How to grow rental portfolio

Question

I have a aggressive goal to reach five rental properties fairly quickly. Other than saving a lot of money for down payments what are my options? Hard money lenders, heloc? Looking for clever ways to raise capital for down payment money. Once I hit five properties I'd like to ease up on growth as compounding with five will achieve what I need/want. Interested in using the low interest rates while they are still around.

Joe Villeneuve · Answer

So far, this is the best comment made on this discussion.  Well done Shawn.

Where did you come up with "5 properties"?  What does that mean in numbers that count...$$$$?

Would you be happy with those 5 properties having CF of a total of $1000?

Would you be happy if those 5 properties CF was over $1000, but not all were positive? (Please don't answer yes)

Too many REI focus on the wrong numbers, and the wrong source for their goals.  In both case, the answers are found with "$$$" in front.  Your "goals" should be based on financial goals...not number of properties.  You find the markets that will deliver properties to achieve those financial goals, and you DON'T try to invest in a market simply because it is local or available, and try to force it.  That will take forever, if ever actually happens.

...and, you don't start out buying holds.  You start out by expanding your capital by flipping "cash" deals (or "cashlike" deals).  This regains the original "base" (seed money) plus friends (profit).  Expand your base until your seed money is wide enough to flip for profit...and buy those CF Holds using only the profits...which repeats over and over everytime you flip your seed money.

This is incredibly fast, and you don't need to look for money all the time...it is your cash (expanded) that you will be using.

Joe Villeneuve · Answer

You're handcuffing yourself by only having a plan in place for 5 mortgages and $1000...then saying, "Once I hit $1,000/m within my five house/mortgage limit I will review and decide how to proceed next.".

Also, you don't win by "taking" what a market offers.  You win by finding markets that "have" what you're looking for.  You appear to be taking what your markets are offering.  This is the 21st Century...in REI too.  This is a global, or at least a National, market.  Take advantage of that.

I'm not telling you to go after "bad" areas because they look good on paper, but it is the paper that should be dictating your target markets.  For me, I can jump into areas that are "B" quality for 200/m, or I can jump into areas that are 600/m...I choose the 600/m...even if those are not "B" areas, but I do know those areas and have been very successful doing that.  "A, B, of C" doesn't tell all.

12-18 months to raise your DP for each house is a big problem.  Markets change/move/adjust and/or become available or disappear during that time period.  In 18 months, in 3 years, in 4.5 years, etc...what will these markets look like?

The biggest problem in your plan is the lack of a plan.  What you have is a description of what you think you will do over an unknown time period.  Start with the ultimate financial set of goals, and revers engineer back to where you are now from there.  Set up a series of Milestones (measurable) that are financially based within that time period.  Then, figure out the best strategies to accomplish these milestones...and ultimately your goals.

Joe Villeneuve · Answer

So let's look at the future numbers:

1 - $200/door means you will get $1000/month per group of 5 houses.2 - If it takes you 5 years to accomplish this, you will reach $5000/month in 25 years (5 groups of 5)3 - If you combine #'s 1 & 2 above, that means you will need 25 properties...and 25 mortgages.Here I have to ask you, a - Who is going to get your the 25 mortgagesb - Are you willing to wait that long?c - Wouldn't you like to move faster?d - Do you have that many properties in your market that will deliver this to you...and do you have the ability to manage, etc... them all, as they build up.

Shawn Ackerman · Answer

@William S. 5 rentals????  Ok, where? what price point? what cap rate and or COCR are you looking for?  differed maintenance ok?

With respect to "clever ways to raise capital" bring a deal to me and I'll buy it! there's your way to raise capital.  Look in the marketplace there are deals there.

Chris Purcell · Answer

I would love to see the numbers on this deal because they are probably atrocious

Joe Villeneuve · Answer

Those are valid reasons for market selection...up to a point.  I would tell you to find markets where the numbers would work, then find your power team in that market...then invest there.

I'm not a fan of the BRRRR method as a strategy starting out.  My feel it is what I refer to as a "shiny object of distractaction" in that it takes you to a Dead End, and takes too long to get there.

I do like the strategy at the back end as a means for getting my cash out, but I use credit partners so that I'm not restricted with the 10 mortgage limit.  I just need partners that establish their mortgage limits.

There are other problems with it, but let me add that it completely eliminates all deals that won't appraise based on this formula:  ARV = Min REI amount of lender                                                                maximum ARV % of lender

Example:  If my lender's maximum loan amount is $50k, and their max. ARV is 75%, I can't buy any property that won't appraise for at least $66,667.

Great.  What if there is a great CF deal that the ARV < $67k?  Then I'm not buying it, or I'm taking forever to get my cash back out of it through CF.  I want all my cash back out within the first year.

There are better ways of achieving this though.

Steve Kontos · Answer

@William S.

Good question BUT it is a loaded one.  I have built my portfolio by using creative financing.  I did not want to "save and buy" otherwise I would be doing this forever and not getting to my end goal until I'm 80 years old.  You can leverage retirement accounts or credit cards amongst various other tools.  I personally leveraged my credit when I bought my first property.

William S. · Answer

i have three peoperties to go. I buy price ranges between $80-$120k pending on market. I typically buy turn key properties or properties with $10k worth of rehab work. $200/m cash flow per door SFH's. I typically do 30 year mortgages with 25% down.

Jake Miller · Answer

As a vacation rental owner with the right property it's very easy to make 1000 a month of net income off of the home... very easy, once the property is going that is. The hard part is finding the right property and setting it up correctly.

William S. · Answer

@Percy N.

I have not looked into this.

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