How Can I Scale My Multi-Unit Portfolio Using Refinancing?

[Henry Perez]

We're currently looking to invest in two 30-40 unit properties in the Sacramento region over the next year. Our equity would be $1M in each and total purchase price we're looking at for each is in the ~$3M range.

Our cash-on-cash return criteria is 10% after year 1 (after raising below market rents and increasing occupancy). This would get us ~$200K in year 1 cash flow/pre-tax income.

Our goal is to reach $1M in pre-tax income by year 10.

How often do banks let you refinance or season your commercial properties?

In our model, we are assuming refinancing the first two properties after Year 1 by cashing out our initial $1M investment in each, and then reinvesting that $1M into another 30-40 unit complex at a ~$3M price.

Basically:
Year 1: Two properties at $1M each

Year 2: Refinance both properties, get initial $2M out of each property, and reinvest in another 2 like properties (4 properties at end of Year 2)

Year 3: Refinance both recent properties, get initial $2M out of each property, and reinvest in another 2 like properties (6 properties at end of Year 3)

Year 4: Refinance both recent properties, get initial $2M out of each property, and reinvest in another 2 like properties (8 properties at end of Year 4)

Our model is to do this until Year 10.

Based on our model (and assuming we purchase properties with the same 10% cash-on-cash return after Year 1), we would achieve $1M in pre-tax income in Year 7.

Has anyone done anything similar to this? Doesn't have to be at the same scale or $ value. We just want to see if this is realistic and if it has been done.

This does not assume doing any larger deals with investors (which is what I plan to do in 2-3 years time).

I would also greatly appreciate any advice or suggestions on scaling your investment portfolio.

Thanks,

Henry