I did have a good office job W2 income to also feed our buying, but we started out 5.5 yrs ago with 1 rental, and my retired wifes 401k rolled into a SD-IRA and we started buying rentals into her SD-IRA, put 50% LTV debt on them as soon as they seasoned, 8% debt. But we where doing 15-19% cap rate rentals in good school districts in Atlanta metro area, great schools 6 or better. So the arbitrage made sense even at 8%. Today you are arbitraging 4.75% vs still 18% to 24% cap rate houses. Yes yes my cap rates are much higher than in most other areas... We are lucky.
Then I started buying in each of our names with bank debt, then 5.5%, but latest rentals bought with debt is down to 4.75%. Which is insane!!! 30 money for rentals at 4.75% its crazy to not take all of that you can get. We REFIed our better rental areas at 3 yrs hold time pulling out 30-40k each, buying more rentals.
All rent income, plus W2 income over expenses went into buying more rentals.
5.5 yrs ago we started with $210k and one rental, good w2 income and ok pension for my wife. Today total cash flow is just under $20k/mo, subtract off mortgages and its 15k ish.
I believe this model is called growing geometriclly. IE we bought more and MORE and YET MORE houses each successful year via ever growing self funding and a constant amount of excess W-2 funds.
July 15th 2016 I quit my day job! About 5.5 yrs after we started. But in 5.5 years we bought, rehabbed, rented adn had a few turn overs (we have VERY low turn over), 34 rentals and a mobile home park. 34/5.5 = 6.2 new rentals PER YEAR. I can tell you honestly, I never worked so hard in my life. Every weekend, thats 52 a year, both sat and sunday I was at some house somewhere. 2-3 week nights I drove from work to some house some where.
Its doable. But as my business partner and wife forces me to admit,,, We where lucky too. We started this in 2010 in Atlanta that both crashed big, but also came back gang busters fast. Lots of jobs have come to the N Half of GA popping up small towns close to freeways.
We where just solving problems by designing buying rules, jumping geographies to suite and we didn;t realize at first... We where avoiding compittion by doing what other investors won';t do. Drive for a rental. We specialized in small towns on freeways, 30 minutes to a jobs center. So our 34 rentals are spread in a big arc across the N half of GA arcing down to the South to Locust Grove.
**** Deal flow is your limiting factor today ****
We ended up being specialists in finding undiscovered areas, high days on market for buying, yet nearly zero rentals available due to growing low wage jobs (auto plants and amazon centers). Both employers in the South pay $10-$12/hr, not enough to buy a house, but good enough to be permanent renters.
Google: how to find jobs -your area-. Then start comparing current listed jobs of equal sized small towns. You'll figure out what area is growing rapidly from job creation. Buy there!!! List for rent way above what is in craigslist.org or rentometer.com. Rent climbs faster than landlords can figure it out in hot jobs markets. This is where we are buying today. No rentals, long LONG days on market for sub $80k rental prospects. I'm still finding decent houses for $50k to $70k and free cash flow is still buying a few houses a year. But I'm back to buying out of a solo-401k because I just quit and I rolled my work 401k into a solo-401k (Much smarter vehicle than a SD-IRA if you have a for profit business to hang one off). Since I quit my day job I'm back to buying in a tax defered entity, my solo-401k and will again refi via non-recourse lending. In no time at all I know that 401k will be throwing off $5k / mo by itself.
Re risk? Our rentals with debt are running lower than 50% of the rent goes to debt service. True our income goes to zero if some crash would also crash rents, but we can drop a $1000 rent to $500 and still cover the mortgage,,,, thanks entirely to 4.75% mortgage money. We have a lot of 100% cash houses too, so our over all LTV is around 30%. Debt??? We both love 4.75% debt up the wazoo. :)
