How can I expand or grow my portfolio?

Question

I am currently looking for my first deal in real estate investing and have been wondering what ways I can expand or grow my real estate portfolio. I want to start with the mindset of growing my real estate investments into a full time career in the near future. I am by no means trying to put the cart before the preverbial horse, but am looking to my future from the beginning of my career.

My thinking is this...

Eventually I will get my first MFH or SFR and want to immediately roll into the next deal (thinking positive!). My goal is to have close to 100 units in 15 years. I have heard of this being done, but don't know which way(s) are the best that allow one to accomplish this.

I have heard of taking a HELOC loan out, but with buying a property and rolling into the next immediately, normally doesn't have any equity built up. Other examples would be private lending for down payments, borrowing from family (not possible for me), doing a owner-occupied investment and saving the rent I would normally have paid for a year and then reinvest (this is my plan as of yet, but it seems that it would take a long time before I accomplished my goals), using a credit card to fund deals (which I will not do), partnering (very skeptical of some others motives since I am new), selling after a year or two (speculating appreciation of course, which is bad news) and various not so friendly ideas.

Can anyone shed some light to what ways that I can roll into the next property fast so I can start the snowball effect in the first year? If you have any case studies or examples of your own would be greatly appreciated. If you have recommendations on books, articles, videos, podcasts that may describe this in more detail will also be much appreciated as well!

Thanks for your time and replies ahead of time! :)

Ned Carey · Answer

All of the things you mentioned can work. It is about doing great deals.

Find and negotiate great deal with great terms. You simply may not be able to "Roll Immediately Into the Next Deal" My second rental came about 8 years after the first. This is not a race it is a marathon. Being first out of the gate may not be possible but doesn't mean you won't win in the end.

@Ben Leybovich  says he only does about 1 deal a year. But he does very good deals. And his deals have been increasing in size. I bet many here would be very happy to be in Ben's shoes regarding his RE holdings. Check out the stuff he writes. He is on the BP main blog page as well as a lot of thoughtful forum posts.

Nathan W. · Answer

Brandon Turner has an excellent (and very short) e-book on how he would do it.  I say "would" because I can't remember if it was hypothetical or if it was the actual path he took, but it is a good read, hypothetical or not, to at least get you comfortable with some of the CONCEPTS that can make that a reality.

It is called "7 Years to 7 Figure Wealth" and is available here on the site.  I would link to it if I knew how to do that, but you should be able to search for it.

Jerry W. · Answer

@Chad Duncan  the way I started was by buying distressed properties and fixing them up.  This gives you a good boost in equity.  We used 15 year amortizations for fast pay down, and either sold or leveraged a house when it built up equity.  My partner usually was the one to say sale, I was always buy and hold.  You might try a 4 plex or something like that for very high initial cash flow.  It takes awhile to build up units without lots of cash.

Arlan Potter · Answer

buy dirt cheap properties, fix them up, and rent them. Repeat many times.

Val Csontos · Answer

@Chad Duncan Here is what we have done in the past in similar situation:

My small bank around here will lend you up to 75% of the APPRAISED value  on an investment property you are about to purchase this could be for  example "House B.

BUT in order to be able to cross collateralize the "down payment" (25%)  on a different property your original house we could call it: "House A"  have to have at least 50% equity.

Here is an example: say you are buying "house B" for $75,000 (and it does appraises for $100,000 )

You will need a $75,000 mortgage to pay seller and a $25,000 collateral for your small local bank in lieu of Cash down payment.

Than let's say you have another existing house: "house A" and it does upraises for $100,000.

In order for the bank to accept the equity in "house A" as collateral  for the $25,000 down-payment on "house B" you can not have more than  half (50%) of the appraised value collateralize BEFORE settling on  "house B"

This means: if your existing "house A" worth let say $100,000, now you  can not have more than $50,000 mortgage on it BEFORE you settle on your  new "house B" purchase.

Because generally the policy of most small banks is:

They do not allow your to exceed the 75% Combined Dept to Value ratio on  any properties anytime they have a mortgage interest or collateral on.

So the bottom line is: if you currently own a property that is only 50%  mortgaged then more than likely you can use that house to buy the next  one for zero cash down! Also if you purchase the second house using the  above technics and at say you located a deal where the property values  are : 50 cent on the dollar (not impossible just take many hours of  research) than you can do the same exact thing again and buy a third  house "house C " and using the second house "house b" for the down pay.  As you can see this technics can allow you to buy over and over with  little or no money as as long as the equity is there.

Good luck, and Happy Investing!

Brandon Hicks · Answer

Lots of good info in this thread

http://www.biggerpockets.com/forums/311/topics/125040-how-do-you-scale-your-business-so-quick

I have went from 4 units to 42 units in about 3.5 years using the land-contract purchase/small bank refi method. It works!

Brian Gibbons · Answer

@Chad Duncan

I would do the following

Find attorney in Oregon that can create lease options wraparound mortgages and subject to agreements

Find aa MLO that can underwrite buyers on seller financing

Get a list of expired listings, show the sellers  how you can get them full price without agents commission or closing costs

See my BP blog for more information

http://www.biggerpockets.com/blogs/3/blog_posts/42826-update-free-forms

Tim Soto · Answer

You first have to find a motivated seller to even recognize that you can suggest asking for seller financing. Once you know that the seller is motivated, the deal has value, and you've built rapport, then you can approach the seller(s) about seller financing or suggest a master-lease option. As mentioned earlier in the thread, get educated on the techniques that are geared toward you and your goals. You mentioned you have a VA loan. I would totally consider using it, seeing as you don't need a down payment and you can purchase an owner-occupied multifamily property of up to 4 units.

Tim Soto · Answer

I started with a VA loan too. Based on my experience, you don't need to buy a distressed property to make it a good deal. You can get up to a 4-plex as an owner-occupied single family home. That will enable you to use the income from the other 3 units to pay down your mortgage, expenses, and maybe even cash-flow. You can then start saving up for a down payment on the next deal, at which time, the lender will allow you to add 75% of the gross rental income when underwriting your next mortgage, which will enable you to increase your price range, if necessary. More importantly, as mentioned earlier in the thread, it's about finding the deal.

Here's how I financed one of my first and most creative deals: Back in 1998, the market was barely recovering from the last trough, and even though the market in Ventura county, CA is desirable, back then it wasn't unusual to see a property sitting on the market for a year or more. Anyway, I met a very motivated seller through a mutual friend. This seller had a five unit multifamily property that had been sitting on the market for over a year. His goal was to retire and was open to seller-financing. The seller was really interested in a monthly retirement check without the management hassles, like a bank, but he wanted a large down payment.

After another 6 months (1999), we agreed on an offer that was mutually beneficial. We agreed on a price of $410K with $60K down. Clause: "The down payment to be deferred for a period of 12 months." The terms of the 1st note were favorable enough to make the seller happy and avoid setting myself up for failure. The seller was able to retire with almost the same monthly payments as when he owned and managed the property. I was able to take possession of the property without having a huge down payment, and I used a cash-advance from a credit card to pay for my portion of closing costs. I was able to increase the cash-flow during the first year and later refinanced to cash the seller out on the down payment. This deal also allowed me to show any lender my ownership seasoning prior to refinancing, and I was able to go to the lender as an owner, not as a buyer. I also learned at the time how challenging it is to find a lender that would take a subordinate position on a seller-financed 1st mortgage.

Most importantly, it was the communication of over 6 months between the seller and I, that made this deal work. My focus was on trying to find a solution that would work for both of our situations, and thankfully, the seller was open to consider my suggestions. So, I believe you can build your portfolio with limited capital by finding great deals, and any possibility of finding great deals with limited capital for your portfolio has a lot to do with your communication and building rapport with the seller. Find solutions to situations. Hope this helps. Good luck!

How can I expand or grow my portfolio?

Most Popular Reply