How do you scale from 2 properties to 100?

[Account Closed]

Fellow BP friends,

Please educate me on how to grow from 2 to 100 1-4 family rental properties. I get bogged down around 10 in the feasibility on the financing end. I would plan to outsource management until it became feasible to start my own management company.

My understand is that one would need commercial financing starting with the 11th property, but on what kind of terms? Isn't it always going to be on shorter-term loans which put you at interest rate risk regarding holding the property long term? Another option is owner-financing, but how often is this a real option? Aren't 95% of sellers of 1-4 family properties against owner-financing?

Is there an obvious way to do this that I am missing?

Those of you who have gone from 0 to 20 or 100 or 500, I would love to get your advice.

Thank you!

-Josiah Smelser

[Steve L.]

I started with the goal of 20 rental properties in 2009.  That sure feels like long time ago now and a lot of properties ago.  

Know what you're good at

Know your numbers

Buyer under market

Know your goals

My model: Buy distressed properties under market (preferably WAY under market), fix the distress (tenant issue, property condition issue, owner issue), stabilize and refinance. I typically package 10-20 to a commercial bank or credit union at a time. The loans are usually 5-10 year fixed rate, 10 year balloon, amortized over 25-30 at 65-70% of LTV (they don't care about cost).

At this time I can typically use cash or a line of credit for my work in progress inventory.  When I started I used hard money loans or private loans (and lots of them).  

You will need experience before a local bank will work with you.  You will need to focus on properties that have strong cash flow where a 2-3% increase in rates won't kill you.  You will need to find a way to buy under market enough to cover your equity requirement or you will need cash to make up the difference.  To solve that problem I flipped houses.

Owning 100+ houses isn't for everyone but it can be done.  I know guys that have 10-12 free and clear and they seem to be doing just fine.