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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.
If you read through my comments in this thread, there are many more details than in the original post...
As far as lending, you are correct - you'll start maxing out on conventional loans at around 10 or if your debt to income ratio gets higher than 45%-50%. I used conventional loans as much as I could on my first few properties, which were mostly SFRs. In the last 2 years that I've been buying multi-family, I've been using only commercial financing, which works very differently and doesn't have a limit on the number of properties you can finance.
As far building your network out of state - it takes a lot of time (many months). I've visited the cities I invest in many times, met with all of the people I work there on each visit, on top of regular phone conversations with them, especially property managers. You can't expect people to "do the work for you" without putting in the work and processes in yourself.
50% rule is too general. If you're serious about buying a property, there is no reason why you can't look up what the property tax bill actually is, what the insurance is going to cost, estimate maintenance and cap ex based on the actual property condition, etc. I just see to many people use these rules and think that's all it takes to analyze a property, which is not the case.
If you're saying you've spent $25k just to "learn" and "set things up", without actually buying a property, I'm a little shocked. There are so many free resources, especially on this site, that I don't think you need expensive courses or seminars to start investing.
Frankly, you also don't need an LLC, especially if you're buying SFRs with conventional financing and without partners. You won't get any benefit out of it.
I think @Jay Hinrichs was speaking from the point of asset protection and risk mitigation. Once you get a few dozen properties, I would agree with him that you don't want to over-leverage your portfolio. But at the same time, refinancing to pull cash out is definitely a viable strategy to keep growing.
It's definitely gotten harder to find worthwhile deals across the board and you're right - we are due for a correction soon. I think at this point it's important to learn how to manage your cash flow, don't over-leverage and have an emergency fund specifically for your properties in case things go south. With those 3, you should be able to whether a recession, provided your properties have strong positive cash flow.
As far as buying more - I've taken a break in the last few months, but I'm going to start looking for off-market deals again soon. I think you can still find something, it just may not be as common place as a few years ago.
No, I travel to these places myself. You definitely need to take travel costs into account, but I wouldn't say they make up a large expense for me, as I don't have to visit these places often.
Send me a pm or email and I can give you some recommendations.
I've replied to this question on here before. Basically I only find them through referrals and have a detailed questionnaire I go through with each one.
Anton,
I appreciate you opening the door to your investment history and how you did it.
Im an active duty Marine, and reading your story motivate me to know is possible. I know in order for me to grow, I will need to get in to the Multi-fam. I currently only have 3 SFR, I m planing to retire within 6-10 years, so I would love to have 5k monthly passive income.
This is why i need to be able to get some 2,3,4 Plex in my portfolio. Question, can you give us more details on what you do to look the location/market. (why/how Kansas city).
thank you again and congrats!
Al
This article is so timely. I started taking financial freedom seriously when I decided I did not want to work anymore and saw people not making it to retirement. I too tried to talk to friends and family about this topic but no one wanted to engage. I think people really don't think its possible so they dont try. Like you I made "executive decisions " about retirement and put my plan to work and never looked back. Its been so worth it.
Are you the same person referenced in this Yahoo Finance story from 2014?
https://finance.yahoo.com/news/anton-ivanov-millionaire-story-truth-210757837.html
Anton,
Congrats man! You motivate us military folks! I also invest in KC. Hope you far exceed your goals!
#3 Coronavirus Conversation Contributor
- Los Angeles, CA
congrats @Anton Ivanov ! Fantastic story.
Most people get the first house hacking right as you did in 2013 with your Duplex, with an 8% down VA loan and the income as shown by your salary (or self employed from a non RE work).
What I didn't see in your story, is how you financed your first "investment property". You probably had already a high DTI, and no significant cash in hand:
- 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.
What type of loan? Where did you get the down from? How much down? Who financed?...
Also How did you get your first commercial loan?
#3 Coronavirus Conversation Contributor
- Los Angeles, CA
Originally posted by @Dave Nixon:
Are you the same person referenced in this Yahoo Finance story from 2014?
Interesting.
So you don't believe everything you read and have to check every single thing? lol
@Anton Ivanov thank you for sharing, love your story brother, very inspiring. Would love to connect and see how we can support each other in our real estate goals. Cheers
Hi @Anton Ivanov, thanks for sharing! Although we're still several steps behind you in building our portfolio, my husband and I are similar to you and your wife in a lot of ways, in terms of our life stage, as well as how you treat money and evaluate new markets. We only have two SFRs at the moment but are preparing to either build our portfolio in that direction or take the next step into small multi-families. I especially like that you shared details of your financing, and demonstrated how your success has been possible with the financing options you use. Congratulations on your success and good luck in the future!
Thanks. Agreed that you dig deeper to confirm the numbers when buying. The 50% rule is really the 45-50% rule and is staggering as to how accurate it is. It's a baseline to protect cash flow in the event that the portfolio hits a bump. It is designed to give you breathing room if you are allocating your cash flow properly. I have managed thousands of properties both of my own and third party. The owners that lose their portfolios are usually the 10-40 unit owners with high leverage . When they hit a bump in the road, they can't survive because the cash flow isn't enough and their day job doesn't pay well enough to cover the expenses. The ones that make it have low leverage and are smart about putting the money aside for rainy days. Even at the 100 unit+ building level the best a top operator gets to is about 38%.
Originally posted by @Anton Ivanov:
If you read through my comments in this thread, there are many more details than in the original post...
As far as lending, you are correct - you'll start maxing out on conventional loans at around 10 or if your debt to income ratio gets higher than 45%-50%. I used conventional loans as much as I could on my first few properties, which were mostly SFRs. In the last 2 years that I've been buying multi-family, I've been using only commercial financing, which works very differently and doesn't have a limit on the number of properties you can finance.
As far building your network out of state - it takes a lot of time (many months). I've visited the cities I invest in many times, met with all of the people I work there on each visit, on top of regular phone conversations with them, especially property managers. You can't expect people to "do the work for you" without putting in the work and processes in yourself.
50% rule is too general. If you're serious about buying a property, there is no reason why you can't look up what the property tax bill actually is, what the insurance is going to cost, estimate maintenance and cap ex based on the actual property condition, etc. I just see to many people use these rules and think that's all it takes to analyze a property, which is not the case.
If you're saying you've spent $25k just to "learn" and "set things up", without actually buying a property, I'm a little shocked. There are so many free resources, especially on this site, that I don't think you need expensive courses or seminars to start investing.
Frankly, you also don't need an LLC, especially if you're buying SFRs with conventional financing and without partners. You won't get any benefit out of it.
I think @Jay Hinrichs was speaking from the point of asset protection and risk mitigation. Once you get a few dozen properties, I would agree with him that you don't want to over-leverage your portfolio. But at the same time, refinancing to pull cash out is definitely a viable strategy to keep growing.
@Anton Ivanov Thank you for your service and for sharing. This was a great read and I really enjoyed how you broke up your article with bullet points and titles. I hope to develop or learn of some good equations to better pin point my area of focus with Multifamily and Single family rentals.
You inspire me!
Frank Curry
This is a really inspiring story! Thank so much for putting it all together and sharing it here Anton. Keep crushing it!
For the criteria, I only work with property managers that were referred to me by other investors. The more the better. That by itself will eliminate the majority of bad companies. Other than that, I have a pretty detailed list of questions that I ask them to make sure they offer the services that I'm interested in, they will manage the types of properties I have and their fees are reasonable. Pm me and I can send you the list of questions.
As far as keeping property managers accountable, you need to create checklists, guidelines, etc. for how you want things done, go over them with your managers and make sure you agree on everything. Then follow up and make sure they're doing thing according to how you wanted them done. I like to talk to each property managers over the phone at least one a month and obviously check all statements, maintenance receipts, etc.