How to scale your portfolio quickly

Question

Just looking for some advise from someone more experienced than myself. Thanks for you time and help in advance!

I bought my first home in 2018 for $252,000. I bought the house as a single family home, even though it was originally built as a 3 bed 1 bath and then the previous owner kept adding on making it a duplex. After putting in $75,000 into the home and also refinancing it as a duplex instead of SFR, it appraised for $447,000. Now I have been able to pull a lot of cash out from the refinance.

Nobody in my family has been in real estate but after my first house I see the amazing potential it has so that is the route I am going. Originally my goal was to keep buying single family homes but with all this cash from the first BRRRR, plus when I move out and into my property #2 using an FHA again, property #1 will cash flow about $1,200 a month.

My question is, with almost 100k in cash and $1,200 cash flow, how would you scale your portfolio as fast as possible? I feel very fortunate how my first deal ended up going and I feel like I’m in a good position to make a risky but smart move to scale up and meet my goal of $5,000 a month in cash flow so that I quit my job and do this full time.

Thanks again for your time.

R. Marcella Poole · Answer

I am brand new at this, but find that we have equity in our rental in excess of $150K due to crazy California markets (Lease is up in January 2022, year ONE of our property being rented out).  HELOC only property--no mortgage on it.  I don't wish to personally move into a property, as we've just moved into our retirement home early but don't want to miss the opportunity to make that equity work.  What's the best way forward to grab the equity and get a few more properties?  I'm thinking I need to avoid PMI and make at least a cash flow of $500 clear per month on any one individual property, but would appreciate advice.  First rental is clearing $650 per month. Thank you in advance for any feedback. Reading recommendations appreciated.

Steven Foster Wilson · Answer

My first two deals were a total of 5 units and cash flow about $3500 after everything is paid for. The 3rd unit we are closing on next Friday and plan to renovate, and rent out, that'll bump our net CF to around $5,000.

Joe Villeneuve · Answer

Two things:

1 - Don't let the 3.5% rate make you take the wrong path.  Yu may be stepping over a $100, to pick up a dime.

2 - Try a different market

Toby Auer · Answer

@Steven Wilson

Sounds good, thanks!

Congratulations on being able to quit your job, I just know that due to my house being able to appraise as a duplex made all the difference and I was fortunate for that but I don’t see that stuff happening again. How much cash flow do you have on 3 properties? How many units are they?

Toby Auer · Answer

@Joe Villeneuve

Great advise. The only problem with the down payment is that I will need 20% down after my next purchase that I use an 3.5% FHA with. Unless I were to live in it for a year and do another FHA afterwards, but I wanted to try to do more than one unit or house a year. I would love to find two BRRRR houses at once just to scale up faster, I just don’t want to get short on rehab budget. Unless they are simple rehabs that won’t cost a bunch, but in my expensive market I think my only way I’m going to have equity on the purchase is if I buy off market. So I’ve been driving for dollars and mailing in letters.

Toby Auer · Answer

@Keith Fickert

Thanks for the advice! Ya I refinanced into a conventional so that I could buy the next house using an FHA and live and rent it out while saving. Just wanted to know if anyone suggested going bigger with apartments. Or if it’s too soon considering my experience level.

Steven Foster Wilson · Answer

Toby, Congrats on your successful BRRRR deal! It worked well the first time, now do it again. Find a property in need of work and a good tenant then continue pulling cash out!

I am on my 3rd BRRRR, it has allowed me to quit my day job & focus full time on RE.

Joe Villeneuve · Answer

Take the cash and split it into as many Down Payments as you can, as long as each property will cash flow more than $300/month.  Wait until the free equity )appreciation and the tenant's rent paying down the principle) builds up to the equity you paid for (DP), then sell the property and take the profit and split that.  Rinse and repeat.

NEVER fall in love with any property.  The properties are nothing more than the temporary resting place for your cash/equity until you can move it forward.

Keith Fickert · Answer

Another live-in flip might be a good idea, whether it's SFR or a duplex. You can still get a very low interest rate with owner-occupied, plus you are probably spending less on your living expenses and building your equity. Plan some different exit strategies in case the economy shifts more (rent by the room for a SFR, staying in one side of the duplex for a few years, etc).