Growth formula? Is there such a thing?

[Christopher Lane]

So I know there is no hard and fast formula (or maybe there is?) for growing a portfolio.

My speculation is that by using the #BRRRR strategy you can grow exponentially rather than linearly (the stack - sort of) by taking the equity and using it to reinvest.

A question I have is, wouldn't all the leverage of debt create a thinner margin for cash flow? Where is the point of diminishing returns?

Is it better to get a bunch of lower quality places that have high cash flow in, let's say, Detroit? Not talking bad about Detroit, I think it's a great market, but it's one that I know nothing about. Or would it be better to get a few higher prices rentals in top quality and lower cash flow but higher chance of significant appreciation and rent increases?

Another few questions I have, not really related to the subject but if I invest out of state, do I get a CPA for the state I buy in or the state I live in?

At what point do people hire full time employees for buying new deals (acquisitions), doing taxes, management, contractor, lawyer...

Thanks!!

[Jim Goebel]

@Christopher Lane

My view is that in lots (most) markets that make sense to invest in, a strategy that continually deploys capital into market priced assets that are 100% ready to go, but does that 'force appreciation' or add value in any way - is that your debt service ratio goes down and down and will asymptote at a level below where most banks want to lend.  How fast or many volume units that happens at, depends on a number of factors, including the prices of the market, how much capital you're starting with, etc.

I've tinkered with getting a couple people out to evaluate deals (see properties) but it's a tough thing to delegate.  My wife is actively involved in that and has the ability to identify an opportunity, but it's a long road to get someone there - and like many things in business, when you've invested in someone to get them there they can do it themselves often (assuming they can get capital).

Everyone's path in different re: focus on certain asset types.  My suggestion to many has been to make sure their first house is a safe asset that appreciates and doesn't take a ton of their time!  From there, whether you focus on the cheaper properties or not is up to you.  Certainly don't assume the returns on paper in certain locations when you have C/D/F class areas, properties, and tenants.

For us (we are at 13 units and growing) - we've found a nice mix of $30-60k major project houses that will have a value of $100-160k when complete, that produce decent cash flow - mixed in with a couple more 'equity' houses in more of a suburb - (we have probably 3 that would fit this bill) - with another 15% of the portfolio being STR and land, and we're looking to buy more land.

It's going to depend on the market, but also your constraints and risk profile changes over time as you grow, too.