Building a Portfolio of Numerous Properties

[Jacob Gehrin]

What is the average ROI on one single family rental home? After all expenses I've heard anywhere from $100-$400/month. How can you build enough cash to continue buying properties? I'm not sure if you should be putting more money on the down payment or what. Just some idea of how some of you were able to continue multiplying additional units within a decent amount of time. Any info is highly appreciated!

[Mike H.]

Couple of comments.

1) I think you're not stating that correctly. The ROI is not 100 to 400/mo. The Net profit is 100 to 400 a month.

ROI is a percentage amount based on how much money you put in to the deal and how much it returns. i.e. If your down payment was 20k and the house makes 4k a year, your ROI would be 20%.

2) How can you grow a portfolio. The key is to limit your capital outlay on your deals. How do you do that? Buy right.

If you buy right (say at 70% LTV), then you can do cash out refi's to pull your capital back out and keep going.

Or if you buy with the right hard money lender and you buy right, you can limit your outlay to say 4% of the total purchase/rehab. On a house worth 150k that would mean buying it for 105k and putting down a little over 4k.

Its a lot easier to grow a portfolio when your out of pocket is 4k per house compared to 30k.... :-)

And thats how I've been able to grow to 51 houses (just got #52 under contract yesterday). I've been using hard money since deal #3. It was the only way I saw to limit my out pocket and to spread my capital.

I did 3 a year for about 6 years and the last 2 years I've done 33 houses for a total of 51 - soon to be 52.

My hard money lender lends up to 100% of the purchase and the rehab. But only up to 70% of the ARV. So if the house, once its fixed up, would be worth 150k, then he will lend 105k for purchase and rehab. I pay the points (4% of the loan) plus closing costs out of pocket. But the prorated tax credit helps offset those costs.

Here are the actual numbers from my last 3 deals in terms of purchase and my out of pocket.

Jan 2016 closing - 180 Oak Manteno
Purchase price 83k. Rehab 10k = Total loan: 93k
Initial earnest money 1k.
I came to the table with $199.37
So my out of pocket to close was $1,199.37

Jan 2016 closing - 477 anita
Purchase price 111,702 - Rehab budget 7,200 = Total loan: 118,902
Initial earnest money 1k
I had to come to the table with 1,893.15
So my out of pocket to close was $2,893.15

Dec 2015 Closing - 130 diversatech
Purchase price 88,200, rehab 9k - total loan 97,200
Initial Earnest money was 3k (homesearch deal)
I actually got a check at the closing for 2,435.25
So my out of pocket to close was $564.75

I bought 3 houses for a total out of pocket cost of less than 5k total.
Now keep in mind that:

1) Those taxes are going to come due and I have to feed that fund quickly to cover it.

2) I'm going to have holding costs in there as well until I get the renters in there.

Two of the 3 have renters locked in and oak st was just recently closed on. I don't see that one being vacant once the rehab is done either. But that is one way to use hard money to spread your capital and grow a portfolio.

I added 18 houses last year. And there's no possible way on earth I could have done that if I had needed to put down 30% of the purchase and pay the rehab out of pocket.