One property to many properties

[Trung Nghiem]

Been reading this Great website soaking in all the good information that is out there.

I am somewhat puzzled or there seems to be lack of information on how savvy investors grow their business from one income producing property in a short time.
So I pose this scenario, maybe you guys can educate me on how one would grow one property to many?

Real Estate Scenario (ball park numbers for sake of argument)
Investor A bought a 4-plex
Purchased Price $300,000
Down Payment $60,000
Property is managed by property manager

After all said and done, Investor A is able to pocket $450.00 per month (avg. $112/door) Investor A is an conservative investor, he puts away the $450.00 for three whole years, giving him about $16,200 in his bank. Using these numbers and his conservative approach to savings, he would only have around $16000 after 3 years of saving. How would Investor A be able to buy another 4-plex given he spent $300K on his first investment with $60K for down payment.

Investor A can’t assume that he can raise rent in order to pocket more per door. Even after 3 years of paying his loan, he’s probably just been paying the interest on the loan and made very little impact to his principle.
For his investment property, he still has 80% LTV, so Investor A probably is not able to have any equity line available for him to leverage against. Investor A also can't assume that his first property will appreciate enough where he will be able to tap the equity to buy another property.

[Nathan Emmert]

Simple, don't put 25% down.

Second, the 50% rule is a long term average. In short periods, your expenses can be far FAR less than that. Some people are willing to re-invest those escrow accounts for big ticket items versus just leaving cash wasting away.

Third, the 50% rule assume property management. If you only have a single fourplex, you should be self managing which trims 10 - 12% off your expenses, essentially doubling your cash flow (though yes, it is a bit of a job).

I bought 5 properties in 7 months... negotiating on 2 at the moment... and have agreement on another I just need to recall the seller on when I want to pull the trigger and put the 10% down. Not bad for about $30,000 in capital to start :)