Stage gates and operating engines

Gate 0: Foundation

Before the first purchase

Must be true to enter:

• Six months of household expenses saved, separate from the house fund
• A written plan for every consumer debt
• The savings rate is running automatically from each paycheck
• Credit report reviewed and errors disputed

Must exist before moving on:

• Written buy box: market, price range, minimum rent, minimum coverage
• First lender pre-approval
• CPA and real estate attorney chosen

Hold or stop: Hold if household reserves or the savings rate slip for two months in a row.

Gate 1: First door

Houses 1 to 4

Must be true to enter:

• Gate 0 still true
• The house passes the buy box and the coverage test on actual quotes, not estimates
• Insurance quoted before the offer

Must exist before moving on:

• Books by property from day one
• Written tenant criteria applied the same way to every applicant
• Separate account for security deposits as the state requires

Hold or stop: Stop if the first house runs a loss for six months or reserves drop below policy.

Gate 2: Repeatable

Houses 5 to 10

Must be true to enter:

• Every house has a full year of records
• Portfolio coverage 1.35 or more
• Reserves at policy

Must exist before moving on:

• Standard maintenance and make-ready list
• Manager chosen or self-management system written down
• Monthly review meeting held every month

Hold or stop: Hold buying in any amber month; stop in any red month.

Gate 3: Scale

Houses 11 and up

Must be true to enter:

• Standard-loan limit reached; at least two portfolio or rental-income lenders approved
• A rehab crew with three on-budget jobs
• The yearly stress drill passes

Must exist before moving on:

• Approval limits and separation of duties in force
• Maturity ladder: no more than a quarter of debt due in any 12 months
• Quarterly portfolio review with the CPA

Hold or stop: Stop if the stress drill fails, or if any loan balloons within 12 months with no refinance lined up.

Gate 4: Peak and stop-buying decision

The planned payoff age

Must be true to enter:

• The plan engine, rerun on actual numbers, shows debt-free before the target age
• No red flags in the last 12 months

Must exist before moving on:

• Written payoff order (highest rate first)
• Recast and refinance options checked for every loan

Hold or stop: If the rerun shows the goal is out of reach, re-plan the goal, not the risk.

Gate 5: Kill the debt

Payoff years

Must be true to enter:

• All net rent above reserves goes to debt
• Every extra payment confirmed as principal

Must exist before moving on:

• Monthly payoff report
• Servicer audit each quarter

Hold or stop: Pause extra payments only to rebuild reserves after a large repair or vacancy.

Gate 6: Harvest and hand-off

Debt-free years

Must be true to enter:

• No debt
• A trained successor or professional manager in place

Must exist before moving on:

• Estate plan signed and reviewed every three years
• Operating manual written
• Cash-buy rules written

Hold or stop: Never re-leverage to speed up purchases late in life without a written risk review.

Deal-flow engine

• Written buy box shared with every source
• Sources: agents, direct mail, local banks, estate attorneys, other landlords
• Same underwriting sheet for every deal: rent comps, repair estimate, coverage test, insurance quote
• Offer only when the numbers pass; walk away otherwise

Rehab engine

• Written scope before bids; at least two bids
• Pay in draws after inspection, never ahead of work
• Standard materials list so every house is the same to maintain
• Track budget versus actual on every job

Leasing engine

• Written tenant criteria applied the same way to everyone, following the Fair Housing Act
• If a screening report leads to a denial, give the required adverse-action notice
• Lease, move-in photos and inspection signed by both sides
• Renewal offer sent 90 days before the lease ends

Maintenance engine

• Preventive calendar: furnace, roof, gutters, smoke alarms
• Replacement reserve for roofs, heating and water heaters
• Response targets: emergencies the same day, routine within a week
• Every work order logged by house

Collections engine

• Rent due date and late policy in writing
• Online payment with automatic receipts
• Same steps for every late account, following state law

Finance engine

• Separate accounts: operating, security deposits, reserves, replacements, taxes
• Books closed by the 10th of each month
• Two people involved in every payment over the approval limit

Data engine

• One record per house: purchase, loans, rent, expenses, repairs, insurance
• Monthly portfolio health check and plan-versus-actual review
• Yearly rerun of the plan builder on actual numbers