Rental Properties: what is a proven growth strategy?

Question

I currently have one rental property. What is the best strategy to get my second property and then keep the momentum going? My goal is to own 15-20 properties. Of course I want them all to cash flow and so over leveraging really isn’t an option.

What are some proven strategies that people have used to grow their portfolios?

Soh Tanaka · Answer

You can leverage and still cash-flow. A lot of things will depend on many different criteria to buy more houses.

If you have cash, you can keep buying with loans.

If you have time, you can wait for the equity to go up (principal paydown + appreciation) and 1031 exchange with multiple properties.

If quantity is your goal, then look for lower class/cheaper properties.

You can buy a house, live in it, and move after certain time. Rent the house you used to live.

I would NOT rush to pay off your mortgage but will keep the cash for rainy days and/or to buy more properties.

Nathan Gesner · Answer

Hustle to earn more money. You need money to purchase new property, no matter what the gurus may claim.

Look for deals. You have to tell everyone you are in the market and exactly what you are in the market for (single-family, # of bedrooms, etc.). If people know what you're looking for, they can help you find it. Brandon Turner spent a year looking for his first mobile home park and he found it because he talked about it constantly and another member found him the deal.

Walk or drive for dollars. Find a community you want to invest in and study it. Look for properties that would make good rentals that appear neglected or vacant. Market to the owners and let them know you're buying. You may find someone in a jam that needs to sell quick and cheap. Learn more by searching the forums for "driving for dollars"

Avery Carl · Answer

Keep hustling to save up those down payments! The snowball will grow faster with each deal!

Kelly Skeval · Answer

I agree with @Avery Carl and @Nathan G.! You have to hustle hard for the first 2. They usually require hard earned cash but once you get those first few under your belt things to start to build and snowball fast.  Soon the cashflow from your current properties and the equity built can be leveraged and used to purchase more properties.

Stephen J Davis · Answer

@Nathan G.Great advice. Stay on your goal 24/7 and never give up. I got to over 100 at one point and then moved to large apartments as a passive investor.

Soh Tanaka · Answer

@Michael King I know there are investors who want to have paid off rental properties, and my view is the larger the equity, the lazier the money is.

If you put 20%/$20k down for a $100k property, the mortgage is $429 with 5% interest. With $1,000 rent, you got $571 per month or $6,852 per year left over. Let's say the total yearly expense is $3,000. Let's also assume that the house appreciates 4% per year.

You made $1,000 rent X 12 months + $4,000 appreciation - $5,148 mortgage - $3,000 expense = $7,852. The return on your money is 39% ($7,852 / $20,000).

With the same property, let's say you put $50%/$50k down. Now the mortgage is only $268, so you got $732 per month or $8,784 left over.

You made $1,000 rent X 12 months + $4,000 appreciation - $3,216 mortgage - $3,000 expense = $9,784. The return on your money is 19.6% ($9,784 / $50,000).

You can see you get higher return with less down payment. This is why I say your money (equity) get lazier when the equity gets larger. Also, by putting less money, you have an option to have more cash reserve or buy more properties.

Now, even if you only put 20% down, what happens over time is because you will pay down the mortgage and the property will (hopefully) appreciate, your equity % will go up and get lazier. That's why once the equity grows, one things you can do is to sell it and buy more properties. I did it myself, and it's giving me better return.

Chris C. · Answer

agreed wholeheartedly!  Take advange of when people ask you "how's your day going" you can be like "well, ive been trying to find a XYZ Single family home, in ____(location)___"  use your network, and don't be afraid to help others.  While talking to people you might find something that someone else needs

Ryan Malcolm · Answer

BRRRR by David Greene. It's a game changer.

Michael King · Answer

@Nathan G. Good strategy. Thanks for the info. Say I did find a distressed buyer, would you purchase it with traditional financing? I know wholesalers in my market are all over these types of properties and close fast with a double blind. How could I be on the other side of the wholesalers double blind to secure a rental property with traditional financing without delaying the process? I know these guys want to get in and out and only accept cash offers (I.e HM)

What about something like me closing on it with HM and then instead of flipping it, just refinance it over to traditional after the repairs have been made? Is this something you see that works?

Michael King · Answer

@Soh Tanaka thanks for the reply. Regarding a 1031 exchange, can you elaborate on how this would help me expand my portfolio? Something like selling a $200,000 property and buying two $100,000 properties (rolling my gain from the first property in to two)? How would this work in practice? Would I first sell my current rental, and then find 2 new properties rolling my gains into them via 1031?

My understanding of a 1031 is primarily for deferring taxes. I haven’t considered it as a strategy to expand my portfolio. Thanks again.

Rental Properties: what is a proven growth strategy?

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