How to Scale up Your Real Estate Portfolio

[Michael Ealy]

People have asked me how I was able to own 1,000 apartment units. It seems impossible and too good to be true.

But it's really NO BIG deal. I've been doing this since 1999. Other investors who figured this out actually have more units than me and did it at a shorter time.

So what's the ANSWER as to how one can scale up one's portfolio...it is to buy VALUE-ADD DEALS. Buying apartments that you can increase the value in a short span of time is the key to buying & owning thousands of apartment units. 

Once you increase the value, you can either:

1) sell and buy more buildings or 2) do a cash out refinance, pull the money out and buy more buildings

In both cases, you are able to buy more buildings. You can further accelerate it by using OPM - Other People's Money through syndicating apartment deals. BUT before you raise OPM, use your own capital first, prove the model to yourself first before risking another person's cash. 

Anyway, back to the topic...

What is a value-add deal? 

My favorite value-add deal is when the rents are low because the landlord/owner has not kept up with maintaining the property and kept the rents low to keep the tenants from moving to nicer apartments.

Here's an example of a value-add deal. We bought the building for $514,000. It needed about $10,000/unit in work and the rents were way market. There were 24, 1-bedroom units and 12, 2-bedroom units but the rent averages out to only $412/month per unit.

In 3 years we were able to increase the rents to an average of $805/month per unit (and we actually spent less than $10K/unit in improvements). I will write a more detailed breakdown in a separate post but below is the screenshot of the numbers:

In fact, the above spreadsheet jive with the appraisal we got for the property - it appraised for $2.1M. 

So that's it. Doing value-add deals is the key to buying and owning thousands of apartment units.

(Now a word of caution: as in any strategy, you have to know what you're doing and there are risks and pitfalls. But that's too much for me to cover in 1 forum post.)