How Do I Build a Rental Property Portfolio

[Peter Padalino]

Morning all!!...ok so I've been on BP now for 6 months and seem to have missed something really basic. My wife and I are committed to the RE business, but one question keeps popping up. How do afford/qualify to build a rental portfolio? We have a mortgage on our own home have a decent 6 figure income and have been pre-qualified for a second home purchase, but pretty sure we wouldn't be able to get financing for another and another....Is it simply a matter of finding alternate means of financing for additional buy and hold properties? I'd love to get some advice.

Thanks.

[Tom M.]

Peter,

I am new to posting on bp, but not new to real estate investing.

I have read posts here and there when googling topics but never wanted to register. However for some reason your post made me want to reply, probably because I've done buy and hold rental deals and I've asked myself the same thing. 

Its definitely a learning curve that can be very exciting especially as you get more involved and start seeing success.

Just a 101 level logic...Rental properties are all about producing a positive cashflow which exceeds the expenses of the property. Once you do that you will be paying for the property with the income from the property and increasing your overall income which can be compounded through reinvesting over time. This increase in cash will put you in better position to take advantage of opportunity and if you do your deals right each one puts you in a better and better position. 

There are many ways to put deals together. Some are more involved than others. it doesn't always require bank financing, but it can.

If you have 6 figure income. budget your money and make sure your credit is in shape. build some reserves and have a down payment.

It will definitely get you started working with your traditional way many people buy real estate realtor+mortgage=property ownership. As long as you buy at a fair price where the numbers work out you will be ok, this will give you experience with a rental property but as you get more engaged into real estate investing you will figure out there are so many ways to acquire properties that require a creative mind that can recognize an opportunity and make it work. 

Nonetheless, after you do this next property you got pre qualified for you will be in the property mgmt business and it may be a good idea to form a company and operate as an entity other than an individual. s/c corp llc etc. depends on your bigger term strategy. however an entity seperate from yourself helps in so many ways especially as you expand your business.

It is important to build a team of proactive experts,  

I believe its ideal to build a relationships with many types of professionals like a mortgage loan officer, insurance agents, realtors. everybody will add to your overall knowledge...

ALSO

-get a good accountant who is aligned with the day to day of property management that can help you with taxes, (this will be a factor in qualifying for loans moving forward) 

-get an attorney who is experienced with putting together different types of deal, you can do joint ventures with other investors, you can do paperwork deals with your attorney, acquire properties through tax liens, put a property under contract deal directly with sellers using notes and many other techniques that im sure other people are discussing here. 

-get A network of contractors that work on results based compensation not time based otherwise jobs drag out. Also you take care of materials, otherwise they're buying extra stuff alot of  the time for other jobs or marking up materials and pocketing the extra money. (it doesnt hurt if you can do a little work yourself either. Although many will probably want to delegate the work to streamline the investor process. its truly up to you and whatever you feel comfortable with. I usually act as the general contractor and sub out all the work i dont want to do or dont know how to do and its worked out great thus far.

So as for getting a mortgage on every single property that may not always be the case. There are alternate means of acquiring the property which vary depending on the situation. As you look around at information online you can find techniques that people write or talk about and study them and see if they work for you. However I would suggest running with the financing you can qualify for and just grab a rental property that produces a positive cashflow. make sure you buy it at the right price that allows a positive cashflow and is in location where you get the target tenants you want to deal with. also if you bought at the right price there is a potential to tap into the equity to take cash out to acquire other properties, maybe do a flip or two,  payback the equity loan and use the profit/proceeds to buy a rental property out right. 

Best of luck and I hope I shed some light on your concerns. Excuse my formatting I could have probably cleaned this up a little but I got tenants waiting on me to grab some rent in person otherwise Ive got to wait for 5 days for Bank of America to have the chase quick pay go through.

Have a good time on your first rental property deal. Best of luck.