Business Management

The Stack: The Perfect Blueprint for Scaling Quickly in Real Estate

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
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There was a study done that Harvard Business Review put out a few years ago. Basically the best way to continue moving forward on something is to facilitate small wins.

It’s better than taking out a big win. It’s more important for continuing something to take on a lot of small wins. This is how our minds are wired: We want to get a lot of small wins.

So those small multifamily properties are fairly easy to take down. Like if you’re out hunting, they’re like the rabbits that are everywhere. And you can do them. They don’t make a ton of money, you’re not going to get rich off the rabbits or, you know, get fat off the rabbits. But they’re good to get that momentum going.

Related: The Ultimate Guide to Analyzing Rental Properties (+ Free PDF!)

Same thing when Josh was doing BiggerPockets or when I was doing my first stuff; it’s good to get those little deals, like that 25-unit you guys bought. That was good momentum. That didn’t make you rich, that one deal, but that one deal made you rich. In other words, if you wouldn’t have done that first deal, you would’ve never gotten to where you are today, but you have to start there.

And this is something I teach at BiggerPockets a lot. This is the aha moment that when I look back on my life, realized what I had done, and I put it into a framework that I can understand.

A lot of people get scared about multi-family when they think 500 units, or 100 units, 50 units. Especially when I say, “hey, if you’re making $100 per unit, you’d only need 50 units to make $5,000 a month in profit, if you’re making $100 per unit per month after all expenses.”

And people are like, “well, 50? I can’t even buy one property. That’s so hard. How would I buy 50?” So I explain this concept called the stack.

What is the stack?

savingsAnd the stack is like this. Level one, if all you did this year was bought a duplex, nothing else. You got a duplex and then you sat around for a year and just learned how to do it. Now I’m not saying you have to start there. But here’s the logic, right?

Next year, a whole year later, you buy a fourplex. You’ve already bought a duplex. You did the hard part. You started the train moving. The momentum is going. You buy the fourplex, you figure out how that works.

And then maybe a whole year later, you buy an eight-unit. Now you’re in the commercial world. Right. And you learn how commercial lending works, but it’s still not a big deal. If you handled a fourplex and a duplex, you can handle an eight-unit. Year after, you do a 16-unit, the year after you do a 32-unit. And then, year after, you do a 64-unit.

After five years, you’re at over 100 units now and you scaled conservatively. You didn’t go crazy, didn’t start like, “I don’t even know what real estate is. Let’s go buy a 200-unit,” because that would be tough for most people. Unless you partnered well, which is the one way you can jump levels of the stack, by partnering with somebody who’s already gone through the stack.

Related: How to Calculate the Value of Multifamily Real Estate

But you scaled quickly but conservatively. And those two things seem diametrically opposed. But they’re not. You can scale quickly and conservatively because you just do it outside what I call outside your zone of comfort, but within your zone of ability.

Think of two concentric circles. The inside circle is your comfort zone, the outside circle is your ability zone. And then there’s your inability zone. You don’t want invest in your inability zone because that’s where mistakes happen.

But you also don’t want to live in your comfort zone forever, because that’s where you get stuck doing single-family deals all day long or duplex, triplex, and you never build up enough passive income to quit your job. So it’s that zone of where you’re outside your comfort zone, but within your ability zone.

When I look back on my life. I realize that’s what I did. That’s what the stack was.

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What are your small wins?

Let us know in the comments below.

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
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    Andrew Hogan Specialist from Indianapolis, IN
    Replied about 1 month ago
    "Think big start small." "Keep you eyes on the sky and feet on the ground" Thanks for the post Brandon.
    Tom Phelan Real Estate Investor from Key West, FL
    Replied about 1 month ago
    Brandon, You illustrate one great approach. Here's another suggestion for those who don't have, and don't foresee having, the money, credit and income to harpoon an 8-Unit apartment house? Raise $20,000 from: 1. Cash on hand 2. Life Insurance cash Values 3. IRA 4. 401(k) And use it as a 20% down on a $100,000 SFH rental with a 15-year fully amortized mortgage. With a conservative historical 3.9% appreciation rate, approximately 5-years later (year 5) and with zero money out of your pocket, use your original down payment, accumulated appreciation and mortgage reduction to 1031 Exchange into a Duplex. Approximately 5-years later (year 10) and with zero money out of your pocket, use your prior down payment, accumulated appreciation and mortgage reduction to 1031 Exchange into a Fourplex. Approximately 5-years later (year 15) and with zero money out of your pocket, use your prior down payment, accumulated appreciation and mortgage reduction to 1031 Exchange into a 6-unit. Approximately 5-years later (year 20) and with zero money out of your pocket, use your prior down payment, accumulated appreciation and mortgage reduction to 1031 Exchange into a 12-unit or two 6-units or 3 Fourplexes. If the investor was young enough when starting, at year 25 with zero money out of his/her pocket, and using the prior down payment, accumulated appreciation, plus mortgage reduction to 1031 Exchange into a 18-unit, or three 6-units, or 4 Fourplexes. 1031 Exchanging has been around since 19921 and long been a favorite Tax Toll for the Rich who have utilized it to build real estate wealth but on a much larger scale. Unfortunately most Americans view the 1031 Exchange as exclusively "Reactive", e.g. "Oh, gosh, I'm selling a rental for a profit and I don't want to defer taxes." The power of 1031 Exchanging is being PRO-ACTIVE to build real estate wealth and the reason I wrote an eBook about the power of 1031 Exchanging.
    Brandyn Richardson Investor from Tacoma, WA
    Replied about 1 month ago
    Do you have a link to your book by chance?
    Cameron Tope Property Manager from Katy, TX
    Replied about 1 month ago
    Agreed - get momentum early (via small wins) to carry you through to your larger goals. Thanks for the post Brandon! PS Beard is looking legit!
    Lauren Moore
    Replied about 1 month ago
    Just curious about this point ... what if you have plenty of experience with single family but no experience with multi family. HOWEVER you are 50 yrs old have built considerable wealth and don’t need to “start small”. The little real estate deals just don’t seem lucrative enough compared to where else you could invest your wealth but you love real estate!
    Jorge Duarte from San Luis, AZ
    Replied about 1 month ago
    This very much sounds like compounding not only your investments but your experience as well! I completely love it! @Lauren Moore since you already have plenty of experience on Single family homes, you can basically skip that stack now and invest on your outer circle, which if I'm not mistaken is the outer circle, the one that is out of your comfort zone. Another Great Article, Gracias.
    Chris Burdick
    Replied about 1 month ago
    It seems like this is not a hold strategy but rather your stack method is trading up, essentially 1031 exchanging into the next property? Otherwise, how could you afford each jump up unless you make a huge income from a job?