How to Buy a Portfolio of Houses

Buying one house is all well and good. But if real estate investment is something you want to go big in, it makes sense to consider larger properties. This could include apartments or commercial properties. It could also include portfolios of properties, which is what we’ve done a lot of here in Kansas City.

We have bought several portfolios, from two and three houses, up to 41 and 97 (to see a breakdown of that deal, see here).

Portfolios can come from just about anywhere. We have found them from real estate agents, on Loopnet or the MLS, on Craigslist, from referrals or just by networking. Some big commercial firms buy portfolios from large operators, but that’s not really relevant to what we do. They are simply looking to hit a certain return. The big advantage we see in portfolios is that you usually get some built-in equity.

Portfolio sellers know they are giving a “quantity discount.” That being said, due diligence is much more difficult on a portfolio than on a single house or apartment where every unit is next door to each other. If at all possible, I still recommend walking every unit.

You should also value each property separately. Entrepreneurial investors, such as ourselves, are not simply looking for a return. Yes, I evaluate the cap rate as I would with an apartment and make sure the property will cash flow. But I also want to see how much equity we are getting. (We aim to be all in for 75% its value.)

We like to estimate the approximate repairs for each unit based on whichever ones we can get into before the offer and the pictures. But we also note what our assumptions are in our offer. If they turn out differently once we’ve walked more units, we can point to that and renegotiate the price.

Portfolios can be tricky, that’s for sure. But especially if you already have a few units, they’re a great way to jump start your investing career.

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