How does one afford multiple properties?

Question

Just starting out, and with little to no money in my pockets, I'm looking to close on my first Buy & Hold property. I chose something that needed zero repair, needs very little updates, and is something that I can afford to leave vacant should I not be able to find/keep a renter. This is where my questions come in: I can currently afford to leave this particular property vacant if I had to, but I couldn't do it twice, or more. How does one acquire additional properties in the years to come when they risk holding costs beyond that of their income? Is this common practice for investors? I can't imagine investors, especially new investors, are paying off their first properties before acquiring their next properties, so I guess I'm asking How does this work exactly? I can see using income from the first property to fund the down payment of the next, but what if you don't have income coming in from the next property? Thanks for any advice! ~Brandon

Mike W. · Answer

I bought properties that I could add value to. I found a fourplex for 43,000 did about 16,000 in repairs and its was appraised at 100,000 after that. Using the equity from purchases like that I have been able to grow to over 1 million in property under management and increased my net worth by 300,000 in 2 years of investing. I feel I have been blessed though my first purchase took 9 months to get my first rent check. My industry is winding down and jobs are cut every day so that motivates me to keep looking, buying, repairing and adding value where I can.

Linda S. · Answer

@Brandon Cobb,We've been active investors for 1 year, and will be closing on our 6th house this month.. crazy, but true. It can be done through creativity, access to large amounts of capital, aggressive growth strategy and living significantly below your means. You need to see value in what others pass up! We bought houses/duplexes in cash, financed it ourselves, then got an equity line on that house, cleared the cards, bought another one, fixed it up, got an equity line and moved on. Cash is quick, and people don't ask questions. I've taken out of savings, personal loans, loans on my 401K, and invested any bonus/extra money all into the business. Our process only works if you can buy in cash, have access to a lot of funding, and know how to renovate yourself, and have a great team on hand... Just be aware, you'll feel poor! Very poor! If you want to grow, maybe look for a partner? I also agree that the more units you have, the less risk you have.. when you have A+ tenants, it's kind of like a safety net, and the more you have, the bigger your safety net. Set up your leases to encourage early payments too! You can't be scared.. the sooner you realize stuff goes wrong, stuff is expensive, and it's part of business, the better you are off! If you want another property, have you thought of a balance transfer on your credit card for the 20%, season it for 3-6 months and then show the bank? Can you get a personal loan for the 20%? Look at it from the bank/underwriter's perspective.. Just be aware banks want the 6-month of payments... Look at hard money lenders.. Stop looking at plan A as the only option-- If you want to grow, get creative, and aggressive!

Justin B. · Answer

I fully understand the question. When I started out, I had money to buy 1 SFR, that was it. I didn't buy my second property until 2 years and 4 months later. You have cash flow from one, plus I continued to fund additional capital as I could afford. Fast forward and 1 year after I bought property #2, I was able to buy 3 more in a 12-month period (Year 3-4). These were all sub-$100k properties, but you can see the spiral effect. Fast forward to now and I'm buying 10-20 unit apartment complexes (~4-5 years after property #5). I'm hoping that in 5 more years, I'm saying I'm buying 50-100 unit complexes. It can seem daunting to get started and if you don't have a funding source it will be slow, but you have to get started.My advice would be to buy one (focus on one that doesn't need much work, hopefully already rented and if not, ~$1k in work needed. Then, keep saving, roll any money you make from your properties back into the business. Before you know it, even more options start to open up.

Jon Ree · Answer

I guess I look at it differently. I would say the more properties you have, the less risk you carry that all properties at a given time will be vacant. So with one it's an all or nothing game. Many people on here don't like that game so they invest in multi family properties. Buy in a good area, properly screen tenants, sign the lease, factor in 10% vacancy for turnovers and move on to the next property.

Account Closed · Answer

@Brandon Cobb @Zachary Clevenger @Robert Garcia It's called "Subject To'. When done properly, you can buy an endless number of properties. It is a complex transaction so it takes some training but I get into each of my properties for under $25,000 and I get my $25,000 back shortly after that when I sell to a Tenant Buyer. I then am receiving the cash flow from the properties. I don't have to worry about fixing the property up or about maintenance. PM me if you want some sources.

Account Closed · Answer

The more properties you have, the easier it is to carry costs if you have a vacancy.Don't get me wrong, you still need to have reserves and savings for the bad times, but if you have one house with cash free and clear (net of expenses) at $200/month it's easier to apply that $200 to the other house that isn't currently rented and that you're trying to clean up for the next tenant.A vacant home is still going to have overhead - you're going to have property taxes you have to pay twice per year, you're going to have to insure it (in case folks steal your air conditioning unit, copper pipe, copper wire, etc.), and you're going to have to pay utilities - even if they are just the base charges (electric has to be re-certified if it's been off for more than a year).Once the house is rented, you're going to have a tenant paying all those expenses for you.The trick is, when you're starting out (or if you've been doing it for a while and can) to let the money snowball and accumulate - continue to save money like you did for the first one and apply any and all profits from your portfolio of houses to the next house. In a few years, you'll have a group of homes paying for themselves and paying you in return...at which point you can evaluate if you still want to grow, if you want to upgrade into better properties by trading up (§1031 Trades as a tax advantage), or if you want to retire.

Todd Dexheimer · Answer

Best strategy in my opinion is to buy something with repairs, fix it and then get financing on the appraised value. If you did it well you will have little to no money out of pocket and will be able to buy the next one. Just rinse and repeat until you have 4+ properties. The other strategy I like is to buy using other peoples money for the down payment. You will need to give them a good chunk of the profits, but it is a great way to build your wealth. Another strategy is sandwich lease options and other seller financing strategies. I'm not sure where you're buying, but if it's in a decent sized city with a growing or steady population and in a decent location, you will find tenants. Yes have 6 months of reserves, but much more than that is being too conservative.

Matt DeBoth · Answer

If your not wanting to do "house hacking" try doing something like the "BRRRR" strategy. Sweat equity is the easiest way to get equity if you don't have a lot of cash. Finding something that is turnkey and has enough equity in it for you to refi to buy another property isn't very common but they're out there.

Account Closed · Answer

Get it filled and you will be ready to go the next investment. If you run scared it will harm your progress. There is always something that we can think of that could go wrong. At the beginning years of my investing most of my renters made more from their jobs than me. Now a few make more than me. In a few more years none of my renters will make more than me.

Brandon Cobb · Answer

Thanks so much everyone for the advice and input!That definitely gives me some ideas on how I'm going to fund my next purchase and gives me a better understanding on how one can use income from additional properties to cover the costs of vacant properties. I'm both nervous and excited about this new adventure and look forward to getting more great advice as I continue on. Thanks,