BiggerPockets

BP,

I don't believe this difficult, I believe this is very much doable. However, what makes achieving this goal so difficult for most investors? Seeing that "financial freedom" is the HUGE topic now a days. Why is it that some investors achieve this/ANY GOAL towards financial freedom. (Just using this as a number) 50 units=5,000k a month

What makes this difficult?

-not enough capital?
-inexperience?
-Focus?
-unrealistic planning?

Interested to hear your thoughts BP, I mean REAL ESTATE wise, which I'm sure other people can agree, there are a lot of investors, especially here on BP that makes 5,000k a month look likes crumbs!!

I toke me 8 years to figure out how to get my first 40 units under my belt. It toke me 90 days of shopping to buy a 74 unit apt building in year 8.
What I am trying to say in that statement is a lot. The reason why it toke me so long to get from zero to 40 was I was working a job and started with zero capital. I also was doing things conventionally and had not the benefit of a place like this forum in my early days. My lack of education and creativity caused my business to grow slowly. I am also very conservative. I also made some monumental mistakes as most people do when they are 1st starting out in this business. Making those mistakes also cost me several years of business profits digging my way out.
I wasnt lucky enough to have a decent mentor until I had been at this 5 years.
I have since then taken many classes in construction and property management and at one point even had my re license a few years. Everyone mind you takes a different path and your personality and creativity will help you in yours.
If i could change anything I would have done 2 things differently.
I would have gotten more education earlier in my investing career and avoided buying some of the deals I did in my 1st few years investing.
I made more money in year 8 then I did in the 1st 7 in my business. The power of having capital and knowledge is the key it changed everything for me.
Its a reasonable goal and I like it. 50 units 5k a month cashflow. Its measurable, and if you break it down to what activity you will do to get each unit and build capital towards it you will have it.

Its not the lack of deals, I can tell you that - at least not for me.

The roadblock you have to getting to 50 houses is the financing and, in turn, the capital.

Not many people can afford to put down 30% of the purchase price plus pay rehab out of pocket for 50 houses. If you figure 70k purchase and 15k in rehab, you'd be talking 36k times 50 which is 1.8 mil. If someone had that kind of money already, they probably wouldn't be looking to get 50 sfh's. :-)

I've got 17 houses right now. For the most part, I've done that with very little of my own money. I was able to start with a HELOC on my home (40k) that I used on my first investment. I then realized how difficult it was to refi with the limited reserves I had left (10k) after putting down 25% plus rehab.

After spending quite a bit of time and finally getting it refi'd, i stuck all that back in reserves and haven't touched it sense. Thats my "bona fides" (yea, I will quote a john wayne movie every once in a while :-) for the banks to do refi's with me. I do end up putting in money here and there on deals. Typically, refi costs or maybe an overrun in rehab costs,etc. 3 to 5k per deal.

But the problem I have is getting loans. Small banks are still very gun shy about doing commercial loans on sfh's. They're convinced investors are the devil and, given the baths some of these banks took, I get it. I'm also out of conventional spots too. And, unfortunately, my wife doesn't qualify for mortgage (self employed).

So, right now, I'm kind of stuck. I'm in process of doing a blanket loan on my conventional loan properties to free up 8 or 9 more spots so I can reset my buying again. If I can get the thing to go through, I'll be able to get up to 25 houses at least.

But I recently had the same deal go through another lender that was going to do a blanket loan plus provide me a sizable line of credit. The loan officer said it was good to go, he vetted thru his VP, and everything was just about set for closing. At the last minute, the executive committee that reviews loans had one VP in the room that refused to budge and they put the kibosh on the loan.

So, to make a long story longer, the reasons why its so hard to get to 50 is financing, financing, and financing. If I could actually find a bank to give me an open LOC and lend me 70% LTV on my deals (appraisal value), I could have gotten to 50 somewhere around this year (10 houses a year instead of 3).

But since that simply doesn't exist for 99.9% of the population, I'm more than happy with the pace I've been able to maintain - even moreso given how little capital I had to start with.

Lets not say lose everything. That implies the business going under and foreclosures, et al. Quite honestly, I don't see any way that I could build up to where I'm at now if I were to get hit with a bunch of foreclosures. Even a late payment on my credit would be tough to continue adding properties - literally.

But if I were to sell everything and donate the money to charity (how's that for scenarios), could I get back to where I'm at now? Could I do it faster?

I would say I could definitely get back to where I'm at now. I'm much more comfortable with the process and the first 10 houses would be a piece a cake. After that, I know the routine for getting local banks to give me commercial loans on sfh. Its a ton of work but doable.

Unfortunately, I no longer have my aunt to act as a private money source so that cuts down how fast I can go. I'm guessing, if I had to start over again, I would only be able to do 2 a year given the financing constraint.

So, yes, I could rebuild to where I'm at fairly easily and would probably have a MUCH NICER portfolio overall (i.e. better product, better areas). But I think it would actually take me longer to do given the loss of one of my financing legs that I had during this run.

IF I could have that back, then I could probably add 4 or 5 houses a year instead of the 3 that I've been doing over the last 5 years.

Knowing what I know now, I don't think anybody thats done over 10 deals wouldn't be able to at least get back to where they were provided their financial condition was identical. Its strictly a formula that I think anyone can pick up on - and how much effort they're willing to put in to do it again.

Yea. I do have good w-2 income. I actually switched jobs about 3 months ago and was doing corp to corp as a contractor. Huge salary bump but I was having my corp pay myself a good w-2 salary. I thought that would avoid the "self employment" issue. No such luck. Just found out that even though I'm getting w-2 income, I'm still going to be counted as self employed since I'm the sole owner of the corp.

I am now in the process of having my consulting firm switch me over to w-2. Which means I will now have to pay higher taxes on about 40k of my income. Its ridiculous.

But, yes, I'm actually at 8 conventional loans now and the rest commercial. But I am in the process of refinancing a bunch of my propperties - including ALL of my conventional loans - into a blanket loan.

I'm cherry picking the houses (except for all the conv loans have to go in) so that my payments end up being about the same or a little bit lower even. The real value is that I will be able to free up those 9 spots again (can't free up my primary residence obviously).

Have you tried going to local banks? They won't count your self employment income at all? They should be able to add back depreciation from your real estate so it would be enough to qualify.

They're higher than conventional but no where near those terms you were quoting from that other group. 50% LTV? 10%? I'd keep banging on doors out there until you can find a local bank that understands real estate a little more. They should be able to do a lot closer to conventional terms than that.

I just did one back in August on a SFH.
I bought the house at the end of June with a private money loan
that I rolled the purch and rehab cost into. I refi'd out of
the private money loan just over 2 months later.
LTV was about 65%, 5.5% interest, 20 year amort, 5 yr balloon.

The only gotcha was after I refi'd that to free up a financing spot, my aunt got a 90 notice from the bank where she works and decided to refi out of her heloc that was using to lend to me (she was getting it for 2% and lending it to me for 7% plus 3 pts) and I lost my spot anyway! It was a huge blow. But given she is so close to retirement, she wanted to lock in the fixed rate long term as the HELOC was about to reset and she was afraid she wouldn't qualify for the refi if she was unemployed.

Kicker is the stupid bank kept her anyway and now that money is all tied up. No matter where I look, the banks always seem to be gumming up the works for me. :-)

Mike H. and Serge S.,

What is the difference between you guys and these other guys like @William Bannister, @Ben Leybovich and other guys that are doing multi-family stuff?

It looks like you guys are concentrated on SFH and the financing is not so great on those after a certain number. Would there be anything to liquidating the properties you have to put up the equity for small apartment buildings? Have you thought of that and ruled it out? What are your plans to push forward?

Thanks for your reply Serge. I hope my questions didn't come across as rude. From the posts of yours that I have read, you appear to be very astute. I am far from hitting walls at my stage of investing as I am only looking to get my second mortgage right now. But I am thinking about the future and possible multi-family and just wanted to see what makes one path different from another.

@Geoffrey Murphy The reason W2 income is important on a turn-around deal is because such a deal does not and can not guarantee re-payment, and as such the lender has to rely on earned income. When you portfolio is very large, and has a track record of stability, then the lender can bridge the portfolio income at which point W2 becomes less important.

Even still, a turn-around project, at its' very essence, is a calculated gamble for all. Why? Because the initial income is unstable, which is why W2 income is big.

Serge S. I respectfully disagree about needing less property to accomplish CF goals. Obviously we want to maximize each revenue stream. But, if you were to go into a battle, would you rather have 30 soldiers on your side or 300? The answer is intuitive - income diversification is the primary reason to have more not less property. A loss of one soldier if you only have 30 to begin with constitutes a much bigger problem than a loss of 10 soldiers if you have 300 at the start of battle.

Also, a larger asset base value will necessarily lend to higher equity returns over time.

And finally, with the money being as inexpensive as it is, this is a great time for leveraging, which automatically increases cash on cash returns.

@Geoffrey Murphy Naturally, the number of units you own is a function of your goals as an investor. I have 28 units and I am nowhere near done. For my life to ultimately look and function the way I need it to, I will have to own 120 units minimum. This will take time, however, my experience has been that progress tends to be exponential. It is hard to go from 1 unit to 4; and from 4 to 8; but it gets easier in a lot of ways.

Timely to mention is the fact that I specialize in 100% financing, or as close to it as I can get. This demands me to be very selective with what projects I get into.

Having said all this - even at 28 units I am one of the top 10 players in my town. My friend, the biggest player around here, owns around 650. There are a 3 of guys at 80 to 120. There are few people with about 50, and then there is me. Thus, 15 is a very achievable number indeed.

In fact, I was just approached by a realtor colleague of mine who knows that I am a buyer. He showed me a list of about 12 - 15 duplexes that are being sold as a package. Solid investments - I own several just like those. However, I am out as a buyer since I just closed on a 10-unit on Monday and need some time to clean house - 1 bird at a time. But, somebody will be buying a lot of income. PM me if you want to know more...

Serge S. - that makes a lot of sense now. So in your market, depending on multiple things, to make 5k a month, would you say you need 50 units, or less? i know there are a lot of variables here.