BiggerPockets

I bought my first duplex in March '07. It's in South Dakota and managed by my father in law. The first one worked out well, so I kept looking for deals, but couldn't find anything that met my cashflow criteria. Finally, this year I found a motivated seller. He is '87 and wants out NOW before he dies. He has 65 properties and will sell be any of them at about 25% below market value. They already have tenants in them and are in good but not great condition. I have bought one per month for the last 3 months (a 3-unit and two 2-units). I just made him an offer on a 4-unit and he said he would accept it if I buy another 2-unit from him at the same time, also at well below market. The 4-unit meets the 2% rule and the 2-unit is at about 1.5%, but is an incredible house in a very nice area, which will attract great tenants. I also met another motivated seller this week and made an offer on two duplexes, which I am waiting to hear back on. Additionally, I found a potentially fantastic deal on an REO fourplex that I want to make an offer on, which would also meet the 2% rule. I'm finding the kind of deals that I only dreamed I would find, but if they all work out, I'll be at 21 units in a few months. This is a big jump from two units! Two units is a hobby and 21 units is a regular small business. Am I setting myself up for failure by growing so fast?

I went through a similar growth spurt many years ago. It was stressful but very doable. I would try to work with the sellers so you could spread the acquisitions out. Even if you had a two week window between closings it should be enough time to turn vacate units and re rent. The most important part would be the cash reserves.
Here is a crazy idea for you. Offer to buy all the properties from the current landlord. Ask him to take back a small second secured against each property so you can go get a traditional first mortgage. Then you could keep the ones you like and sell the extra's and pay of some debt. Again just an idea. I believe each of us can find "The Deal of the Decade" every month.

My father in law is my property manager. He does an excellent job for the most part, but I do worry about him being organized enough to handle this many units. I have the tenants mail a check to me and half of them get their rent paid by the county, so he's only in charge of collecting if someone's check doesn't show up. If he starts to feel overwhelmed, I'll hire an outside property manager.

Cash reserves are ok now, but after the 21 units I will have to take a serious pause and build them back up before buying more.

I'm financing them all with 20-25% down. The prices range from $60K-$94K so far. The $94K is for a 4-unit. They average around $30K-$35K per unit.

Another avenue to consider is to wholesale some of the deals to generate more cash to purchase and hold the ones you want to hold.

In other words, if you can get great deals on all 65 of the properties this gentleman is willing to sell, why don't you find some other investors in your area who are looking for properties, sell them some percentage of these 65 (for a markup of what you can get them for), and then use the profits to purchase and hold the rest of the units.

This is a win/win/win...this guy gets all his units sold (perhaps he'll give you an even steeper discount if you buy them all), other investors get some great deals, and you end up with a bunch of properties without nearly as much risk...

I'd spend the time to get organized at this point. Get your properties all organized. Get your website up, and property software going. (I highly recommend using buildium, for your sanity!) Get your LLCs in order. Rebuild your reserves a bit, and then start adding properties when you are ready. Use the downtime to improve your operations!