Accumulating cash flowing properties w/o running out of cash

[Matthew Mucker]

How do RE investors accumulate a number of cash flow positive properties without running out of cash?

Let's say I have enough money to put a down payment on a fourplex and I find one that'll cashflow $400/mo. That's 50 months before it generates $20K for me to use as a down payment on my next property. (And realistically I'd probably need closer to $40K down.)

I don't see how investors can accumulate a large number of properties without finding massive amounts of cash elsewhere.

What am I missing in my vision here?

[Bryan Hancock]

Originally posted by Matthew Mucker:

How do RE investors accumulate a number of cash flow positive properties without running out of cash?

Generally they either:

1. Do it slowly over time
2. Buy at big discounts and put down health down payments to get it to cash flow
3. Once they run out of money they need to raise it externally...so you need to be able to convince people you know what you are doing to continue to grow in the short run

Property is very expensive and demands leverage. The trick is balancing the leverage and risk with growth of your portfolio.

Originally posted by Matthew Mucker:

Let's say I have enough money to put a down payment on a fourplex and I find one that'll cashflow $400/mo. That's 50 months before it generates $20K for me to use as a down payment on my next property. (And realistically I'd probably need closer to $40K down.)

That is IF you actually get $400/month in cash flow out of the thing. Four plexes are generally bad investments from what I have seen. These are the favorite investments of grandma looking to park her cash safely while still using Fannie/Freddie financing. Consequently, the assets are bid too high to make sense financially. They are generally underwritten using a gross rents - PITI "cash flow" assumption and neglect capex, vacancy, repairs, etc. Your $400/month will generally be much lower or negative.

Originally posted by Matthew Mucker:

I don't see how investors can accumulate a large number of properties without finding massive amounts of cash elsewhere.

What am I missing in my vision here?

You either need a job to produce income to grow your portfolio or to develop strategies to buy/sell where you generate cash pockets. Most investors I know have TWO businesses...one for producing pockets of cash and to minimize FICA taxes and one to hold portfolio properties. The risk is with the quick turn deals so it is also good from a liability standpoint to keep them separate. If you are labeled as a dealer it is also good from a tax standpoint to have the two separated.