How to grow rental business faster? New-ish Investor

[Ryan Bolt]

Hi Bigger Pockets members!

I'm Ryan from Knoxville, TN. Short-time lurker, first time poster. I've been studying and learning about RE investing for many years, but just started my business in 2016 with a small ($90k) rental property. In 2017 I built a new personal residence and converted my old residence into a rental as well. I rented this property to some friends (I know now--not the best idea).

I have a pretty well-paying job which funds my acquisitions, but it still takes me about 12-18 months to acquire each new property. Obviously as I acquire properties, I re-invest the profits into acquiring more, which contributes to the snowball effect. However, I'm looking for any strategies for growing my business faster. I'm open to diversifying from buy-and-hold to other strategies if need be. Here's my current portfolio and financial situation:

• 3/1/1 Rental - $90k property, 50% LTV - Cash flows $480/month
• 4/2.5/2 Rental - $260k property, 67% LTV - Cash flows $90/month, acts as mostly a tax shelter and appreciation property
• Job allows me to save ~$1,500-$2,000 each month

Thanks in advance for all replies!

Cheers,

Ryan

[Mike H.]

Ok. So let me see if I can throw some suggestions out but I think I have some questions.
1) If your goal is to speed up the growth of your portfolio, you really have no choice but to go the BRRR method.

2) Even with the BRRR method, you're going to need some capital which is why the initial poster's suggestion above about refinancing the 3/1 makes sense. And no, its not worth it to spend 3k to 4k to get 20k. But you could find a lender that will do a heloc on an investment property and that should save you quite a bit of those costs. Not all lenders will do heloc's on investment properties. But the ones that do, will typically have some guideline that you have to have 4 or less properties in order to do - which you do.

So do the heloc on that 3/1, and it should only cost you about 1k or less to do it. Thats worth it to pull out the 21k or 22k.  Thats your capital reserve that you should just park in the bank and never touch. Its strictly the money you need to qualify for your laons.

3) Its too bad that you moved out of your other home already. I would have actually recommended that you gotten your heloc on that instead. There are banks that will do heloc's on primary residences at up to 90%. So you could have pulled out 50k in capital on that had you done it before you built that house.

4) In terms of selling that 260k house. DON'T.  The house makes money. The tenant is paying down the mortgage. And if you're making 1k/mo in appreciation and principal paydown, thats a winner.  In 20 or 25 years, that thing will be paid off and will be worth 500k.   You already own it. 

One of the most consistent messages I heard from investors when I was first learning about real estate investing was that the biggest regret they would always give was ever selling anything. So I don't!

5) Lastly, for the BRRR to work, you use the hard money to buy and rehab the property and then do a rate and term refi to get out of the property.

My hard money lender gives me 100% of the purchase and rehab and I pay the points (4 points) plus closing costs out of pocket. he'll do up to 70% of the ARV. My end loan lenders will go up to 75% of the ARV.

So I just need to find something at 70% of what it will be worth after the rehab and then the only thing I come out of pocket is the 4 pts (typically 4k to 4,500) plus the closing costs (1500). And then I get the property tax credit applied to that to knock it down a little.

You can stretch your capital out way further than you think.

I'd guess you could go to buying 3 or 4 houses a month with the income your saving now. Plus the rental income will start to build and you can use that in there as well.