Buying groups of properties all at once is a great way to rapidly increase the size of your portfolio. The key, of course, is being able to find, evaluate, and finance such deals.
In the past, we’ve bought portfolios with as many as 97 and 41 houses, but this time I will discuss a more reasonably sized package of nine houses we recently bought and the lessons you can learn from it.
Finding the Deal
This deal came to us in a very simple manner; a wholesaler emailed it to me. Now, most of the properties I see from wholesalers range from OK to terrible. The portfolios are usually particularly bad, with most of the properties residing in the absolute worst parts of town.
Part of the reason for this is that wholesalers will often develop strong relationships with a couple of end-buyers, and those investors will get to pick over all the deals. So all the good ones get gobbled up, and the one’s that get to you are usually mediocre at best. On that note, it’s a good idea to find the best wholesalers and try to become one of their go-to investors. Take the best one’s out to lunch, and if you do buy a deal from one, try to leverage that into another.
But even though most of the good ones will get snatched up before they land in your inbox, some of the good ones will slip through the cracks. I’ve purchased plenty of properties from wholesalers by simply being on their email lists. While you’ll have to sift through a lot of coal to find a diamond and learn to ignore heavy-handed sales language like “Cash Cow,” or “25 percent cash on cash return,” or “this property will cure cancer,” it’s still worth the effort. After all, all you have to do is get on an email list and check to see if the property and price look reasonable. Most wholesalers will include a lot of pictures, so that can help you do a quick evaluation as well.
Related: How We Got a Million-Dollar Property Portfolio for (Almost) Free
Move Quickly
When you get an email from a wholesaler with an interesting property, you can bet that a bunch of other people got the same email. In the past for example, when a wholesaler sent me a house that would have been a great deal, I got there right as another investor (who happens to be on BiggerPockets as well) was leaving. As soon as I had finished walking through the house I called and let the wholesaler know I would take it. Unfortunately, the other BiggerPockets investor (who will remain unnamed) had already locked it up.
That’s how fast this game can move. Try to get in the property as soon as possible!
On this package of nine, I called the same day and set up an appointment for the following day. This was the soonest we could get in. In the past, I have made a couple of blind offers on properties I knew I wanted. But oftentimes sellers will be hesitant with those because they (rightfully) think there is a high chance you’ll back out upon seeing the property. It also makes you seem desperate. You don’t want to be a motivated buyer anymore than a motivated seller. Occasionally, blind offers may be appropriate. But I haven’t generally found them to be useful.
Talk to the Seller
I’ve found that with wholesalers, it’s usually easier to talk to the actual seller than it is when the property is listed with a real estate agent. On a run-of-the-mill deal, that might not be necessary. But on one that may require terms such as seller-financing, or on a larger deal like this one, it is always a good idea to meet with the seller. Never underestimate the importance of rapport!
On this occasion, we were able to meet with the seller at the one vacant property in the portfolio. We built rapport while getting as much information from the horse’s mouth about the properties themselves. This is always a critical step. The seller needs to trust you and want to sell the properties to you. By building this trust, you can increase your odds of stemming off any other last minute suitors.
Valuing the Deal
A lot of big investment firms that buy houses such as American Home Buyers, B2R or Colony Homes value large portfolios of houses in the same way normal investors value apartments; by looking at their cap rate and gross yield (annual rent divided by total cost). Unless you own or work for such a firm, I wouldn’t recommend this.
Yes, you need to analyze deals to see if they will cash flow. But more importantly, you should value these properties based on their ARV. We want our portfolios to meet the same ARV requirements that our individual purchases do. For these, it took a little while to put together nine comparative analyses (albeit a lot less time than when I put together 97), but it is an important step. You never want to just shoot from the hip, especially when buying multiple houses at once.
We were only able to walk through two houses beforehand. The other seven I rove by. So I listed out my assumptions on our offer. I said that I expected that all nine were habitable and that while there was some deferred maintenance, there were no major renovations to be done. This is something I have started doing on larger offers and am quite happy with so far. What it does is gives me something to point to if I find a bunch of problems that weren’t disclosed prior to going under contract. If need be, this makes it much easier to retrade with the seller.
Related: Introducing: The BiggerPockets BRRRR Calculator!
Due Diligence and Closing
I have stressed before and will stress again; walk every unit! Sometimes, you may not be able to; for example, one of the major points during our negotiation on the 97 was that the seller didn’t want to go through all 97 properties. But we felt the price and terms justified that as long as we made a major contingency in our analysis that we were taking on some of these properties relatively blind. Whenever possible, walk each unit.
On this deal, the seller agreed to let us walk each one and luckily the properties were more or less as expected. We weren’t able to get much in the way of an operating statement. Again, we felt the price justified that as long as we made a contingency in our analysis for that unknown.
For the financing, we used the same technique we used to close the 41 properties. We set the close date to be shortly after a bank refinance on a portfolio of houses we already owned and had private lenders on. Then we simply asked those private lenders to lend on the new properties. Given these lenders wanted to keep receiving their interest payments, they all said yes. This method calls for a lot of paperwork, but it’s a great tool to add to your BRRRR strategy, particularly with regards to buying small portfolios of houses.
Remember, no one ever said you can only buy houses one at a time. You just have to think outside the box a little bit.
We’re republishing this article to help out our newer readers.
What strategies do you use to close large portfolio deals?
Share them below!
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23 Comments
Thanks for the great post Andrew!
You spoke about “moving quickly,” but also introducing contingencies especially if you can’t view all of the units. How do you balance the two without tempting the seller to just go with a different buyer?
You want to move quickly to get the property under contract, but if possible, you want to have some contingencies in that contract. This would be your normal inspection period where you can evaluate each of the properties and have inspections if you so choose. Usually sellers will have no problem with that, but sometimes they will (especially if they are trying to sell 97 houses spread throughout town). So each case is unique. Put in the contingencies you can get, but if you can’t get them, you might need to reduce your price a bit to make sure you have some room in case things are worst than you thought.
Sucks you lost the property to another bigger pockets investor. Maybe they were just a better investor than you ??
I highly doubt it. I’m pretty sure that whoever this investor was, said investor was just really sneaky and duplicitous. This investor was probably just sore about losing out on another deal to me. I think that is a much more accurate explanation.
Great post Andrew very interesting from the viewpoint of a smaller investor who hopes to get to where you are. Woul you be willing to share a page from your offer that lists your assumptions? I’m curious how that is done, and it seems like a great negotiating technique. In my experience there is always something undisclosed wrong with any property that looks like it will cash flow, on paper. After gettig thr property under contract, with a price negotiated lower than list price, I do a personal walkthrough, and if there is nothing glaring, I call in my home inspector, Then, based on his input, I call in contractors for estimates. Then it’s back to the seller to negotiate price reduction for repairs.
Setting the seller’s expectations up front that significant deferred maintanance will result in expected price reductions would be a help. i just walked away from a deal, because, the seller was showing my home inspector and I through the property, and he flatly refused to negotiate major repairs. If his expectations had been set by putting my assumptions in the offer, i would have saved time, and the home inspection fee. of course if I had sent an offer with those assumptions, the offer might have been refused to begin with, but I don’t really want to be in a contract with a seller who is trying to hide major repair issues. There is always another opportunity to be found if you look hard and smart enough.
In the stock market world they call that a Ponzi. So if you buy 300 doors at the end of the year congrats….you own nothing. You feel like a kingpin buy other then that in a flat market you have not done zip but leverage yourself to the hilt.
?
Ponzi schemes are using the principal from one investor to pay the returns to another investor, so you’re completely wrong about your definitions. Over-leveraging is a major danger, I agree, which is why you should only fully finance if you have a sizeable equity position when you buy, as I stated in the article above. So if you buy a property at $75,000 that’s worth $100,000, you have $25,000 equity even if you fully finance it. It’s almost impossible to do that in the stock market, because the stock market is relatively close to being efficient whereas the real estate market is not.
Andrew,
congratulations on a very professional and polite reply to a very rude message from Jay. C.
It is fine that he disagrees with your investing strategy. It is quite another thing to accuse you of unscrupulous and illegal behavior. Hopefully it is simply ignorance on his part, not deliberate offensiveness.
CJ
Thank you Cindy, the written text can come off much harsher than spoken, or perhaps Jay’s just a bit of a keyboard warrior.
I think what JC is saying is just like in the stock market if you pick the right stock, you’ll do well. In real estate investing (buy & hold) if you pick the right houses and have good tenants you’ll also do well. I had a wild ambition in 2015 I was going to get 10 rental houses and have some decent side income. In reality after property #2, I lost more money than I could have imagined on repairs and evictions, and had to spend even more money to keep my head above water to the tune of, well, lets just say I could have paid off the rest of the mortgage on house #2 if I wanted. Having said that, if anyone wants to sell me a reputable portfolio of 10 rental houses that are seriously performing well, I’m listening.
I don’t think that is what JC is saying at all.
He appears to be generally against leverage and certainly creative leverage, and thinks that this article promotes over leverage. And his tone is rude. And as Andrew pointed out he likes to throw around words like ponzi but doesn’t actually know what they mean.
One thing to keep in mind for people who look at a portion of someone’s portfolio and get concerned about leverage is that leverage risk is determined by the entire portfolio, not a single property or subsection of the portfolio.
If you have a portfolio of say 90 units that are leveraged at 60% and then you add 10 more that are leveraged at 100% your portfolio is now leveraged at about 64%. Those 10 properties leveraged at 100% are not inherently riskier than if you refianced the entire portfolio so that everything was leveraged at 64%.
People have strong feelings about leverage which is fine. People should do what they are comfortable with. But many arguments against leverage are not very well thought out because they come from an anti-leverage point of view without any interest in understanding how it can be done well versus poorly.
Surely to be able to buy 90 doors, one needs to leverage, otherwise you’re too rich altready?
Awesome post Andrew! I once bought a package of four properties which made me absolutely ecstatic, being it was my second purchase!! …I can only imagine the opportunity to take down a deal with 9 houses, let alone 97!!! Very cool stuff. I will keep on looking!
A package of four is great! Real estate investment, when done right, builds on itself and so it becomes easier and easier to do larger acquisitions. You’ll get there!
How does one buy a package of properties, with no existing portfolio for financing?
Is there a technique?
there’s a saying….finance part of it to buy all of it?
I am new to all of this and still studying before i begin investing in real estate, and I wasn’t able to follow the wrap up of the lenders part, so as well as John, i could use some more digesting of these details:
“we simply asked those private lenders to lend on the new properties. Given these lenders wanted to keep receiving their interest payments, they all said yes”
I appreciate your time and thank you in advance, Andrew!
In this case, it was to use multiple private lenders, one for each property. To do this, you would need to either have a large lender who wanted to do many, or a good number of lenders who wanted to do a few. You could also buy it with a partner who put down the down payment while you both got the bank loan and then split the equity. This is called a syndication and is a security, so you would need to talk to a lawyer about that.
Excellent post! I particularly like the insight on working with wholesalers and financing with your investors.
I’d be interested in a follow-up post on how you structure your deals with your investors.
Great insight on buying multiple houses at once. I shared this article to help spread the advice!
Enlightening article! By any chance are you related to the Bill Syrios?? I met him at a real estate investor meeting here locally in Eugene along time ago.
Hey Ever, yes Bill Syrios is my father. He has an office in Eugene that focuses on student housing whereas I’m in KC doing more basic buy and hold
GREAT article! I couldn’t stop laughing for the longest time at “this property will cure cancer,” so bravo for the laugh at the very least, haha.