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How I built a portfolio of 35 rentals and $10k+ monthly cash flow
Hey Everyone!
BiggerPockets has been invaluable to my success as a real estate investor, so I just wanted to share what's possible with real estate if you set goals and follow through with your plan.
A Little Backstory
I am currently 31, married, no kids, living in San Diego and working as a senior front-end engineer + running a real estate startup on the side.
My portfolio consists of 35 total units, mostly 4-plexes, with a duplex and some SFRs sprinkled here and there. 3 units in San Diego, 1 in Atlanta, 3 in Birmingham, 28 in Kansas City.
My units cash flow between $250-$350/door and the total cash flow of the portfolio is about $10-11k/month (accounting for vacancies as well). My average COC return at purchase is about 15% and long-term IRR is 20%+.
All properties are financed. The only financing I have ever used was VA loans, conventional loans (as many as they would let me) and later commercial financing on multi-family properties. Never had any partners (besides my wife), never did syndicate deals, no seller financing, no other creative financing.
How did I get here? Here are the important parts:
- Joined the US Navy out of high school, active duty (Fire Controlman). Served most of the time in Japan.
- Both parents passed away in 2008-2010. I was left with a single condo where they lived. At first, I was going to sell it, but decided to rent it out through a local property manager (I was in Japan at the time). Cash flow was terrible, so that didn't really give me much encouragement to pursue real estate at the time..
- 2013: Left the Navy, moved back to San Diego, got a regular job (electronics technician at first). Decided to give real estate another shot. After about 6 months of searching, found a duplex that needed a good amount of work in a B- area. Moved in one of the units with my wife, rented out the other. She was not very happy, but this turned out a great investment over time and we eventually moved out. Used a VA loan with an 8% down payment.
- 2014 - 2015: Ready to buy more properties, but real estate in San Diego is too expensive and cash flow almost non-existent. Started looking out of state. Decided it was too risky to try to buy/rehab myself, so ended up buying 4 turnkey SFRs in Atlanta and Birmingham. Cash flow was good and prices started appreciating over the years, so still happy with these homes.
- 2016: Felt more confident with managing out of state rentals and owning properties in general, so decided that I could make more money by buying value-add properties off MLS or private sellers. After extensive research, decided on Kansas City, flew out there, built a local network, started looking at 2-4 unit properties. Ended up buying three 4-plexes in a private sale because my agent tipped me off.
- 2017: Feeling more comfortable in Kansas City, but was having a hard time finding new deals on the MLS (spent about 10 months looking). Decided to do a direct mail campaign to a very select group of multi-family property owners (about 90 total). Hand wrote the letters, added photos of their exact houses, sent out myself. Ended up landing 4 sales for more 4-plexes.
- 2018: Taking a little break for the first 6 months, focusing on doing rolling rehabs on all units I picked up in 2017, raising rents to market, improving general operations. Will start looking for more in the summer (already have some possible leads from the mail campaign).
Future Plans
My original goal was to get to 50 units before turning 40, so I'm quite a bit ahead of schedule. Barring anything crazy, I anticipate to get there within the next 1-2 years (15 more units to go).
This will put my passive income somewhere in the neighborhood of $15k/month or $180k/year. I'm not sure I want to retire quite yet, so I will most likely continue with the same strategy, buying more units up to 65-75 total.
I'm also planning to do a full review of my entire portfolio (now that there are a few years of operational history), sell the underperforming properties (and probably most SFRs) and re-invest into better performing multi-family buildings. I'm also considering focusing on larger apartment complexes, but we'll see.
Key Takeaways
It's hard to pin point a single thing that helped me the most. Some may say I was fortunate or "lucky" at several points in my life, but I think a steady, consistent growth strategy is what played the biggest role.
Here are some other things:
Maximizing My Income
Since I didn't rely on any "creative" financing strategies, all of the deals I've done required some cash from me to close. Now that I buy value-add properties, I also pay for the rehabs myself.
What really helped is maximizing my income from my full-time job and side-business. I went from being active duty in the Navy (around $40k/year) to senior front-end engineer (around $150k/year) and running a profitable startup (another $150k/year) in a few years.
Everybody's situation is different, but I think most of us can do at least something to increase their income.
Having a ~70% Savings Rate
Throughout my adult life I have consistently maintained a savings rate of around 70%. Combined with the point above, this was really the key to saving money for the next property quickly. Especially in the last few years, as my income increased substantially, this really helped.
Along the same lines, I've never touched any of my income from rental properties or other investments. 100% of that is re-invested.
Again, I think this is something that can be done by anyone, regardless of their income level. I meet far too many people who make six figures and have almost no savings, because of their lifestyle choices.
Focusing on the Right Markets
There isn't such a thing as "the best market". Macro and micro economic conditions are also always changing, so the markets that may be "good" for rental properties today will not be the same a year from now.
I wouldn't consider myself an all-around expert of picking rental markets, but I have talked to a lot of people who are a lot smarter than me and have developed a set of criteria that help me focus on where to invest next.
Since where I live is so expensive, and I originally had limited funds (and wanted higher cash flow), I primarily focused on larger metropolitan areas with good economic and population projections, but which have strong cash flow and average property prices around $55-85k per door (for multi-family properties).
Last time I did my "analysis" a few years ago, there were several promising candidates, including Atlanta, Dallas, Charlotte, Kansas City, Nashville. I ultimately settled on Kansas City and that's where I'm planning to buy in the next few years.
Being Very Conservative with Cash Flow Projections
I'm an analytical person by nature, so the whole process of analyzing potential cash flow from a rental property always appealed to me.
I've always been extremely conservative when estimating cash flow projections. This probably caused me to pass on some "ok or good" deals, but ultimately got me "great" deals, which is what you obviously want.
I never use rough estimates or the so-called "50% rule" (I think it's actually extremely misleading). I look up exact rental comps to estimate rents, I look up what insurance, management, utilities, and property taxes (after sale, NOT current) will be for each property.
On top of that, I use high vacancy and maintenance estimates, basically accounting for the worst possible scenario. I've gotten into plenty of arguments with sellers over "my numbers", but this strategy has only done wonders for my returns.
Running My Rental Portfolio Like a Business
I've figured out pretty early on that owning 1-2 properties isn't going to make me rich or allow me to retire early. After I set a goal to get 50 units, my brain started thinking about what I need to start doing NOW to make this possible at the end.
And what I came up with is a realization that I should treat this whole operation as a business, instead of just passive investing. So I focused on 2 things - building a network and a team of professionals to help me (property managers, agents, lenders, mortgage brokers, insurance guys, etc.); and training/teaching them to basically do most of the work for me.
The biggest challenge of owning this many units, especially all over the country is management. I never self-managed a single property. I have always used property managers and over time developed a set of criteria for picking them, and a system for keeping them accountable.
I don't get into day-to-day operations, but I basically groom each of my property managers to do the job for me in a way where I'm satisfied. It takes some work up front, but overtime pays off big time, as mutual trust and understand develops.
Thanks again to this community to providing so much support and wisdom throughout the years! I hope my story will serve as motivation for some who are just starting out.
Great story. Very inspiring!
To send a colleague request, use the website, hover over my picture on the left and click "Connect". But I sent you one anyway just in case. You guys are way ahead of me in unit count (52 I believe?), so congrats on your progress! Feel free to send any questions over.
My startup is in my sig. I don't want to get in trouble for self-promoting it on here, so just click around on the website, it's pretty obvious.
I'm not a big fan of Memphis and Indi. Last time I did my market selection process they didn't score very high on economic/job/population growth. But I never bought property in either, so I can be mistaken and I'd encourage you to ask people who either live there or are very familiar with those markets.
1. $10k is purely cash flow, vacancy and everything included. By the way, by amortization I think you mean depreciation? It's not included. I don't include any "tax benefits" in cash flow calculations.
2. My portfolio is about 60% leveraged right now. It's a little low - I like to keep it at around 70% so it's time to do some re-finances soon.
3. My SFRs have 2 VA loans and the rest conventional 30-year fixed. Most of my multi-family has commercial 10 year, 25 year amortized loans.
4. I keep a reserve of about 5-6 months of expenses for each rental property I own. Similar to what's recommended for a personal emergency fund. It's quite a bit of cash, but I like to be conservative in that regard.
I don't think there is anything wrong with your deb-free approach. I was just curios as far as the reasoning. I met quite a few people who got burned in 2008-09 and that was part of the reason I keep high cash reserves and don't over-leverage myself. I do plan to start paying off all loans, but I want to reach my unit goal first.
Picking a good property manager isn't easy. I always try to work with companies I was referred to by other investors instead of just randomly googling somebody. Vetting each PM against 2-3 real investors who use them will likely save you from a lot of bad experiences. I also have a pretty detailed questionnaire I like to go through with them when I first meet them. If you send me a message, I'll send you the link, because I think the mods will remove it from here if I post it directly.
As far as keeping PMs accountable - I would suggest establishing processes, checklists, etc. and basically training your PMs to do thinks how you like it done. At least when it comes to leasing, tenant screening and make-ready repairs. I'd also suggest doing a phone call at least once a month to check up on things. And don't forget to review each of your statements and ask questions if something doesn't look right.
I hope this can at least help you get started.
I have a really good team in KC right now, so as long as I can keep finding good deals there, I'll probably keep buying there for another 1-2 years. After that, we'll see.
I think there was a comment on here where I gave some general thoughts on market analysis. It's a complex subject and maybe I'll write up a separate post about my approach in the future. But in general I like markets that have a good balance between cash flow and economic/population/job growth which drives price appreciation.
Dallas, Atlanta and Charlotte were all high on my list last time I did this. Dallas and Atlanta I felt got too over-priced, which was confirmed when I talked to some local investors I knew there. I looked at Charlotte, but I felt that the multi-family property inventory there was somewhat low (I could be wrong here), whereas Kansas City has a ton of multi-s. I liked the growth prospects of KC a little better as well. But I think you can be successful with either one if you put your mind to it.
@Anton Ivanov Got it, thanks.
1. No, by amortization I mean amount of principal paid down every month reducing the mortgage balances.
2. Eh, its never bad to decrease leverage a bit, especially at this point in the business cycle, we're just under 40% levered & don't have any complaints or worries. @Jay Hinrichs has a very good point in this regard, his advice is typically golden.
3. MF does interest me, but I hate that 10 year term, I'll have to break into it at some point, SFRs are so easy, haha
4. Better to have more cash than less, for sleep's sake
What is your contingency plan if this trade war and stock market volatility trickles down into American real estate and property values drop 25 to 40% in the next few years?
Why do you say that in 5 years returns would decline? Vacancy/maintenance is included in my cash flow numbers and I'm very proactive in keeping the houses in good condition, so I would think the rents/prices would increase? By the way, the majority of my portfolio is in multi-families, not SFRs.
It was a condo, but yes, I still have it. I actually haven't sold a single property yet.
If you google something like "COUNTY NAME tax collector" or "tax assessor", you'll find a website for each county in the US where you can search tax records by address. Each tax bill will at least have the owner's mailing address and their name. That's how I got the owner's contact info from the property addresses.
I spend a lot of time (months) learning about a city and its different areas before buying there. There are a lot of online sources that can give you background info. This site is one of them - many cities have previous discussions where local investors pitch in on which areas are bad, which ones are good. I use City-Data.com a lot for crime maps, demographic statistics. They have very good discussions about specific areas for many cities. You can use Zillow Market reports to get an idea for average home prices/rents.
I'd follow all of that up with talking to people who either live or work there, especially other investors, agents/brokers, property managers. You start getting a pretty good picture about a city and its various areas the more you talk to others about it and the more properties you look at/analyze there.
Finally, I always try to visit the city and the areas I'll be buying in. Drive around during the day/night, see what's around. Stop by, eat lunch. Just get a general feel for the area.
I don't know if I use any "tools", but I like the following sources of information:
Some links that may help you:
- Zillow Market Overviews
- Population Growth from Forbes
- Best Performing Cities Report
- Labor Statistics
- Landlord Friendly States
- City-Data.com
Well and BiggerPockets of course - they have a ton of articles about market selection from various perspectives.
I've recently published a write-up on Reddit. It's on the RealEstateInvesting sub-reddit on the first page right now. I can't post it here, because I think the mods remove it for "self-promotion" reasons. If you PM me I can send a link. I may do a write up on here in the future, since there seemed to be a lot of interest in my direct mail approach.
I'd say with property managers the first step is to only work with those that came highly recommended by other investors who use them. That by itself will probably "weed out" most of the bad ones. Other than that, run them through 15-20 questions around their whole business and the properties they manage. After a while I think you'll start to get an idea whether it's going to work out or not.
How I picked software engineering? When I was getting out of the Navy, I knew I needed a new career. I did a bunch of "career assessments" (you know the ones that recommend careers for you after a bunch of questions) and generally thought about what I like doing most. What I came up with is engineering in general because I like to build things and the challenge of designing and implementing something that works.
I then looked at which "engineering" careers require the least amount of education/certifications/etc. to get started. Basically the ones I can start on the fastest. Software engineering is by far the winner there. Most employers don't care about degrees or certs, they want to see actual applications/projects you worked on and your code. That was one of the biggest reasons I chose it. But I also tried it and really liked it, so it all worked out.
1. Oh, ok. No, that's not included in my cash flow. I've never heard anybody including that in cash flow. It gets accounted for if you calculate your ROI/IRR, but I would consider "cash flow" being the actual money deposited into your bank account.
2. My initial approach was to stay leveraged around 60-70% during the "growth" phase of my portfolio, basically until I reach my unit goal and de-leverage after that. But with all of these people smarter than me telling me I should do the opposite, I may have to re-visit that plan!
3. Yes, commercial financing is very different.
4. Agree!
Property value fluctuations don't really bother me. I'm a very long-term investor and plan to won my properties for 20-30-50? + years without selling. As long as they cash flow and I keep them rented out, I should be fine even if we have a really big crash like in 08-09.
I have, what I would consider, fairly large cash reserves for any unplanned vacancies, maintenance, etc, etc. About 5-6 months of expenses for each unit/property. I think this, combined with a healthy positive cash flow would protect me if vacancies go up during a recession (which is usually the opposite, I heard anyway) or rents stagnate.
I'll let somebody who lived through 08-09 without getting "burned" chime in here and hopefully provide some wisdom!
Originally posted by @Anton Ivanov:
How I picked software engineering? When I was getting out of the Navy, I knew I needed a new career. I did a bunch of "career assessments" (you know the ones that recommend careers for you after a bunch of questions) and generally thought about what I like doing most. What I came up with is engineering in general because I like to build things and the challenge of designing and implementing something that works.
I then looked at which "engineering" careers require the least amount of education/certifications/etc. to get started. Basically the ones I can start on the fastest. Software engineering is by far the winner there. Most employers don't care about degrees or certs, they want to see actual applications/projects you worked on and your code. That was one of the biggest reasons I chose it. But I also tried it and really liked it, so it all worked out.
1. Oh, ok. No, that's not included in my cash flow. I've never heard anybody including that in cash flow. It gets accounted for if you calculate your ROI/IRR, but I would consider "cash flow" being the actual money deposited into your bank account.
2. My initial approach was to stay leveraged around 60-70% during the "growth" phase of my portfolio, basically until I reach my unit goal and de-leverage after that. But with all of these people smarter than me telling me I should do the opposite, I may have to re-visit that plan!
3. Yes, commercial financing is very different.
4. Agree!
Property value fluctuations don't really bother me. I'm a very long-term investor and plan to won my properties for 20-30-50? + years without selling. As long as they cash flow and I keep them rented out, I should be fine even if we have a really big crash like in 08-09.
I have, what I would consider, fairly large cash reserves for any unplanned vacancies, maintenance, etc, etc. About 5-6 months of expenses for each unit/property. I think this, combined with a healthy positive cash flow would protect me if vacancies go up during a recession (which is usually the opposite, I heard anyway) or rents stagnate.
I'll let somebody who lived through 08-09 without getting "burned" chime in here and hopefully provide some wisdom!
RE About 5-6 months of expenses for each unit/property. That's great that you're also a saver and have plenty of back-up cash in case vacancies go up. Interest rates are also going up but we can assume that residential financing is all fixed rate? What is the rule of thumb for cash reserves in real estate investment?
What strategies are best that hedge investing when property values are falling 25-40% i.e. a $250K house falling as low as $150K that has a mortgage attached to it?
Finally, how do these strategies differ between commercial and residential.
@John Acheson Who cares if the property value falls on paper as long as the rent checks keep coming in. You're in a unique part of the country that was absolutely clobbered in the last real estate bubble. For most of the country, as you aren't too levered, have plenty of cash reserves & keep your vacancy low, you'll weather a downturn just fine. Now, the areas of the country that go boom & bust very hard (i.e. Nevada) ... you do the same things, but to a more extreme degree ... less debt, more cash & do whatever you have to do to keep renters in place.
Anton Ivanov great story. I really enjoyed this thread. One question I had, is can you explain how you transitioned from
The navy to bring a front end engineer?
I’m a relatively young engineer and investor myself, so I thought I’d ask.
Dumb question, Kansas City, KS or MO?
I'm wanting to expand into 3/4-plexes in another area
Anton Ivanov great story thanks for sharing! What is the average purchase price on your kc property’s and what do they rent for??? I’m interested in buying out there also
@Anton Ivanov Thanks for sharing your success story. I am a resident in kansas city and have being looking for turnkey properties but no luck from the past 6 months. Would you mind sharing how are you finding those properties apart from reaching out to property owners.
Congrats and keep it up!
Anton Ivanov thanks for telling your inspirational story. I’m interested in buying a single-family rental near Atlanta. Who would you recommend as a property manager?
That's awesome, about where I hope to be. Similar path as you but USMC. Went from the 40k a yr to 130k a yr salary and high savings rate also... have 3 kids though, little drains on my account ;) lol... I am more in the beginning of the journey I have bought 5 properties in the last 10 months with that "magic" number right now of being at 50. I want to be where you are soon, the difference is I am in a more rural market in Iowa and I do all the value add myself, but I got property management from day 1 because I to want it to be a business. I just want the option to retire at any point not that I am going to, I enjoy what I do. I love it when other people are winning, it gives me hope. Thanks for sharing!
Congrats on your success. Very inspecting story.
Thank you for your service and everyone else who has served that has commented. I appreciate you!
Thank you for this story of inspiration and accomplishment. Good luck hitting your numbers and God bless!
I have to say “suuuuper inspiring” I don’t know if you’ve heard of Mr. money mustache but everyone should really start listening or reading his blogs. He’s very funny and very knowledgeable. He follows your same approach with saving approximately 70% of his income a month and living off 30%. He basically teaches you how to retire in 7 years. Some of the things I don’t agree with (investing in index funds) but for the most part he’s very interesting.
I have 6 units in Kansas City Missouri area as well. They really do cash flow. They are outside of the 435 though. It’s been really hard trying to find multi units lately.
Do you have any suggestions on what are 5 best zip codes. Idk if you like 64110 or 64128 zips. My pm was telling me to start buying in the Hyde park area because a lot of millennials are starting to inquire over there. Especially, since Cerner is around the corner.
Also, the Syrios family is really knowledgeable. They are HEEEEEAVY HITTERS in Kansas City, Mo. They have put out very good content on BP and you tube. Andrew has even answered a few of my questions personally. Great people.
Wonderful post. I like what you had to say about being “lucky”. You’re right. It’s more about determination. With the right mind set how much money you have doesn’t matter. Anything is possible.
Great Post !
This is so awesome! Congrats on your success! I hope to be there soon.