How are people able to acquire properties so quickly?

53 Replies

One thing that continually boggles my mind, and I often hear on podcasts, is how are people able to scale so quickly and buy their 2nd, 3rd, 4th, 5th properties so quickly after the first (often within a year of buying the first one)? Or to go from buying a SFR or duplex to like 8 units or something much bigger within a year?

I know some people have partners, but not everyone who scales so quickly does. Some people live in less expensive areas, but not everyone who scales quickly does. Also not everyone who's able to buy more properties so quickly has a boatload of cash on hand. Not everyone getting into real estate has a great 9-5 paycheque, or can house-hack, or can get an FHA loan, yet a lot of those people acquire properties very quickly.

I'm just trying to wrap my head around how people are able to do what I would imagine would take 15 years, in about 3 years. At present, I'm doing a refi on my primary when some renovations will be complete in about Sept, and then plan to invest out of state in the midwest. Prices in my city just don't work and don't cashflow. Flips that are priced low enough to make the numbers work are non-existent. We have different rules here for foreclosures so no discounts to be had. Even with OOS investing, there are going to be travel expenses and of course closing costs to take into account over and above the down payment for a property. An FHA loan won't work as I won't be occupying the property.

So how have you (or those you know) managed to scale so quickly? 

I'll take a stab.  Location and opportunity go hand in hand.  I'm not sure if living in Alberta is good for quick acquisition of investment property.  

But in Texas, opportunity abounds.  There are many paths to acquiring property, so I will outline just one of many. But first lets make a few assumptions.  You have a job producing income and you have some reserve.  You are single or married no kids (or kids less than 5).  You have studied real estate investing and you have a BURNING Desire to participate  in this excellent opportunity. Burning Desire means you are willing to get out of your comfort zone and willing to make a few sacrifices to be successful in achieving financial independence using investment real estate.  So far Good?

House Hack using Duplexes.  Easy Peasy to start.  Owner occupied, means only having to put 5% down if that is all you can spare.  Buy a $200k duplex, your nut is around $1,600-$1,800 monthly.  You rent out one side for $1100, that leaves you with approximately $500-$700 to pay each month.  But your Burning Desire is real, so you even rent out one  room on your side of the duplex for $500/month.  Your living for $100-200 month.  You save $1000 month or more from either previously renting or mortgage in Canada.  One year later, you take your $12000 in savings and move out of your duplex and buy another.  The duplex you just left you rent out both sides and now you have $500-$700 positive and your repeat on the new duplex.  If the market moves in your favor, you take HELOCs on one or more of your properties to use a downpayment on future buys.  The snowball begins.  12-14 years later your looking at owning 18 units or more and over half are paid off.  Good luck, for those with a BURNING DESIRE in TEXAS this is REAL... Good Luck.  The only question I have for you is,,,,,,,,,,,,,,,,,,,How HOT is your DESIRE, warm, cold or BURNING HOT!!!!!

Originally posted by @Brianne H. :

One thing that continually boggles my mind, and I often hear on podcasts, is how are people able to scale so quickly and buy their 2nd, 3rd, 4th, 5th properties so quickly after the first (often within a year of buying the first one)? Or to go from buying a SFR or duplex to like 8 units or something much bigger within a year?

I know some people have partners, but not everyone who scales so quickly does. Some people live in less expensive areas, but not everyone who scales quickly does. Also not everyone who's able to buy more properties so quickly has a boatload of cash on hand. Not everyone getting into real estate has a great 9-5 paycheque, or can house-hack, or can get an FHA loan, yet a lot of those people acquire properties very quickly.

I'm just trying to wrap my head around how people are able to do what I would imagine would take 15 years, in about 3 years. At present, I'm doing a refi on my primary when some renovations will be complete in about Sept, and then plan to invest out of state in the midwest. Prices in my city just don't work and don't cashflow. Flips that are priced low enough to make the numbers work are non-existent. We have different rules here for foreclosures so no discounts to be had. Even with OOS investing, there are going to be travel expenses and of course closing costs to take into account over and above the down payment for a property. An FHA loan won't work as I won't be occupying the property.

So how have you (or those you know) managed to scale so quickly? 

 Use Subject To and Wraps. 

Also, since you are Canadian don't put your properties in an LLC since Canada will then double tax you.

Originally posted by Account Closed:

....  

Also, since you are Canadian don't put your properties in an LLC since Canada will then double tax you.

That's a substantial simplification.  

The matter is there is no LLC equivalent in Canada and the CRA does not recognize an LLC as a passthrough entity, but treats it as a body corporate (much like a CCPC here at home).

The disharmony occurs if you elect to have your LLC treated as a flow-through entity in the U.S.A.. In this instance the IRS will tax net income in your hands rather than tax the LLC as a corporation. When you repatriate earned income from the U.S.A., the CRA allows a credit for the taxes paid on the income in the U.S.A. - you only pay the delta to the CRA. However, when you repatriate retained earnings from a corporation (a dividend), the CRA affords no credit for the taxes the corporation paid in the U.S.A. Having an LLC elect to be a passthrough entity in the U.S.A. results in the situation where you would not receive credit for the personal income taxes paid to the IRS when paying your Canadian taxes as the CRA would view the amount as a dividend. This dilemma is the situation folks colloquially refer to as "double taxation".

Now, if you have an LLC in the U.S.A. where you have elected it be treated as a corporation for taxation purposes, then there is no dissonance with the tax treatment of revenue between the two companies. There are time where such an organisation is beneficial to you investment objectives.

The best advise would be to find a(n) {Canadian} accountant with cross-border business and tax experience and seek their assistance to create an ownership structure which meets your near term and mid-term needs.

Ways to scale quickly: Have a lot of capital to use for downpayments. Use the BRRR strategy in which you can use the same capital to purchase a property over and over, refinancing each one.

Originally posted by @Eric James :

Ways to scale quickly: Have a lot of capital to use for downpayments. Use the BRRR strategy in which you can use the same capital to purchase a property over and over, refinancing each one.

 @Brianne H. -  What he said. Plus...add to that private money and some flips to pad the cashflow and that's your formula. Basically you need to view an accelerated real estate career the same way you view any other accelerated business venture. Very few startups seek the slow and steady growth that is common for the average mom and pop small business which uses organic growth. In 99.9% of the time organic growth is slow...use BiggerPockets as a perfect example it's doubled in size in the last 3 years...even though it was started over 10 years ago. If @Joshua Dorkin had taken on private capital back in the day to do marketing and increase business development and higher tons of developers and establish the publishing arm sooner, etc. etc. he could have grown more quickly. 

The same scaling principles apply in my business as I grow it. My cash burn rate exceeds my income because I'm acquiring more assets faster than I am cashflowing... now if I was only doing BRRRR than this could maybe be reduced...but many of the people scaling quickly are doing a combination of BRRRR, flips, utilizing private money, or some other real estate side hustle like being an agent or property inspector, etc. to accelerate their business. At the end of the day these aren't investments though they are businesses.

If you want a real estate investment...which by definition is far more passive...than you go more along the model of @Glen Beringer who buys in nicer neighborhoods than I do and typically only plans to buy one or two properties a year with a traditional 20% down payment...but for his more passive investment style he has a fraction of the headaches and active management that I do. Why? Not because he's any less successful, he just has different goals by which he measures his real estate success. 

Partners @Brianne H.  If you want to scale quickly, start spending time identifying those potential partners and keeping them warm until you're able to bring them a deal that meets their investing criteria. 

Originally posted by @Jay Helms :

Partners @Brianne H.  If you want to scale quickly, start spending time identifying those potential partners and keeping them warm until you're able to bring them a deal that meets their investing criteria. 

Could you explain the type of partnership you're talking about? Something where you get much more equity or ROI than if investing alone?

Some people seem to consider having a small percent ownership of a large property 'scaling up', but that doesn't really seem to be scaling up to me.  Maybe that isn't what you're talking about.

@Brianne H. I would like to second the comments made by everyone here. From having “a burning desire” and house hacking as stated by @Joe Scaparra to doing the strategy “subject to” as stated by Account Closed. I would also add using hard money to acquire as part of the BRRRR Method.

We have used all of the strategies above. But we didn't start out at zero. We started with a HELOC of 20k that over time we were able to expand it to an additional 200k from the HELOC. That was our seed money. Then we built a team and a system which allowed us to scale from 3 deals in 2015 to 23 deals (17 of which we held) in 2017 and 8 so far this year by using the strategies above and bringing in money partners.

I think much of that is dependent on risk tolerance. Some people are fine with being in a million bucks debt if theyre getting More than that in rent.  Some want to own free and clear the moment they buy it.  

, im less risk averse than my wife.  But i also have to live with her

I'm talking exactly about that @Eric James .  In a partnership you have to give to get, right? You're giving up equity to gain the capital means to close the transaction. 

For example, using @Brandon Turner 's "Low to No money down" concept, my partners and I were able to close on a 42 unit apartment complex. For my role in the deal I own 14.5%. If you're focused on unit growth, let's do some quick math: 14.5% of 42 units = 6 units. 

I have 2 similar properties in the works with this same concept, which will ultimately result in "10 units" for me. Including what we've already closed, that will be 16 additional units utilizing partners to where I personally and solely have the means to close on 2-4 units. Once we exit these partnered properties, I'll take my proceeds from my "16 units" and acquire something on my own.

Help me understand your definition of scaling up. 

Originally posted by @Jay Helms :

I'm talking exactly about that @Eric James.  In a partnership you have to give to get, right? You're giving up equity to gain the capital means to close the transaction. 

For example, using @Brandon Turner 's "Low to No money down" concept, my partners and I were able to close on a 42 unit apartment complex. For my role in the deal I own 14.5%. If you're focused on unit growth, let's do some quick math: 14.5% of 42 units = 6 units. 

I have 2 similar properties in the works with this same concept, which will ultimately result in "10 units" for me. Including what we've already closed, that will be 16 additional units utilizing partners to where I personally and solely have the means to close on 2-4 units. Once we exit these partnered properties, I'll take my proceeds from my "16 units" and acquire something on my own.

Help me understand your definition of scaling up. 

 For me, 'scaling up' would be increasing number of units (equity & cashflow). I wouldn't consider going from 6 units solo to partnering for 14.5% of 42 units (=6 units) to be scaling up (not saying that's what you're doing).

First you have to understand that a lot of the times on podcasts this is misleading. They say “I own 1000 units” when the reality is they CONTROL that many. Usually this would be a syndicator. They may control that many but their ownership percentage is going to be very small. Not saying they can’t make good money because they can, but it’s still misleading.

Second goes for people with partnerships. They say “I own 300 units” which again is usually in some partnerships, again misleading.

Now beyond that people scale with appreciation, BRRR and getting into large multifamily or using 1031 exchanges.

Personally I focus on cheaper cash flow areas which allows me to scale what I deem fast. I’m only 23, so when I’m 30 and own 20 plus properties people will think I scaled super fast until I tell them it took me 7 years

@Brianne H. I would significantly discount whatever you hear on podcasts. As @Caleb Heimsoth has pointed out, most times when people say I own 1,000 units, what they're really saying is (A) I control 1,000 units (own a very tiny fraction) or (B) invested in other people's deals which totaled 1,000 units (again, they own a very tiny fraction OR nothing). 

Most folks use this a means to market themselves because the person who says they "own" 1,000 units sounds more impressive than a person who says they own 50 units (but actually owns the entire thing). 

Most of the information on podcasts and BP is American-centric and not applicable anywhere else (lost track of how many times Canadians investors have insisted they would like to do a 1031 exchange in Canada!).

As a fellow Canadian, I can tell you there is ZERO chance of anyone scaling up half as fast in Canada (or any other country) as compared to the US. Even with the favorable business climate in Alberta (ex-Calgarian here), there are not enough properties at a low enough price. Plus, real estate lending is decades if not centuries behind in Canada because it is controlled by the big 5 banks. The US is the exception to the rule.

As a Canadian, if you do decide to invest south of the border, you have to watch out for a few things apart from investing - how to optimally structure your investments, who to invest with, what type of assets to look into and all that jazz.

The average American syndicator will be unable to offer you any value (apart from the usual pitch of "invest in my super awesome amazing project with ultra high returns") because the market is so big in the US that they have their hands full with American investors. This is because your needs are different. You need to know things over and above how attractive a project or market is when taking a decision.

Plus, unlike Canada where we think everyone needs to get a master's degree before they can opine on a subject, the US is more entrepreneurial and has people from all walks of life doing deals. You can run into smooth talking sales people who can repeat cliches with confidence but have little or no substance backing their assertions. That can have disastrous consequences if you're an international investor!

Disclaimer: I am obviously biased as I am a syndicator who, primarily, raises capital from Canadian investors. But I've shared the issues that my Canadian investors have faced when investing in the US - syndications and otherwise.

I think you've just got to work with what you've got and that will define how you scale quickly. For some people, it makes much more sense to stay in a great paying stable job so they can get financing and build up cash quick. For others like me, that's not an option. I personally lived in a few different countries, had several 3+ month long gaps between consulting contracts, and now live in one of the most overpriced markets. So I had to get creative.

I went the non-traditional route and used someone else's money to buy my second property out of state. And I'm making offers on more properties without any of my own cash. But would I be doing this under different circumstances? Probably not. 

It sounds like you're in a similar position, so you might start by finding out how you can add value, looking into other states, and starting to really focus on networking for partners. 

Hi @Brianne H.

Being out of the country is problematic I would think. In 2011, 2012, and 2013 I just bought one little rental condo at a time with 20-25% down, cashed in my IRA, refinanced my house, and invested hard earned dollars in those down payments. In a 2-3 yr period had 10 condos and $50,000 cash flow coming in every year. Then, appreciation happened in San Diego. Our original plan was if those Condos ever doubled in value we would sell. Then I found out about the power of the 1031 exchange and traded those condos in for apartment complexes in NE Ohio and now have 8 apartment complexes, 4 single family, for a total of 122 front doors and counting. The cash flow is currently at $160,000 a year. I now have over 6 million in Total RE owned presently. Also, over 2.5 million in equity after 7 years of investing.

"Whatever the mind can conceive and believe it will achieve."  Napolean Hill in his think and grow rich book.

 If a lowly paid parochial school teacher can do this, anyone can.  The most ever W2 earned family income we made in my lifetime was $80,000.00 before taxes.

Swanny

@Brianne H.  

I think it may be immaterial for you to worry about at this point. It sounds like you have not yet purchased your first rental property. Very often new investors get hung up how they can scale over 5 or 10 years, without even having a first property under their belt. It can leave them feeling overwhelmed and they never get started.

Most successful investors just jumped in and found a way. Even if you are only able to add one property every year, that is 15 properties over 15 years. 

My point is if you have not even gotten started, why worry about a 3 year versus 15 year plan. You need a 1 year plan to buy ONE property. Go from there.

If you buy a property for cash flow, it pays you money every month. For example, if you have $400 cash flow on one property, you are able to save $4800 extra every year. Then if property two has $400 cash flow, that is another $4800 so you are now saving $9600 per year. As you keep reinvesting your cash flow into down payments, you can start moving faster.

For funding your projects, the bank is your first stop. Talk to many different banks and you will find some are better than others. Many people on the podcasts borrowed money from relatives or friends. People also use hard money. You may be surprised how easy it is to get money if you work at it. 

Dealflow will have an impact as well as where we are in the market cycle. Trying to scale quickly in this market is probably imprudent in most cities. Scaling in 2009-2010 was probably a great idea in most markets. Scale at a pace and circumstances that work for you and how much cash you have available. It is not about scaling it is about doing sound deals and that may take patience. Trying to run a marathon at 440 pace is never going to work. As disappointing as it may be REI is not a get rich quick scheme; if you get impatient buy lottery tickets-with leverage!

Many people hit on this point. It really depends on the stage of the market. Most of the stories you’re hearing are form the past 8-10 years. Which has been an amazing time to get into RE. Anyone starting around 2009 was pretty much starting off by shooting fish in a barrel. Deals were easy to find, numbers made sense, even in markets that are now completely over inflated (like San Diego, I was lucky enough to do well in that market as well). These days the pendulum is starting to reach its peak the other way. Deals are harder and harder to find even in what used to be less aggressive markets, like the Midwest. I would personally make sure you know what numbers you’re looking for and are comfortable with their projections even in a down turning market. Buying RE in order to "get into the game" at this point in the market can be very risky long term.

Most people I see that are still locking down deals at a higher rate are those who have already established strong relationships with brokers and agents around the country and are working by large volume to find that needle in the haystack.

Relentless-persistence, drive, knowing your financial targets and building good relationships with people who have access to deals should get you going. 

The answer is because there are plenty of people on here who stretch the truth to feed their ego. I call it out all the time in the success stories forums.

"Guy brags about scaling to 60 doors in X years!!"

Me: Wow, that's great, what kind of reserves do you have on those properties? 

Author: Crickets

Me: How did you scale?

Author: Partners

Me: So how do you quantify that you own 60 doors when you have partners?

Author: Crickets

There are too many people on this site swimming naked with no reservers (or funnier, thinking a HELOC or CC is a reserve) and too many people who "scale" and have multiple partners and own 25-40% of a portfolio.

You can't shortcut this stuff. There are also people on here who think they're special because they benefitted from a period of massive inflation in the past decade.

Just focus on yourself and when the next downturn comes you will be buying from the same dolts bragging on here today. 

@Brianne H. The pithy answer is creativity and using multiple strategies at least in my mind/experience it is, you can employ a few strategies then leapfrog them (if that makes sense) for example Buy a house hack using FHA financing, use hard money to BRRRR a try or quad, JV on a flip, refi the house hack in a year or two then move to another area for another house hack etc. Thats just one example, location, your investment objectives, access to capital and a bunch of other factors play into your strategy as well but when investing keep looking for how you can not why you can't, and you'll find a way.

My situation is different than most on here because of my Residential Development background. As we are all aware the correction shook many to the core and out of this business and anything related to real estate. We were very blessed to have survived thanks to a healthy reserve and just plain perseverance part of which is my SFH portfolio. I made 2 promises when in the middle of the correction : never borrow money again unless it is income producing property -95% of what we are doing I have kept this commitment. Secondly I would never and yes I do mean never take on a partner and this I have kept and will always keep. The one partner I have ever had almost took me down. So the point is we kept our business plan in tack and started buying SFH in 2015 with a LOC where the bank gives us 100% of the purchase price lets say 50k I put 20k in rehab costs it reappraises for 100k which I then refinance for 70 pay off the first loan get my funds back and then repeat/repeat. We currently have 30 SFH close on # 31 Friday. All my loans are commercial loans with 4.5-4.75 % interest rates and from 5-7 year balloons. 8 are fully amortized for 7 years , the remaining are on 15's and yes they cash flow avg $300 / m .Love the SFH market have done multi c props/ townhomes/condos love SFH far n away the best. Happy hunting

Well, it generally isn't that easy.  I feel that most pros don't go on Podcasts and spill their secrets.  They are busy scaling their business.  

First, real estate is expensive, so to scale, you'll need access to capital.  My best years were during the downturn and I raised cash to buy inexpensive housing which I turned into rentals.  Between 2010 and 2013, you could build a large portfolio.

Today, in the same areas, it may be impossible to scale.  There are not enough properties for sale and they are being sold more to consumers.  I guess I can still buy them, but my cap rates would be lower than the cost of capital.  

I think it is the toughest environment that I can remember to purchase properties.  Most of us are slowing down and it takes far more effort to purchase properties.  You seem to be in Canada -but your post suggests your are investing in the U.S.