Building a $1.8 Million rental portfolio in 2 years

[Lee Yan]

 I started out by renting my condo to a friend 3 years ago when my company moved me all  over for a work assignment. I was able to save up quite a bit as my living expense was paid for and I put away all my salary and paid down my condo with the rent. I started looking at investing my savings and realized real estate is the best way to go, I began reading books and listen to podcasts religiously and guess which podcast I listened to the most :) .After returning to states I found these two old school investors (brothers) on Craigslist who were willing to CD out their 260k duplex near dt Minneapolis ( Marcy Holmes) for 10% down and 5.5% int, I knew just enough to jump on the deal and it worked out great. It was cash flowing and only need cosmetic work, I also had a friend who knew about fixing houses so I worked out a deal where I give him a certain % equity so he would help me with updating and maintaining the property. We have since increased rent and the property is apprised at 320k. The whole experience provided me with more confidence and I began to look for SF Brrrr opportunities. Long story short, I found two single families in a up and coming neighborhood in Saint Paul, one was 75k, apprised at 130k after updates and the other 90k, 150k after updates. I also began working with a portfolio bank and build good relationship where they provide me with access to line of credit and quick refinancing. Long story short, the two brother who CD us the duplex liked us so much they CD-ed us a $450k four-plex ( Marcy Holmes again) at better interest rate. We were also able to do few cosmetic update and raise the rent 20% on that one as well. Long story short, since than I have bought 2 more single family rentals( one financed and one on CD in North Minneapolis), a duplex , 4-plex and one more 4-plex I currently have under contract. Its been a crazy ride but I tried to avoid all the mistake mentioned on the podcasts and books and so far I am loving the experience. Sleep was not easy the first few month and I was working between 60-80 hours per week.  Now every thing is cash flowing and I have cash reserve/line of credit set up for emergencies. I have a go to contractor I call for most of the work and I am setting up a website to help with application process.I am actually looking at a apartment building now and have asked the owner if they are interested in doing CD, they have said they may be open to it, this would almost double my portfolio but I am looking to raise funds from family and friends... wish me luck

Lee

[Peter Tverdov]

Lee I personally feel like you're playing with fire but I like to be very mindful of risk. People probably thought rental markets were still strong in 2007, just like guys in the oil fields thought oil was a solid price at $100+ a barrel 2-3 years ago before it tumbled to $25 a barrel. If a storm comes (like a rental market quickly changing) that LOC will pucker up real fast and then you will have dangerously low reserves. I would personally never count on a LOC as my reserves when it can be taken away in a matter of minutes. Furthermore, if you only have 15% equity in your portfolio that is also dangerously high. That means your LTV is 85%? So if there is a problem, you are screwed. You cannot refinance because most refinances are 75-80% LTV. I say this not to attack, but to warn you. I have a large portfolio but I will NEVER allow it to go above 75% LTV and I track that monthly. I keep 6 months of reserves on every property and that money is cash or in equities that can be pulled in 3 days. It's easy to fall into a false sense of security when you haven't had to deal with bad things happening or a bear market. Be careful, I think you're playing with fire and should not buy anything else until your LTV is 75% and you have real cash reserves not a LOC. Just my 2 cents. Good luck.