How I built a portfolio of 35 rentals and $10k+ monthly cash flow

362 Replies

@Anton Ivanov

Congratulations on your success! Thank you for your service in the Navy and thanks for sharing your story and what helped lead you to success.

I’m very interested in discussing (Via PM if you’d prefer) what lead you toward pursuing software engineering? I’m currently learning the basics (HTML/ CSS/ Etc) and would love to find out more about how you transitioned from the Navy into a career in software development.

Your goals are outstanding and I’m sure many would agree that your 70% savings rule is a great accomplishment in itself!

Thank you again for contributing to BP by sharing your story!

Thanks,
Tony

I like this part: 

Decided to do a direct mail campaign to a very select group of multi-family property owners (about 90 total). Hand wrote the letters, added photos of their exact houses, sent out myself. Ended up landing 4 sales for more 4-plexes.

I'm gonna do it!  Thanks.

@Amanda Hillard

To send a colleague request, use the website, hover over my picture on the left and click "Connect". But I sent you one anyway just in case. You guys are way ahead of me in unit count (52 I believe?), so congrats on your progress! Feel free to send any questions over.

@Jackson Sandland

My startup is in my sig. I don't want to get in trouble for self-promoting it on here, so just click around on the website, it's pretty obvious.

@Mark S.

I'm not a big fan of Memphis and Indi. Last time I did my market selection process they didn't score very high on economic/job/population growth. But I never bought property in either, so I can be mistaken and I'd encourage you to ask people who either live there or are very familiar with those markets.

@Gregory Hiban

1. $10k is purely cash flow, vacancy and everything included. By the way, by amortization I think you mean depreciation? It's not included. I don't include any "tax benefits" in cash flow calculations.

2. My portfolio is about 60% leveraged right now. It's a little low - I like to keep it at around 70% so it's time to do some re-finances soon.

3. My SFRs have 2 VA loans and the rest conventional 30-year fixed. Most of my multi-family has commercial 10 year, 25 year amortized loans.

4. I keep a reserve of about 5-6 months of expenses for each rental property I own. Similar to what's recommended for a personal emergency fund. It's quite a bit of cash, but I like to be conservative in that regard.

@Olu Sanya

I don't think there is anything wrong with your deb-free approach. I was just curios as far as the reasoning. I met quite a few people who got burned in 2008-09 and that was part of the reason I keep high cash reserves and don't over-leverage myself. I do plan to start paying off all loans, but I want to reach my unit goal first.

@Amy Hu

Picking a good property manager isn't easy. I always try to work with companies I was referred to by other investors instead of just randomly googling somebody. Vetting each PM against 2-3 real investors who use them will likely save you from a lot of bad experiences. I also have a pretty detailed questionnaire I like to go through with them when I first meet them. If you send me a message, I'll send you the link, because I think the mods will remove it from here if I post it directly.

As far as keeping PMs accountable - I would suggest establishing processes, checklists, etc. and basically training your PMs to do thinks how you like it done. At least when it comes to leasing, tenant screening and make-ready repairs. I'd also suggest doing a phone call at least once a month to check up on things. And don't forget to review each of your statements and ask questions if something doesn't look right. 

I hope this can at least help you get started.

@Sean Lambert

I have a really good team in KC right now, so as long as I can keep finding good deals there, I'll probably keep buying there for another 1-2 years. After that, we'll see.

@Jason C.

I think there was a comment on here where I gave some general thoughts on market analysis. It's a complex subject and maybe I'll write up a separate post about my approach in the future. But in general I like markets that have a good balance between cash flow and economic/population/job growth which drives price appreciation. 

Dallas, Atlanta and Charlotte were all high on my list last time I did this. Dallas and Atlanta I felt got too over-priced, which was confirmed when I talked to some local investors I knew there. I looked at Charlotte, but I felt that the multi-family property inventory there was somewhat low (I could be wrong here), whereas Kansas City has a ton of multi-s. I liked the growth prospects of KC a little better as well. But I think you can be successful with either one if you put your mind to it.

@Anton Ivanov Got it, thanks.

1. No, by amortization I mean amount of principal paid down every month reducing the mortgage balances.

2. Eh, its never bad to decrease leverage a bit, especially at this point in the business cycle, we're just under 40% levered & don't have any complaints or worries. @Jay Hinrichs has a very good point in this regard, his advice is typically golden.

3. MF does interest me, but I hate that 10 year term, I'll have to break into it at some point, SFRs are so easy, haha

4. Better to have more cash than less, for sleep's sake

@Brad Chandler

Why do you say that in 5 years returns would decline? Vacancy/maintenance is included in my cash flow numbers and I'm very proactive in keeping the houses in good condition, so I would think the rents/prices would increase? By the way, the majority of my portfolio is in multi-families, not SFRs.

@Jim Sestito

It was a condo, but yes, I still have it. I actually haven't sold a single property yet.

@Dan Albrecht

If you google something like "COUNTY NAME tax collector" or "tax assessor", you'll find a website for each county in the US where you can search tax records by address. Each tax bill will at least have the owner's mailing address and their name. That's how I got the owner's contact info from the property addresses.

@Nixon Davis

I spend a lot of time (months) learning about a city and its different areas before buying there. There are a lot of online sources that can give you background info. This site is one of them - many cities have previous discussions where local investors pitch in on which areas are bad, which ones are good. I use City-Data.com a lot for crime maps, demographic statistics. They have very good discussions about specific areas for many cities. You can use Zillow Market reports to get an idea for average home prices/rents.

I'd follow all of that up with talking to people who either live or work there, especially other investors, agents/brokers, property managers. You start getting a pretty good picture about a city and its various areas the more you talk to others about it and the more properties you look at/analyze there.

Finally, I always try to visit the city and the areas I'll be buying in. Drive around during the day/night, see what's around. Stop by, eat lunch. Just get a general feel for the area.

@Tou Her

I don't know if I use any "tools", but I like the following sources of information:

Some links that may help you:

Well and BiggerPockets of course - they have a ton of articles about market selection from various perspectives.

@Lauren Bishop

I've recently published a write-up on Reddit. It's on the RealEstateInvesting sub-reddit on the first page right now. I can't post it here, because I think the mods remove it for "self-promotion" reasons. If you PM me I can send a link. I may do a write up on here in the future, since there seemed to be a lot of interest in my direct mail approach.

@Matt Moreland

I'd say with property managers the first step is to only work with those that came highly recommended by other investors who use them. That by itself will probably "weed out" most of the bad ones. Other than that, run them through 15-20 questions around their whole business and the properties they manage. After a while I think you'll start to get an idea whether it's going to work out or not.

@Tony Le Claire

How I picked software engineering? When I was getting out of the Navy, I knew I needed a new career. I did a bunch of "career assessments" (you know the ones that recommend careers for you after a bunch of questions) and generally thought about what I like doing most. What I came up with is engineering in general because I like to build things and the challenge of designing and implementing something that works.

I then looked at which "engineering" careers require the least amount of education/certifications/etc. to get started. Basically the ones I can start on the fastest. Software engineering is by far the winner there. Most employers don't care about degrees or certs, they want to see actual applications/projects you worked on and your code. That was one of the biggest reasons I chose it. But I also tried it and really liked it, so it all worked out.

@Gregory Hiban

1. Oh, ok. No, that's not included in my cash flow. I've never heard anybody including that in cash flow. It gets accounted for if you calculate your ROI/IRR, but I would consider "cash flow" being the actual money deposited into your bank account.

2. My initial approach was to stay leveraged around 60-70% during the "growth" phase of my portfolio, basically until I reach my unit goal and de-leverage after that. But with all of these people smarter than me telling me I should do the opposite, I may have to re-visit that plan!

3. Yes, commercial financing is very different.

4. Agree!

@John Acheson

Property value fluctuations don't really bother me. I'm a very long-term investor and plan to won my properties for 20-30-50? + years without selling. As long as they cash flow and I keep them rented out, I should be fine even if we have a really big crash like in 08-09.

I have, what I would consider, fairly large cash reserves for any unplanned vacancies, maintenance, etc, etc. About 5-6 months of expenses for each unit/property. I think this, combined with a healthy positive cash flow would protect me if vacancies go up during a recession (which is usually the opposite, I heard anyway) or rents stagnate.

I'll let somebody who lived through 08-09 without getting "burned" chime in here and hopefully provide some wisdom!

Originally posted by @Anton Ivanov :

@Tony Le Claire

How I picked software engineering? When I was getting out of the Navy, I knew I needed a new career. I did a bunch of "career assessments" (you know the ones that recommend careers for you after a bunch of questions) and generally thought about what I like doing most. What I came up with is engineering in general because I like to build things and the challenge of designing and implementing something that works.

I then looked at which "engineering" careers require the least amount of education/certifications/etc. to get started. Basically the ones I can start on the fastest. Software engineering is by far the winner there. Most employers don't care about degrees or certs, they want to see actual applications/projects you worked on and your code. That was one of the biggest reasons I chose it. But I also tried it and really liked it, so it all worked out.

@Gregory Hiban

1. Oh, ok. No, that's not included in my cash flow. I've never heard anybody including that in cash flow. It gets accounted for if you calculate your ROI/IRR, but I would consider "cash flow" being the actual money deposited into your bank account.

2. My initial approach was to stay leveraged around 60-70% during the "growth" phase of my portfolio, basically until I reach my unit goal and de-leverage after that. But with all of these people smarter than me telling me I should do the opposite, I may have to re-visit that plan!

3. Yes, commercial financing is very different.

4. Agree!

@John Acheson

Property value fluctuations don't really bother me. I'm a very long-term investor and plan to won my properties for 20-30-50? + years without selling. As long as they cash flow and I keep them rented out, I should be fine even if we have a really big crash like in 08-09.

I have, what I would consider, fairly large cash reserves for any unplanned vacancies, maintenance, etc, etc. About 5-6 months of expenses for each unit/property. I think this, combined with a healthy positive cash flow would protect me if vacancies go up during a recession (which is usually the opposite, I heard anyway) or rents stagnate.

I'll let somebody who lived through 08-09 without getting "burned" chime in here and hopefully provide some wisdom!

RE About 5-6 months of expenses for each unit/property. That's great that you're also a saver and have plenty of back-up cash in case vacancies go up. Interest rates are also going up but we can assume that residential financing is all fixed rate? What is the rule of thumb for cash reserves in real estate investment?

What strategies are best that hedge investing when property values are falling 25-40% i.e. a $250K house falling as low as $150K that has a mortgage attached to it?

Finally, how do these strategies differ between commercial and residential.

@John Acheson Who cares if the property value falls on paper as long as the rent checks keep coming in. You're in a unique part of the country that was absolutely clobbered in the last real estate bubble. For most of the country, as you aren't too levered, have plenty of cash reserves & keep your vacancy low, you'll weather a downturn just fine. Now, the areas of the country that go boom & bust very hard (i.e. Nevada) ... you do the same things, but to a more extreme degree ... less debt, more cash & do whatever you have to do to keep renters in place.

@Anton Ivanov great story. I really enjoyed this thread. One question I had, is can you explain how you transitioned from
The navy to bring a front end engineer?

I’m a relatively young engineer and investor myself, so I thought I’d ask.

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@Anton Ivanov Thanks for sharing your success story. I am a resident in kansas city and have being looking for turnkey properties but no luck from the past 6 months. Would you mind sharing how are you finding those properties apart from reaching out to property owners.

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That's awesome, about where I hope to be. Similar path as you but USMC.   Went from the 40k a yr to 130k a yr salary and high savings rate also...  have 3 kids though, little drains on my account ;) lol...  I am more in the beginning of the journey I have bought 5 properties in the last 10 months with that "magic" number right now of being at 50.  I want to be where you are soon, the difference is I am in a more rural market in Iowa and I do all the value add myself, but I got property management from day 1 because I to want it to be a business.   I just want the option to retire at any point not that I am going to, I enjoy what I do.   I love it when other people are winning, it gives me hope.  Thanks for sharing!

Thank you for your service and everyone else who has served that has commented. I appreciate you!

Thank you for this story of inspiration and accomplishment. Good luck hitting your numbers and God bless!

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