How do I scale

Question

I am new to the investment space and want to pursue a buy and hold rental strategy. I have about $425k that I'm willing to put in. I have one rental property now that was our old primary residence that is finally cash flowing and I have about $100,000 equity in that property. I a analyzing a cash deal for $420 that I will leverage after purchase leaving me with approximately $200k in cash plus the $100k in equity. I plan to buy one or two more properties with the $200k, but then I will be out of capital. That's fine for this year, but how do I scale next year like everyone talks about? I don't want to over leverage my properties especially with interest rates this high, it will eliminate cash flow. What am I missing?

Eric Gerakos · Answer

The “everyone” who talks about scaling quickly are typically new investors and agents. Experienced investors don’t worry about scaling quickly. We want fewer but better properties. Collect money, not properties….

Bruce Lynn · Answer

@Scott Davis  Not easy to scale.  You have the same problem most people have.  You can run out of capital quickly.  I'd suggest staying away from the typical TK companies.  You really don't need that and they'll take all your equity and give you often a poorly rehabbed property in the bad part of town where tenants tend to be tough.  Some people love that as the initial numbers look good, but probably over the long term they get tired of the common issues landlords face.

It's not that hard typically to find a move in ready property, or even to find one that needs minor repairs, where you can capture the equity yourself vs the person selling it to you.  PM if you need it is not that hard to find, however as a newer investor I would suggest trying it yourself.  A great realtor can place a tenant for you and show you how to self management.  If at some point it just takes too much of your time or energy you can always turn over to PM to manage.

If you think you will buy 4 this year, then that might save you enough money to buy a 5th.

While I think it is great to have plans and goals, I will say most of my good and active investors target one a year.  So awesome you are thinking of 4 in one year.  For most people working, that's pretty active and aggressive.  I'd say get those 4 or 5 done and stable.  Then look at your options.  You may have to switch to owner financing or BRRRR if that is available or some other strategy when the time comes.  You may have to wait until the first 4-5 generate enough cash flow to buy the next one.  I'll bet there are few people that buy 5 a year for 5-10 years.  That would be awesome, but probably pretty rare.

Benjamin Aaker · Answer

Hard to do right now, if you are using bank money. House hacking a 4 plex using an FHA loan would be a good way to get in with low money down. One way to scale is to  build equity and use it to leverage the next property. As ever, you need to find the right deals, and that's usually people's problem, not the scaling. You will need to look at lots of deals to find the right one. Your best bet is to set goals related to deal-finding and spend your time on that right now.

Greg Kasmer · Answer

@Scott Davis - I agree with comments from others in that building takes longer than most people think. My suggestion would be to consider the properties you're purchasing and focusing more on ways you can drive up the value of each property more quickly. With single family investing it's about finding properties at 50-75% of "retail prices" in a neighborhood and then renovating them to improve them to "force equity" and then refinancing to pull out cash - essentially a BRRRR. In larger multifamily investing it's about finding opportunities to increase revenue and/or decrease expenses to drive value. If you buy properties with little/no ability to drive value then you'll rely on appreciation and mortgage paydown to increase your equity. Having the ability to "force equity" yourself through improvements helps you cycle through capital more quickly. Happy to talk if you'd like. Good Luck!

Todd Anderson · Answer

@Scott Davis,

I would totally agree with @Eric Gerakos thoughts.

The investors that I work with are looking at investing on the 1-2 per year plan.  let the  property season, for 1-4 years depending on market,  and then get the equity out and do it again.

I have found working with these investors that if they focus on New Construction Investing they are able to not only keep their costs down but the properties appreciate better because the comps are new.  It sounds like with the capital that you have for the investment you would be able easely look at small multi family which would not only cash flow better but I have found that new construction duplexes and quads proform very will in appreciation.

If you are finding the right market the ability to scale will be there.  It will need to be done slow and steady but if done with quality properties, in 5-10 years you will have a very strong portfolio.

Best of luck.

Aristotle Kumpis · Answer

Try to make a goal of buying 1-2 properties each year. Leveraging property with financing is a great way to scale. Or you could pay cash now and refi later. I don't know which one would be better. There are builders that are offering really low rates. I have a few that have rates in the 4% range. So that is another way to scale using leverage and still get positive cash flow.

Scott Davis · Answer

Thanks, Ty. Right now I'm pulling the trigger on a property in Dallas. I'm actually going to start with a turnkey property. I found a good company/portfolio advisor to try out.

Ryan Harrell · Answer

Hi Scott,

You can achieve sustainable growth by investing in high quality, well-managed properties that will generate consistent returns over time. Building a strong foundation with reliable management reduces risk, allowing you to reinvest the passive income strategically and grow your portfolio steadily without over-leveraging.

Ryan

Robert Ellis · Answer

build, rent, refinance, repeat. different strategy but more scalable. land is a buyer's market in most cities in america with more than 6 months supply. in our market in columbus it's more than 12 months supply of land. no one is doing this strategy and you can customize your design to anything you want. I'd recommend sticking to duplexes and triplexes. 4 units are considered commercial by building standards and have higher scrutiny. I'm not sure what market you are in but I'm knowledgeable on Columbus Ohio if you ever want to talk about build to rent. it's not purchasing new builds at full market price, it's building it 25% below market yourself

Henry Clark · Answer

OP realize you’re itching to invest.   I would recommend you don’t do the deal.  Sit on your cash for a year.  There are so many moving balls in the air right now.   I would wait and cherry pick and opportunity.

If your just dying to do a deal since your in Dallas and a large market.  Go find some of the best older neighborhoods for location, schools, etc.  Buy the worst house in the neighborhood and upgrade.  You will make money in the upgrade and also being in that neighborhood.

If your able to move and live in the unit do that.  So you can get the 2/5 year primary in the capital gains.

What type of returns are you planning to get in a $420k house or duplex?

How do I scale

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