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Updated about 5 years ago on . Most recent reply

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Michael Ealy
  • Developer
  • Cincinnati, OH
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How to Scale up Your Real Estate Portfolio

Michael Ealy
  • Developer
  • Cincinnati, OH
Posted

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.)

Most Popular Reply

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Michael Swan
  • Rental Property Investor
  • San Diego, CA
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Michael Swan
  • Rental Property Investor
  • San Diego, CA
Replied

@Michael Ealy

This is Swanny. I was in BP Podcast 238. I totally agree and have done the same in NE Ohio. I buy undervalued Apartment Complexes in solid C+ and B neighborhoods. I highly urge people that want to transition to 5+ units or more in one complex to invest in a few deals first, where the leads in the deal will explain and teach you what they are doing and how they are doing it.

There are lots of land mines to step on if you don’t have a solid team in place that have been there and done that. Remember, it is just as important or more important who you know. What you know is foundational. However, who you know is the key to have people that will guard your money with their life and teach you along the way!!

I always leave my phones available to talk to BP members from 3:15-6:15 pm. during the week. That’s PST. I live in San Diego. Message me and I will get back to you.

Swanny

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