, bestselling author, co-founder of Open Spaces, and she teaches investors how to scale portfolios without burnout. Palak, thanks for joining us here today.

Palak Shah (02:21)

Hey, thanks for having me. Excited to be here.

Dylan Silver (02:23)

What are the common mistakes you see investors make when starting investing and building their portfolio?

Palak Shah (02:30)

What a great question. I think the biggest thing that when I talk to people, I feel like we all wait too long to get started. I mean, I started in my late 30s and it wasn’t until it became really tough to balance my work and having a personal life—I was an engineer—that the pain of that life forced me to invest in real estate. But I wish I had invested in my 20s. I think we all wait too long. We think that all the stars have to align correctly before we get started.

In real estate, it’s not about timing the market. We’re all trying to time the market when we first start, but it’s all about time in the market. And so had I started earlier… and that’s what all of us do, and it’s only in hindsight that we learn that. So that’s number one.

Second is a lot of new investors, we think that dabbling in multiple strategies is going to give us a diversified portfolio and that’s a safer option. But I think that we do that because we just don’t want to take action and don’t want to really make a decision on choosing a strategy and then sticking to it. But in reality, instead of growing one inch in 12 different directions, you want to grow 12 inches in one direction and choose one strategy and stick to it. So that’s another mistake that a lot of new folks make.

The third one is I don’t think people, new investors especially, I don’t think people realize that there is such a thing as value-add investing, where you get to have equity in your properties—

Dylan Silver (04:06)

When we talk about value-add, there’s a lot that people can do there. You know, if we can get a little bit granular here, one of the mistakes that I’ve seen a lot of people make, and you mentioned like the shiny object syndrome and a little bit of scope creep when evaluating what to get into. There’s so many options, right, to get started in investing. Some of them are more time-intensive, and that’s great for some folks. Others are maybe more hands-off, right? And so you see people, you know, telling you cash for keys, you can get invested with little to no money down.

Then you also have something like, let’s say, a short-term rental, which is pretty intensive, right? And you’re going to be managing changeovers and you’re going to need to be in communication with folks. You know, for that person who wants to have something a little bit more hands-free, is a year-to-year rental, you know, a traditional lease, right, for them? Or should they be looking at something that may be more in vogue, like let’s say a short-term rental or a fix-and-flip, but more intense on their time commitment?

Palak Shah (05:51)

Yeah, that’s a really good question. I think there is a lot of misinformation around what it means to have a passive business. And we think that we can have a lot of returns and still be passive. So people will come to me and tell me all the time, like, “I have a lot of experience investing. I invest in multifamily syndications. Why should I do this or that?” And if you look at, let me just take using an example, if this is the continuum of how passive you are and how active you are, the returns are going to follow, right? The most active businesses give you the most cash flow. And so understanding that is key.

And then when you layer it with systems, processes, teams, you can become relatively passive while having a very high cash flow. So if you look at like—we specialize in the SCALE framework, which is a supercharged version of the BRRRR strategy, and so that’s what we did. We know that in the very beginning of the BRRRR phase, when you are adding value, that’s when you get the biggest profit, and then you get cash flow for the rest of your life. How do you make it relatively passive and be hands-off while keeping that profitability high? So that’s what I would say. Any business, if you know how to implement systems, teams, processes, automations, and grow yourself as a leader, you can have both.

Dylan Silver (07:16)

Now, when we talk about scaling a larger portfolio beyond a couple of doors, or maybe a dozen doors, right, or more, you see it starts to take systems and processes like you mentioned in place in order to not have this become all-consuming. And people can become tired landlords even before that, right? You could have a handful of doors or even two doors, and it can become a situation where you become the source of distress as the owner. And also, too, the type of operator that may be successful in getting started and taking big initiative is sometimes also a cowboy, if you will. And so that type of person doesn’t always marry well with scaling and processes. When folks are going from a few doors to many, right, and they are scaling, what are some foundational things that they should do to avoid becoming a tired landlord, right?

Palak Shah (08:10)

Yeah, I think that’s a really good question. And I would go as far as to say that the real work only starts after you acquire a few properties and then you’re really running a business as opposed to in startup mode, right? Now, startup mode is fun and you have nothing to lose and you’re just going at it and learning on the job as you go along. And then when you have a few properties and you start thinking about scaling, that’s when the real work begins. That’s not where the work stops. Many investors think that it’s going to get easier when they have a few properties. And I think the reason they get burnt out is because they don’t really understand that the real work of them growing as a leader, building a business, and running a proper business with real operations begins after they’ve acquired some properties and then they’re thinking about scaling.

The biggest thing, the biggest mistake I think investors make as they start thinking about scaling a business is they think they don’t need an additional stream of income. Most real estate investors, after they’ve built a large portfolio, if they combine it with an additional stream of income, it really gives their portfolio stability. And so the framework we always use to explain this is we say make, multiply, manage. You always want to do three things with your money. You want to multiply your money using real estate. It’s a fantastic tool. It’s a net worth factory. It allows you to get all of the benefits of investing, right? You get tax benefits, you get debt pay down, you get appreciation, you get value-add investing, which allows you to build equity, tons and tons of cash flow, tons and tons of benefits that allow you to multiply your money, but also make money.

What is an additional stream of income or multiple incomes that allow you to make more money so you can continue building on that portfolio, and manage? So make, multiply, and manage. How do you manage that money well? That is another skill to acquire. How do you protect your assets? How do you manage your money and learn how to consistently have clean books? How do you keep your taxes straight? All of that is management. So make, multiply, and manage. That’s kind of how you think about your investment journey once you’re at a point where you’re thinking about scaling.

Dylan Silver (11:02)

Keeping books is such a good example of something that investors can get caught up on, right? Because you can get to a certain point and, you know, not have books in place. But then once you start to scale beyond a certain amount, you realize you need this, right? Because now you’re having tax bills to pay and the CPA’s coming to you, or the tax strategist and tax preparer’s coming to you saying, “Well, let’s take a look at your books.” You don’t really have books in place. Now they’ve got to go and do like forensic bookkeeping over the last however long period so that they can file your taxes, right? And it becomes this big headache and source of distress. And so you have the option, hey, I’m going to pay the bookkeeper, pay someone to do clean books for me upfront, or am I going to have the pain at the end and have to do like forensic bookkeeping, which I’m sure I know and you know so many people have—

Palak Shah (11:57)

God, and I hate bookkeeping. I really just hate bookkeeping. I don’t think—

Dylan Silver (12:02)

That’s why so many people avoid it.

Palak Shah (12:04)

Yeah. It’s, but you have to. I love tax benefits, though, so you’ve got to do bookkeeping to get the tax benefits. It’s like, I hate working out, but I like how it makes me feel after. So you’ve got to do it.

Dylan Silver (12:17)

Yeah, I like being healthy, right? And so that burger looks good. If I want to eat it, I have to continue running. When we talk specifically about some of the systems and processes that you see people doing these days, there’s a lot that people are talking about. People are talking about AI, but they’re also talking about how do they find the right hires and how large does their team really need to be? Who can be in-house, who can be 1099, this type of thing. You know, without giving away all of the gold, because I know that that’s a lot to throw at you, what’s a gold nugget that you can give our audience when they’re scaling and trying to determine what the best use of their time, money, and energy is?

Palak Shah (12:58)

You mentioned AI and you mentioned team. And I think those are the two key things right now that we have at our disposal. Number one is really having a solid team. The thing that I hadn’t realized when I first started—we’ve been at it for 10 years. At this point, we have a portfolio of companies and hundreds of doors. Our businesses have crossed eight figures. And so when I think about myself a decade later doing all of this, the biggest thing that I had to learn is to grow myself as a leader.

How do you hire a great team? How do you keep a great team? How do you deal with challenges when your team doesn’t perform the way you expected them to perform? So all of those things, it’s super important to do that. That is time not wasted because once you grow yourself as a leader, you can find A-players to be able to save you so much time, right? So that’s number one.

And the second thing is systems, processes, automation, technology. Now with AI, it has gone to the next level. And so we have AI employees throughout all of our businesses. And doing that has not only improved my productivity, it’s increased profitability, it’s improved my team’s productivity—everything from a virtual AI assistant who helps me communicate with my property managers, takes care of all of the conversations that are being held throughout the day for all the different businesses, and summarizing it and making sure that everyone knows what they’re supposed to do. There are so many things lost in translation, lost in these conversations where we’re throwing so much at each other because you know, big businesses have so much going on.

Having an AI assistant that can help you summarize all of that and keep everybody on track, to building out workflows, and to having dashboards that allow you to have full visibility into how every business, every aspect of your business is doing, it’s so amazing. Like we have an AI operating system in our business because that’s what we do—Open Sky AI, our business does that. And the operating system is like a brain of your business. And what it does is it allows you to wake up in the morning, and I get a Telegram message from my AI operating system that tells me exactly what is about to happen that day, what happened yesterday, what should I be looking out for, what are some of the fires that might come up, what are some things that I could have missed. And it summarizes it instead of me having to reach out to every single team member and getting all that information. So much is happening in the world of AI right now. And I think that is the best way as you scale any business, not just real estate, to find all of your time back. It’s been a game-changer for us.

Dylan Silver (16:31)

You mentioned expectations, right? And one of the things that I’ve seen from folks who’ve successfully scaled multiple businesses and sold businesses is one of the key components of leadership and of managing teams. On a small level, this could be if you’re doing a flip, contractors and subcontractors, but on a larger level, it’s multiple teams, it’s CPAs, it’s, you know, folks who are doing acquisitions and dispositions and realtors and lenders, right? You have to have clear expectations, not just for what they’re going to do, but also for what we’re going to do as someone who may be paying them or, you know, leading them in one way or another, right?

Palak Shah (17:08)

Yeah, absolutely. I think that communicating your expectations clearly and understanding their expectations could really make a huge impact on how you work with people and getting the best out of them, right? And then them also being able to, at the end of the day, meet your expectations. Being able to communicate that well is so important. Absolutely.

Dylan Silver (17:32)

It’s challenging because one of the big, you know, sources of pain that I think a lot of investors deal with, and I hear this so commonly on this show, is expectations dealing with contractors and for folks who may be doing a rehab, right? To a point where this is such a common occurrence that it’s now a frequent point of conversation on this show, and it really does come back to setting clear expectations. But then also marrying that with what you mentioned earlier about systems and processes, if people know what good looks like, then they’re more likely to follow it. Whereas if they don’t have a roadmap, right, and you’re saying, “Well, this is what I want the end to look like, you know, basically figure it out,” it’s very possible that that could be an overwhelming situation for a lot of people. Some people will do well there, right? But other people need a really well-written roadmap on how to get from point A to point B.

Palak Shah (18:25)

Yeah, and you know, contractors are creatives. I think we forget that. I think we expect the same thing that we expect from someone who sits at their desk and does the job for us. And expecting that from a contractor is just not fair because you want your contractor to be at the job site. You want them to not be at the desk organizing everything and having all the numbers straight. You want them to be at the job site. And so if you start treating them as creatives and either finding a contractor who has a fantastic back-office process where they either have an assistant or a partner who manages all of their details and their numbers, or being able to install something in your business that helps you manage that with your contractors, that can shift how you do business and how you, like you mentioned, expectations—what you expect from your contractor.

I think if you really think about it, right, your contractor can make or break your business. And if you start seeing them as creatives, just an idea—like if they give you a quote for something, just try this. Just say, “You know what, can we find a creative solution to this and try to do this in less amount?” Well, don’t compromise with safety, of course. Always tenant safety top priority. But with that in mind, can you find a cheaper way to do this? See what they come up with. You’ll then understand how creative a contractor is. And then expecting something else from a creative brain is like trying to make them write—if they’re right-handed, try to write with the left hand. But if you can install that in your business so that your contractor can do what they’re doing really well, or find a contractor who has an assistant or a partner that’s doing it for them, when you understand that and when you expect the right things from them, that can really impact your business well because as I said, a good contractor is worth their weight in gold.

Dylan Silver (20:20)

Now you have successfully scaled multiple businesses, and Open Spaces, your company, has multiple different entities within it. When you are looking at scaling businesses as a whole, do each of them have a similar process or is each one unique?

Palak Shah (20:36)

Yeah, so Open Spaces is our real estate investing and coaching side. And then we have other companies, but Open Spaces is how everything started. It’s so funny because in the beginning, when we started a business, it was learning what it even means to be a business owner. So everything was much slower. And then the second time we started our second business, it was—we were already business owners, so it was all about getting that off the ground. But now, in the last six months, we have, I think—Niddy is my husband, who’s our AI genius in our world, he launched multiple businesses in a fraction of the time that it used to take us, and it’s because of AI. And so now the game has completely changed. Everything that we knew and how we were doing things, all the blueprint that you just asked about, all of that is different now with AI. We are powerhouses, all of us, and we have superhuman abilities to be able to launch businesses and scale them. So yeah, the old blueprints don’t matter anymore because now we have AI.

Dylan Silver (21:49)

This is very true, right? So even something as simple as like a decision fatigue, “Hey, I’ve done a lot of work for today,” you know, AI can then pick it up from there. Or a particular bottleneck and you need to produce a solution set. Or if it’s something that is very technical, web-based, of course AI is going to be perfect for that. And that could have taken months previously. We are coming up on time here, though, Palak. Any new projects that you’re working on and then also anything you’d like to mention directly to our audience?

Palak Shah (22:18)

Yeah, we’re actually changing our content strategy and social media strategies. So I would love for folks to follow us and comment and let us know what’s been most helpful because we’re really shifting to a different type of content strategy. So that’s what I would love to do. That’s the project I’m working on right now.

Dylan Silver (22:37)

Palak, thank you so much for joining us today. Thanks for your time.