How I built a portfolio of 35 rentals and $10k+ monthly cash flow

[Anton Ivanov]

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.

[Anton Ivanov]

@David Hall

Great quote!

@Nita Martin

Those are great goals, good luck to you guys!

@Dustin Thoms

The answer to this is quite long and I described some of my market selection criteria elsewhere in this post. 

But more specifically - Birmingham was a so-so market in terms of economy/population/jog growth 5 years ago, but the cash flow there was excellent. At the time most of my properties were more expensive and in better areas, so I wanted to diversify into somewhat lower class areas a bit.

Kansas City is the current market I invest in and in my opinion, it has a perfect combination of strong economy/population/job growth and relatively low home prices.

[Anton Ivanov]

@Vladislav Usatenko

I would definitely not recommend joining the military just so you can have access to a VA loan. I would do it for other reasons. The FHA program is similar and is available to non-military members.

@Robert Mair

It's a very valid point - management will make or break your investment, both locally and out-of-state. I'd say the key things that helped me is to only work with property managers I was referred to by other investors and establishing a very strict set of checklists, guidelines, etc. that they operate under. Basically, I manage my PMs somewhat more than most people.

[Bryan P.]

So how's it going with your 4-plexes so far? Any major hassles? Turnovers yet?

[Anton Ivanov]

@Bryan P.

Thanks for checking in!

Things are going very good overall, we actually just closed on another 4-plex, so our total is just under 40 units.

We’re slowly rehabbing existing units at a rate of about 1 per month. About half way done so far. We typically replace the tenants and raise the rents during each turn.

I prefer this approach as opposed to doing all of the rehab up-front because it allows me to start collection cash flow from day one and use the cash flow to finance all of the rehabs instead of borrowing the money.

I wouldn’t say we’ve run into any major problems. With this many units there is always turnover, but nothing out of the ordinary.

[Bryan P.]

I don't know if you've owed the 4-plexes long enough to know this ... but is the higher (expected) turnover rate worth scaling up faster vs. building slower with SFRs? I know from experience that turnovers are very costly and disrupt cash flow the most.

[Anton Ivanov]

@Bryan P.

Based on my projections I’m not expecting the turnover to be that much higher than SFRs in a comparable area, but the level of efficiency and cost savings I’m getting with multi-families is definitely substantial.

I don’t necessarily think there is anything wrong with owning 50+ SFRs, I just don’t see myself doing that.

In fact, in the long-term, I would rather own 2-3 large apartment complexes as my entire portfolio.

[Bryan P.]

PMs in different markets have told me that small MFs will have turnovers twice as often as SFRs for an average of 1.5 years vs. 3 years. I've experienced this myself so it seems to be true. I agree there is some cost savings and efficiencies with MFs ... one roof and exterior walls.

[Anton Ivanov]

@Bryan P.

I haven't owned these properties long-enough to give you good statistics, but so far we haven't had major problems with turnovers.

[Bo Kim]

Originally posted by @Bryan P.:

PMs in different markets have told me that small MFs will have turnovers twice as often as SFRs for an average of 1.5 years vs. 3 years. I've experienced this myself so it seems to be true. I agree there is some cost savings and efficiencies with MFs ... one roof and exterior walls.

Not sure on the exact ratio 1:2 in terms of turnovers, but I agree, generally MFs turn faster and they attract more transient tenants. That is why my CoC requirements for SFH is minimum 12% but MFH need to be 15-18%. Also I feel like the exit strategy is definitely another investor whether they be house hacking, 1031exc, or just buying an investment prop, whereas SFH I can upgrade the finishes to be more retail ready and sell it to a homebuyer.

[Lavelle Govia]

@Anton Ivanov

I'm currently in the Navy. It's amazing to read your success after the Navy. My question is geared towards how you started. You said you only used financing methods such as VA Loan. I know the VA loan can me used multiple times, how were you able to re use the VA loan to build your portfolio? Is there a clause that states if it's rented out that you are eligible to use the full amount of the VA loan?

[Branden Pfaff]

@Anton Ivanov excellant work! I love how you stick hard and fast to your numbers. Well done and thanks for the share. 

[John Elkhoury]

@Anton Ivanov despite being posted over a year ago, thanks for share and thread responses

[Anton Ivanov]

@Lavelle Govia

Between my wife and I (who also served), we've used the VA loan only 2 times - 1st to purchase a duplex that we house-hacked and then to purchase a primary residence where we now live.

To re-use the VA loan, you generally have two options, to my understanding. First, the VA loan has a total maximum "entitlement" that you can take out, which varies by state/county. Let's say for your city it's $400k total loan amount. You can theoretically buy a property with a $200k loan, live there for a few years, then buy another for $200k using a VA loan and move there instead. Provided you have a good reason for moving, you can keep the VA loan on the first property, which is now a rental.

Alternatively, in the above scenario, you can re-finance the first property into a conventional loan if the property appreciated in value and your equity is over 20%. That will essentially pay-off your first VA loan and free up your entire $400k allotment, which you can use on another property purchase.

[Lavelle Govia]

@Anton Ivanov

Thanks that put it into perspective for me. Thanks a lot.

[Rodney Robinson]

Very impressive journey. Thanks for sharing your lessons and best practices @Anton Ivanov. It sounds like you have learned a great deal on your ride.I am inspired to do the same. Great hustle and dedication.

[Albert Okagbue]

Great story. Great great story. Love to hear about people taking advantage of the VA benefits too. Thanks for your service. Your family will benefit from this for generations. I appreciate this for it's inspirational value, but really two things seem to explain most of your success:

Super high savings rate on a really high income.  I guess you had no financial obligations to individuals, children, or communities beyond what 30% of your income could meet, and no time commitments either.  Saving 70% can make you really rich; most people investing that much get rich regardless of asset class, returns, etc.  Some less than you, sure.

Just posting because you made a comment that you couldn't point to one thing that has made you successful.  I can.   This discussion shows the importance of how much you invest 

https://www.biggerpockets.com/forums/12/topics/583...

I just advised a client's girlfriend about to go from $50K to $220K income to live on $10K a month and save the rest.  She couldn't believe how much she'd have in 5-10 years.  She hadn't considered any of this!  I don't care what metro area anyone lives; for the most part real people are living there on way less than $100K so people earning $200K, $300K etc can create massive wealth if they live like the top 5% at even $100K a year.  I have clients doing this and they invest in all sorts of things and do very, very well.  Obviously some do better than others...but that's another story.

Bottom line for anyone reading this, savings rates over 50% on top 1% income levels will make you VERY rich in 5 years.  I have assessed the ability of folks to pull this off...and it works regardless of what they want to invest in.

[Jason Graves]

@Anton Ivanov

Our story is very similar. I have 27 doors in Kansas City and I’m under contract for 27 more....

Congrats!

Let’s connect.

[NA Smith]

@Anton Ivanov

How do you find the properties to send the direct mailers too?

[Anton Ivanov]

@Albert Okagbue

Everything you said is 100% true. I believe taking control of your budget and savings is one of the first steps of building wealth, regardless if you invest in real estate or not.

@Jason Graves

Sounds like you're doing fantastic yourself, congrats!

@NA Smith

Check out this post where I wrote about that in detail:

https://www.biggerpockets.com/forums/223/topics/565862-how-i-ran-a-direct-mail-campaign-with-20-response-rate-and-4-sales

[Linda Thompson]

Hi Anton, how bad a shape were these properties that you purchased from sellers via your direct mail campaign?  Did they require a lot of rehab (roof, siding, foundation work, serious dry rot, water damage, etc.) or was it mostly cosmetic clean up?  How much has the rehab been on average for your fourplexes?  Did you run into any major issues with the rehab and your property manager who manages it for you?

Are these properties in a good school district, average or not so great?  What is your actual vacancy percent across your Kansas City properties?

I appreciate the information so I can understand the complexities of out of State investing.  

Thanks for providing details about your valuable out of state REI experience for us newbies. Much appreciated! Linda

[Anton Ivanov]

@Linda Thompson

I don't like buying properties with significant problems, so they mostly need cosmetic repairs or have that "dated" look. We spend on average about $5-6k per unit on rehab and sometimes another $2k or so on the building for landscaping and miscellaneous work.

Haven't had any major problems so far, in-fact my PM/project manager and me have a standard rehab SOW and materials that we use for all rehabs and make-readies.

The properties are in pretty solid B areas, so the schools are average, along with most other statistics like crime, etc. The vacancy rate is shaping up to be around 8%, but I haven’t owned them that long and the first few years are always more unstable as we replace the tenants.

[Linda Thompson]

Thanks, Anton.  This is very helpful!  One last question.  

I'm curious what your experience has been with acquiring multifamily (2-4 units) with tenants in place at below market rents and how you have handled that situation. Do you price your offer (NOI/cap rate) based on the A) lower in-place rents or B) post-rehab rents?

Do you give tenants notice to vacate once you own the property, complete the rehab and then re-tenant the property or just rehab once tenants vacate on their own?  What have you learned from this experience if you have tried different strategies?

Thanks again for all your great advice based on your recent RE experience out of state!  This has been invaluable information for me getting started.

I downloaded Dealcheck and looking forward to using it.

Linda

[Anton Ivanov]

@Linda Thompson

I base my purchase on current rents and condition of the property, but I do run projections post-rehab to see what my returns/cash flow would eventually look like.

I don’t force the tenants out. We do gradual rehabs of the units as they naturally become vacant. We also sometimes offer the tenants move into one of the rehabbed units if they are ok with increased rent.

I don’t finance the rehab costs, so I don’t want to force all tenants out at the beginning and have to pay for all rehab work up-front. I’d rather use the cash flow to finance the rehabs over a longer period of time.  

[David Hernandez]

Thank you for sharing this info Anton Ivanov! I am just starting out and would love to be able to develope a portfolio like yourself. If you have any tips on what to avoid when getting started id love to hear. What would be the best way to get started? Thank you for sharing! 

[Anton Ivanov]

@David Hernandez

It's very hard to give some sort of blanket recommendation, especially without knowing you, but I'm a big fan of house-hacking small multi-family properties as your first investment/home purchase.