All Forum Posts by: Andrew Campbell

A couple of weeks ago, I shared a success story celebrating the fact that I quit my job and closed on a 202-unit the same day. A big reason I was able to do that was the fact we had built a 72-unit portfolio over the past 4 years. In the week after that post, I received lots of questions and messages asking about how we were able to build our portfolio to that point.

Today, I wanted to share our process in a step-by-step guide for going from 0-72 units and highlight the biggest factors that I believe allowed us to scale a business that now generates nearly $20,000 a month in passive income.

1) Start with a nest egg

I know this seems obvious, but do whatever you have to do in order to find, create or save enough capital to buy that first property. In our case, we generated investment capital by selling my bachelor pad (a condo I owned) after I got married, and my brother’s house (after he relocated). The proceeds from those sales, about $200k, were invested into a duplex, a fourplex and several single family homes in foreclosure all within 3 months of each other. Having that working capital certainly started us out in a good direction rather quickly.

2) Force appreciation

In BP lexicon, this is the BRRRR strategy. I think it's simply the greatest thing about investing in anything 2 or more units, and a main driver why we've started our new company to focus on Value Add investing in larger apartments.

The first duplex we bought was a 2bd/1ba on each side with a garage. When we purchased it, we enclosed each garage to create a 3rd bedroom on each side, and completely renovated the kitchen, flooring and bathroom. We had $225k total invested in the property, and two years later were able to refinance all of our capital out of that property to fuel more acquisitions. We did this on several other properties as well, and once we proved the increased NOI, were able to realize a tremendous amount of equity.

3) Buy in an appreciating area

The fastest way to generate wealth in Real Estate is appreciation, and not all of it has to be forced. Buying in the right market at the right time and letting natural appreciation occur is a beautiful thing. Monthly cash flow is awesome, but it is not the best accelerator to growing your business and portfolio.

We have certainly benefited from the explosive growth and appreciation in Austin and San Antonio, and would be lying if we didn’t credit the market for some of our success. But we also bought strategically in neighborhoods I felt provided excellent appreciation potential in the short term. We stayed away from some opportunities that provided excellent cash flow, but were located in rural areas that I didn’t think would appreciate as quickly. We have a rule that we only buy assets that cash flow from Day 1, but always look in areas that have a strong potential for accelerated appreciation. If you are investing in a slow growth area of the country, it is going to take you a lot longer to grow and build a portfolio.

4) Buy in your personal name

There is always a lot of chatter on BP about whether to invest via an LLC or not. We have purchased everything to date in our personal names so that we can take advantage of 30-year fixed rate loans. You can get up to 10 personal loans via Fannie Mae & Freddie Mac, and I suggest you take advantage of all of them. Some mortgage brokers will struggle to help you past 3-4 loans--and you'll pay a marginally higher interest rate--but keep working to find one that can get you all the way to ten. Between my brother and I, that was 20 loans we could get with 30-year loans averaging 4.5%.

This was important for us as we focused on generating cash flow (as you’ll see in the next step). It also allowed us to stretch for a couple properties that wouldn’t cash flow on a 20- or 25-year amortization schedule, but were going to be great appreciating assets.

To combat our legal risk, we put a high cap on the liability insurance of each property, and put an umbrella policy in place. Eventually we've moved the properties into an LLC, but if we had started that route and been limited in our financing options, we never would have gotten where we are so quickly.

5) Reinvest the cash flow

Sometimes this seems so obvious, yet many people don’t do it. They get a few hundred or a few thousand extra dollars coming in every month, and they start to expand their lifestyle or splurge a little too often. All of a sudden, that cash flow they’ve created is now needed to support new spending habits—and its not helping grow their business or portfolio.

We set up new accounts at a separate bank from our personal accounts to keep a clear distinction between the two, and eliminate the temptation of spending money from the rentals.

When we had saved enough cash flow to afford a down payment on the next property, we’d start shopping again. As our portfolio grew, the snowball effect took over and the time between acquisitions got shorter and shorter.

6) Manage the property yourself

From the onset, we managed our properties ourselves. At first, we had no clue what we were doing—but we learned as we went. We went this route for two reasons.

a.To save money. When you’re trying to grow your portfolio, keeping 8% of our revenues in our bank accounts really added up.

b.To learn the business. We entered this business knowing it was just that—a business. By managing our portfolio, we were able to learn the business much faster than if we turned everything over to a manger Day 1.

7) Get comfortable being broke and taking risks

For us, this manifested itself in two ways. First, we really cut back on as many expenses as we could, to send more money over to our real estate business to fuel more growth. So many people preach living below your means—but it works. When we got a bonus at work, we’d deposit it into our real estate account. When there was money left over at the end of the month, we’d transfer that over too.

Second, there were several times when we invested all of our savings to buy the next property. It was not a comfortable feeling to see less than $5,000 total across all your accounts, but a couple months later we had our cash reserves built back up and were collecting more rents with the new addition. Thing snowballed faster and faster, and the accounts grew faster with each acquisition.

8) Eliminate fear

When we bought our first investment property, Gary Keller’s The Millionaire Real Estate Investor was the entirety of our experience, and we really didn’t know what we were doing. We had a great friend and realtor who assured us these first few properties were going to cash flow, and we jumped in.

I remember pulling up to the first property after we closed on it, and having butterflies in my stomach as I walked up to introduce myself to the new tenants. Every step of this journey has stretched us, challenged us and taught us new things. Today, I stand here less than three weeks after quitting my job to focus on real estate full-time—and its not the most comfortable feeling. But, I’m not scared of it and have learned to eliminate the fear.

There you have it. These 8 steps have been the most critical in growing our portfolio from 0-72 unit in four years. A year from now, when we cross the 1,000 unit threshold in apartments, I look forward to sharing those steps. 

Agree with the advice about talking to an attorney!  And I'm clearly not one.  However...

We set up a Series LLC to hold our properties after we close on them. Each property ends up in its own LLC, but its much easier to administrate, and we only have to file a single tax return as they all flow through to one tax return. Legally, however they are all distinct entities protected from each other.

I will say when we set it up, our attorney said the series LLC concept had not been tested all the way through the court system yet--so there may be some risk. But we opted to try it out.

Great answers to this post.  The only thing I'll add--what are your investing goals?

Value add projects allow you to force appreciation.  IMHO appreciation is how you create wealth with real estate investing.  And going value add lets to you create and generate that appreciation in a short amount of time. 

Turnkey will produce very passive cash flow income, but the appreciation will be limited to whatever the market is doing. 

Are you investing to generate some passive cash flow or to generate wealth and appreciation? 

@Jeff Matlock.  We just completed our first syndicated deal, a 202-unit, and raised money from friends and family to help fund it.  

#1--get a good attorney who has experience setting these up. You need to make sure you are abiding by all SEC regulations when you start raising money and determine whether you want to include only accredited investors or not.  I am by no means an attorney. 

The general structure will have you operating at the General Partner, and your investors as Limited Partners.  As the General Partner, you have the flexibility to set up the entity however you want--and however you can "sell it" to investors.  A very common structure, and how we set up our entity, is for Limited Partners to receive an 8% Preferred Return.  Above the 8%, profits & equity are split between the GP and LP.  In our case we did 70% to LP / 30% to GP.  There are also acquisition fees and asset management fees you can receive as the General Partner. 

From what I've seen, you can make it as complicated or as simple as you want.  But there are absolutely ways--and very common ones--for you to be compensated for your time and energy in finding the deal and operating it.  Exactly how you set it up is up to you and your attorney--and the agreement you can reach with your investors. 

On the capital raising side, I would suggest starting to talk with your network about your current experience as an investor and your desire to move into bigger deals. Lay out the general parameters for what you're looking for--geography, property condition, investment profile, etc--so that once you find a deal, you're not approaching people out of the blue asking for money for the first time.  This is also an important topic to cover with your attorney--there are laws about who you can and can't talk with about a deal and raising money. 

Best of luck!

How many units?  Different groups are going to be better managing a 12-unit than a 200-unit. 

When I still had a corporate job, I did contribute up to the match--but nothing more.  Like @Tim Lindstrom, its frustrating to see money that you don't have total flexibility over. I've since rolled everything into a SD IRA and use that to invest in some of our apartment deals, but still toy with the idea of pulling it out of the IRA, pay the penalty and know that I'll recoup all the penalty plus some on the first investment.

Agree with @Mitch Stanley.  If you are interested in Real Estate longterm, getting a job related to the business will shorten your ramp up time, expose you to deals, and introduce you to folks in your area already in the business.  If you have an in at a Mortgage broker, I'd explore it. 

Good luck!

I second "it depends".  

Also think its equally important to look at and think about individual markets rather than just states.  We're focused on Texas (because we live here, but also because it has excellent job and population growth) but within the state there are tremendous differences in markets, and submarkets.  Nacagdoches TX is very different than Austin, which is different than San Antonio.  

So look at the state, but also identify which MSA and submarkets appeal within those states.  

@Stephen Masek  We've made the transition to apartments after looking at it.  I've outlined the main reasons in a blog post you can read here, why I think apartments are a better investment than SFR. You're right about needing to find a place that you can fix up and raise rents on--which is our business model. And certainly the property you described in California is never going to work out.

But since you are already investing out of state, you might consider looking at bigger multifamily properties out of state as well.  The economies of scale push it over the top for me. Good luck!

I'm thinking through similar questions right now.  We have a decent portfolio of duplexes and fourplexes, but recently committed to larger complexes and closed on a 202-unit last week.  I don't really want to sell the properties because they are appreciating like crazy in Austin.  At the same time, they don't offer the economies of scale bigger complexes command.  

For me, it really comes back to your goals and risk tolerance--as mentioned above.  I think we will ultimately move these properties and 1031 into larger complexes, but its a tough decision for sure. 

Good luck!