Keep existing portfolio or keep growing it?

Question

Thing is, continuing to grow the portfolio is risky. Keeping what I have with all that equity in there currently is a lot less risky. What say ye?

Not that long ago my net worth hit 5 million. I don't own a hundreds and hundreds of properties, I just own more than a few but they are in an expensive market and I started buying well over a decade ago.

I could keep growing my portfolio or I can take the safer route and just keep what I have. I'm at the DSCR loan junction as I won't be able to grow without DSCR loans from here on out.

I first turned 1 into 2, that into 4, that into 8, you get the idea. I can keep doing that, I can turn that into 16, and 16 into 32.

I would get into apartment complexes but only in cash as I don't like the risky loan terms of having to refinance every 5 years. Single family has been my bread and butter, why change a variable.

I've met a lot of people who retired with a handful of paid off or leveraged properties here in their mid thirties. (I'm early 40's). Two women I dated had  done that, and they were more concerned with enjoying life with what they had and not having to work than they were with growing their money. Mind you they drove luxury cars, etc. so it's not like they were wanting for anything...

While my initial goal might have been to retire early with this, I've kept cashing out and growing it, as I've started to enjoy the "game". But, managing what I have alone is fine. Managing 50 properties by myself would be a lot of hassle and I hate PM's. So it's a balance of hassle factor and wealth building. Where to find my balance?

Albert Bui · Answer

Like some Guru's say you dont need hundreds of units in some expensive markets like ours in the PNW you only need a few free and clear SFR's (build multiple ADU's) or MFR's (or low leverage/free clear close to) in order to reach your financial freedom metrics.

There are local lenders who can give you options even past 10+ fannie/freddie products not just relying on private capital from DSCR or non QM products (these are an option too) however there are pros and cons.

Id say the benefits of the DSCR product line is that some of them can go up to 25+ financed properties while some DSCR lenders can only go 4-10 or 15 tops. You'll notice that the more conservative the DSCR paper/product the better the pricing is typically so each DSCR product line serves a certain niche of investor (whether they do airbnb/STR, LTR rents, portfolio size, and where ever you are in your journey through REI). Knowing where you're at in the journey allows you to switch products at different stages (IE at 4 properties, or when you get to 5, or 10, or 15+ and 20+ because pricing/terms change as you progress).

I think the local banks and credit unions service another gap as their rates typically tend to be better but there are cons as well such as balloon loan features that require a refi/exit/sale at the end of 5-15 years.

Depending on your strategy and outlook weaving different products can help solve your gaps in your strategy going forward.

For instance, for me I didnt want a fixed term cash out commercial note so I just did a blanket commercial line across multiple APN# parcels because, we never know when a deal will come up and sometimes having interest charges with no deal doesnt make sense as the funds burn a hole in the pocket so to speak.

As soon as I find a property suitable for a project I may use the lines to fund the project with an eventual commercial refinance out when it hits completion in order to pay back down the lines (reload for the next project).

@Matthew Kwan

@Carlos Valencia

Alecia Loveless · Answer

@Jack B. Hi Jack, I’ve currently got 25 units and it takes me about 4 hours per month to manage the banking/rent aspect of them, usually less than 2 hours per month to deal with the tenant issues and because I take it seriously and live close enough to all my properties to be able to visit them frequently I spend about 2 hours per week visiting each of them once (unless there’s a problem at one or more of them which isn’t often) for a total of 8 hours a month.

So for 14 hours or less a month I manage 25 units.

I’m in the process of transitioning to doing the real estate full time so will be doing more hands on stuff as needed but don’t expect it to be anywhere close to 40 hours a week, I’m looking to cut down on the amount I pay my contractor each month.

I’d consider buying a few more units if I were you because I just don’t think the time you’re going to spend managing them is that great for the amount of return you will receive from more properties.

Jason Wray · Answer

Jack,

Depending on where your comfort zone is there are a lot of great 2-4 units Multifamily rentals in other states that offer great rents at a lower price point.  You mentioned you purchased in a higher end area or larger price points.  Have you given thought to not giving up just yet and grabbing up a few more 2-4 unit MF's.  More doors more rents=cash flow and in many states like Indiana, TN, OH, FL and a few more you can find some great cashflow deals.

I just closed on a 4 unit just outside Dayton ohio for $210K it was a TLC purchase with rents that debt service the property plus ROI.  You can find 2-4 units in IN & OH for under $250K and you have both turn key and TLC projects that can pass an inspection and not be "Subject to".  Most of my California investors are buying in IN, OH, TN and FL.

Another great location for STR is on the Oregon Coast great properties that are selling at a fraction of the price compared to Cali homes on the coast.

Albert Bui · Answer

This is good Alecia it shows an actual time based accounting on cost of time it takes to manage X units. I think thats important. One can also or should also take into account the emotional/mental and life style factors that may come into play too since everyone has different preferences on what they'd like to do with their free mind / time space.

I think for some the 14 hours is more than acceptable however if a person was willing to trade that 14 hours and perhaps reduce it  down to 20-30 minutes of calls/emails per month by hirining a professional manager it may make sense as well depending on the cost. If that cost were to reduce cash flows to lets say 23k a month it might make sense for some too.

When you leave your full time work/job, will the 14 hours per week vary or will you take up real estate brokerage/investing full time along with the mgmt of 14hrs per week?

Tyler Lingle · Answer

Have you thought about leveraging then de-leveraging? AKA using DSCR loans, HELOCS, cash-out refis to gain more units in growing markets. Then, once you have had enough, sell the ones with the most equity to help pay off the others. Leverage-to-Deleverage eventually type of thing.

This is my current game plan. Concerning management piece, you need to hire a friend / family member / acquaintance to start helping you manage, especially at 50 unit count. Bring it in house and teach them your systems. This will save you money and time.

Keep existing portfolio or keep growing it?

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