How to grow from 3 units to 15 in less than 5 years?

Question

I have been doing buy and hold real estate since 2013.  I now have a handful of single family rentals.  we recently had our first child and my wife in interested in staying home with him.  so the question becomes how can I grow the rental business to the point where it allows us to have her stop working.

we need $5,000 net.  in my market that looks like 15 sfr free and clear or 35 sfr using loans with the 50% rule.

when I run the numbers at our current brrrr method and cash flow, it looks like the earliest I will get to that point is 20 years.... which kinda misses the point of staying home with our son.

so the question to BP, is how did you scale your buisness.  particularly if you did so in 5 years or less.

Thomas S. · Answer

Sell all your SFHs and invest in multi units. The important factor in increasing income is the number of doors you own not the number of buildings.

As a side not having equity in a rental property decreases cash flow due to the opportunity value of cash. It is a common misconception with novice investors that equity (free and clear) in a property is a good thing. The reverse is the case.

Opportunity money is worth minimum 10% where as a mortgage is in the 3-5% range. Having equity in a property cost you minimum twice as much as a mortgage of the top of your rent.

Bryan O. · Answer

@Dustan Marshall it sounds like you're saying you grow at around 1 door per year. If that is the case, you have to decide how important growth is for you. Thomas S. is right that when your money is locked in as equity it is doing next to no good.

Whether it is apartments, SFRs, or 2-4 units, you will need to start sinking some sweat into them. If you are growing right now at 1/year it is because you are buying standard deals that cost 20-30% down. You need to find the run down properties that you can buy, fix, then refinance to pull your cash back out. Then you can grow as fast as you can renovate.

The difference now becomes your time. Investing in properties is one thing. Working in RE is another. If you want to grow faster, you can't do it passively. You have to become active. That may mean doing the work, or it may mean running the crews and building the teams. Either way, you have to put in the effort if you want to grow.

And congrats on the baby boy :)  It's a life changer!

David Traeger · Answer

dont be afraid to look at other areas to make the numbers work

Dustan Marshall · Answer

Thanks for all the comments so far.  the reason I have stuck with SFR in my market so far is because price per unit is almost exactly the same with SFR vs a multi.  but a SFR rents are 100-150 per month higher.

I love the idea of buying a multi and having just one transaction for multi units.   but in my area I cant seem to make the numbers work.

Zach Quick · Answer

@Dustan Marshall What do your #'s and equity positions look like now with your current rentals? That would likely help us give a bit more information or our two cents.

Andy D. · Answer

I agree with @Greg S. His statement includes many more (hidden) aspect such as, for instance (to name just one) less costs (= less money "wasted" = more money available) related to the transactions: every building you buy will have a base amount of costs associated with that transaction. In essence it makes no difference if that building has 1 door or 12, the costs of buying are (certainly when spread out over the doors) more or less the same. This is even more true if you are financing due to the added costs from that end. The fewer transactions the less costs.

On the other hand, the more doors, the more money should come in. Whether that particular multiplex ultimately is a good deal is, of course, a totally different story and obviously something you need to figure out during your due diligence on such a property.

Then again, as always with real estate, this depends on the market you are investing in. Some people swear by SFR, others only do multi-units, others only do Condos/Townhomes with an HOA etc. etc. You need to feel comfortable with the property you are investing in, and you need to understand that particular business to be successful: owning a multiplex will be different from owning one or more SFR. Not earth-moving different but still.

And since you need to generate income it means that you do not have enough money available so this in turn means that you will have to use leverage to increase the amount of doors you own. And that is, with respect to your goal, a good thing. At least  in my and Greg's and other people's opinion. ;-) Good luck. I myself am trying to achieve what you are striving for!

How to grow from 3 units to 15 in less than 5 years?

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