Looking for some guidance on scaling your portfolio

[Jacklyn Robins]

Hi everyone. Looking for some guidance on scaling our portfolio. We currently own 8 multi families combined in Dayton, OH and Rochester, NY. I was laid off in December and would like to start investing full time (because I don't want to go back to that corporate grind ever again!). I know there are "mentorship" programs I can join, but if there's anyone here who could provide some insight and would like to connect, please let me know. I'm based on Long Island, NY and looking to continue investing out of state.

[Erik W.]

A few thoughts on this:

1) Why are you scaling your portfolio? Could you achieve the same results by scaling your PROFITS with existing units? What I mean is are you sure you're getting the most bang for your buck with what you already have? Multi-fam is a great place to make small changes that add up. Find a way to increase income by $20 per unit per month with 20 units, and all of a sudden you're making the same added profits as if you purchased 2-3 more units. 

2) What is the length and depth of your track record (how long have you been at it, how many units do you have)? This will be important in #4 below...

3) Keep in mind: traditional lenders like borrowers W-2 wages. I know you hate the corporate grind, but it opens a LOT of doors to getting bank financing. Sometimes we do what we have to do so we have access to the means to do what we like to do.

4) What relationships do you have with private money? If you don't have any yet, this is an option that may work out provided #2 is excellent and #3 doesn't work out. Usually if the deals are truly good, you'll have plenty of private money looking for a home. If you don't find the private money, odds are the deals are mediocre at best. You track record from #2 may help with this.

5) I offer this cautionary thought regarding the BRRRR method touted here and on many other sites. While it can help you grow, it's a double edged sword because you're always taking equity out to fund the next deal. If you're not careful (and sometimes even when you ARE careful!), this can quickly snowball out of control if vacancies start to rise and/or you have to refinance when rates are higher. You can't eat equity, and equity doesn't pay mortgages.

6) I find when the deals are scarce, the best thing to do is build up cash reserves to weather the downturns. There's always an economic cycle to deal with, and we need to be prepared to face all circumstances: growth and decline. No one wants to talk about decline because it's not sexy and doesn't sell books/courses/"mentorships. But it's very real. I've been in the biz since 2005, so I've seen two periods of growth and decline. A person who has a pile of cash when things slow down lives to invest during at the start of the next upswing.

Good luck!