Starting/Growing a portfolio in your early 20's the not sexy way

[Caleb Heimsoth]

I've been meaning to make a post like this for a while, but haven't gotten around to it until now.  I joined BP in the fall of 2016, after having started reading about real estate some that summer.  I listened to hundreds of BP podcasts and read 3-5 books before buying anything.  I knew I wanted to buy rentals, out of state so I also visited the two markets I'm in before buying anything.  Those markets are Memphis and Cleveland. 

I put my first property under contract in April 2017, and closed in August 2017. It took much longer then expected to close due to rehab taking longer then expected and some financing snags. Since August 2017 I've closed 3, soon to be 4 SFR. Three in Memphis, one in Cleveland. Two are turnkey, and two aren't.

Here they are in order: 

August 2017: PP 74k, rent 775, CoC so far 15 percent, currently worth 74k (Memphis)

September 2017: PP 35k, rent 750 when bought, now 850 after 5k rehab, currently worth 45-48k, CoC so far 15-16 percent (Cleveland)

January 2018: PP 77k rent 785, CoC so far (annualized) is 10 percent, currently worth 83-85k (no rehab, just higher sold comps nearby) (Memphis)

August 2018: PP 55k, rent 800, Projected CoC is 13-14 percent, currently worth 57-58k. (Memphis)

I expect these CoC returns to regress some over time down into the 9-11 percent range. The 74 and 77k houses are turnkey. They're B to B minus type areas/neighborhoods except the one in Cleveland is C class. Everything is financed with conventional 30 year fixed loans. No major issues so far, except the inherited tenants in Cleveland, not paying a months rent, leaving early and leaving lots of junk behind. Gotta be aware of those potential issues when going into C class. I don't regret buying the Cleveland rental, but I probably don't be buying a lot of C class rentals in the future.

I think Turnkey is a good way to start, but over time you'll likely branch off.  Every tenant is on 18 month or 12 month lease.  There is nothing complicated or "sexy" about what I'm doing.  I buy a rental every 4-6 months.  I am already paying them down ahead of schedule with the first one on pace to be free and clear in the next 12-18 months.  I want every rental I buy free and clear within 10 years of buying it and eventually (in 3-4 years) I will switch to strictly cash purchases, and maybe leverage only for larger properties.  

I prefer SFR to this point because the financing is easier, and better and they seem easier to manage. Its not uncommon for me to hear nothing on any of my rentals for several months at a time. As people have said many times on BP, the key to this is a good PM, and I was lucky enough to find two good ones. Depending on how you run your numbers for maintenance, capex, and vacancy I'm at 150-200 cash flow per property per month.

For the two properties I've owned about a year, those are actual numbers so far.  I have no other debt besides mortgage debt, and that's how I think everyone who wants to invest should be.  Eventually the only debt I will have will be a primary residence and then it will be no debt at all.

Every realtor, PM, referral, contractor etc I've found or used has been either through BP or through someone I found on BP initially. The two non-turnkey were technically "off-market". One was a local realtor who had a pocket listing, who let me look at it before he listed it on the MLS, and the other was through another local realtor.

I hope this shows what can be accomplished if you are active on BP and are diligent in your investing strategies.  The progression for me will be to pay a rental off in the next 12-18 months, probably buy 1-2 more by end of next year, and then expand into a third and likely final market.  After I buy enough rentals, and pay a lot of them off, I will branch off into notes, which I think is a great way to invest that most people do not talk about enough.