How to scale and grow from here

Question

Hey community, i have a question which has been on my mind as an investor for long. I own 23 doors at this time in Arkansas and Northern Virginia, i have been using my own capital to buy units so far. Some of my properties have appreciated and some months i do have to be negative in cashflow but i am holding on, improving my systems in place because i am doing it for the long term.

At this point with my network and contacts i have really good deals at my desk many times but i have no capital to buy them and i kinda hate it, just wanted to pick the brain of the experienced folks here, should i raise capital and include other people and help them get 8% cash on cash and be partners and if so how and from where as i have never done this before? Should i refi my units which will kill my current cashflow and impact my reserves? Should i just hold on keep going the slow route and buy when i can, i am 29 years old and i really want to be at 100 doors in the next 3-4 years but not at a risk to my current situation. How would you do it?

Stuart Udis · Answer

@Chetan Malik A few things jump out to me from your post. First, if you have access to equity relationships who only expect an 8% cash on cash return that is extremely inexpensive equity you have at your disposal. Equity is far more difficult to raise and generally more expensive than debt, so if if you have access to equity with the return profile expectations you noted, you have a great advantage over most.

The second item and this is more a concern I wanted to raise is your objective of reaching 100 doors in the next 3-4 years. Why 100 doors? What does 100 doors correlate to exactly? A common mistake I observe are investors focused on unit count rather than the fundamentals of the underlying real estate that's being bought. For illustration purposes, what are the benefits of acquiring 100 units if they are located in a C/D market with terrible fundamentals and no reasonable expectation they will appreciate? Can't you perform better buying 50 units in a market that perhaps has a higher cost of entry but due to better fundamentals experiences significant appreciation?   Focus on fundamentals rather than the number of doors.

Gino Barbaro · Answer

@Chetan Malik

If you're going to syndicate, you really need to learn it. There are rules to follow, docs to create, timelines to follow. It's a great tool to help scale your portfolio, but you need to set it up correctly on the front end. I can into you to our security's attorney if you'd like.

You don't want to refi to add additional debt that will put you in a negative cash position. I would not look at it from a number of doors. I would look to JV with other people if you want to own more equity and control.

You can also sell an asset or two, and role the proceeds into a bigger asset.

You can look at seller financing deals.

Sometimes the slow route is better. Implementing systems to make your portfolio more profitable is key.

Congrats on all your success!!

Gino

Jason Wray · Answer

Chetan,

A cash out refinance will not necessarily kill your cash flow or at least not for the long term.  Mortgage rates started to drop last week and they are looking much better as they trend down.  DSCR for example which is a great investor loan had rates this week in the low sevens and high sixes.  This all depends on the loan factors like Credit score, LTV, DSCR ratio (rents vs the PITI payment), and loan size.

Good news rates are down but the other positive news is they are trending down and that means you can pull cash out now and then simply refinance in 12 months or more to lower the rate.  You can also just do a cash out refinance and prior to locking the rate use some equity to buy the rate down to where the loan cash flows the best.

You also have options like 30 Year Fixed, 30 Year 5/6ARM, 40 Year and Interest only (maximizes cash flow).

You are essentially acting as your own bank by using the equity and selecting the best rate/term to benefit cash flow.  I have seen far to many investors sit on the side line with low first mortgage rates afraid to make a move.  When you wait you lose great deals on homes that are priced lower.  Fast forward 3-5 years from now and even though rates are down those same homes are now worth or selling for $50K to $100K more.

You end up losing more money waiting for a rate to come down versus being able to buy a home for a lower sale price.

Sebastian Bennett · Answer

@Chetan Malik You literally posted you could raise money from people and give them 8% cash on cash return. Now you are saying you do not have access to folks who would be willing to raise capital....which one is it?

Chetan Malik · Answer

Hey Peter, thanks for the comment. Sure, let's connect, i will send you my info and as soon as we can agree on a required fees for the deals i will be more than happy to throw a few deals your way. Looking forward to connect.

Dina Nicasio · Answer

Hi Chetan,

I’d suggest keeping a close watch on your cash flow when considering raising capital or refinancing. Partnering with others can help you grow, but it’s important to have clear financial agreements in place to avoid any issues down the road. If you decide to refinance, make sure your new cash flow can still cover all your expenses, including any unexpected costs.

I hope this helps you in any way!

Peter Chen · Answer

Your journey of 23 doors in 29 Years of age is really motivating. I have just 2 doors and targeting to have 5 this year. Feel free to send me some deals , which you really hate to let go.At least it will help others.

How to scale and grow from here

Most Popular Reply