Investor · Calgary, Alberta · Member since 2016 · 168 posts · 123 votes
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?
Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
8y
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!!!!!
@Dustin Beam, well as a newbie you bought 11 rehab properties, how did you make sure the deals you bought were good. Most people are afraid of making mistakes or hear horror stories of newbies losing money. So how did you do so well as a new investor?
My first was really 12 units...I sold those after owning about 1.5 years and did a 1031 exchange to by the 11 townhouses I have now. I realize how some might not see this as scaling, but the total rents on the 11 units will be about 60-70% higher than the total rents on the 12 that I sold.
I should also say that my original 12 weren't in full need of rehab. Interiors were average with need of some updating for the area and class they were. The exterior was in bad shape. Paint peeling, rotten wood, etc.
But on to your point/question, how did I do it? First I ran the numbers as acutely as I could. I made a spreadsheet (available for download here on BP) that frankly got me pretty dang close to what the real numbers ended up. Not perfect, but close. So I knew (or thought I knew) it was a good deal. I figured if I just left it at status quo, I could make some money.
But it didn't take long where I basically made the decision that I didn't want tired, run down property. I wanted to offer a nicer place to try and attract nicer tenants and maybe some higher rents. I was new, so you might not be surprised to hear that capital was tight. So I used the cashflow to fund improvement. First was to fix and repaint the exterior. Pricey, but looked great afterward. Then when units emptied I used saved cashflow to replace carpet w/ LVT, repaint, and replace dated countertops. Just depended what was needed. Rents went up a little because of it.
So basically I made no actual cash on those until the sale. It was tough at times, but the underlying fact that allowed it to ultimately succeed was that the numbers worked in the first place. At any time I could have stopped the "upgrades" and simply maintained and the cashflow would have worked.
My new property had new challenges. Where the first 12 properties had 11 out of the 12 units filled, my current 11 only had 4 units filled when I bought them. Four occupied units wouldn't even cover the PITI.
Four of the empty units needed new floors and paint. One of those empties had the AC/furnace coils, water piping, main electrical panel, and water heater all stolen. Those are being fixed now. Several unit had tons of crap (furniture, clothes, etc) all left behind. Luckily, two empties didn't need much to rent, got those rented very quickly which now covers PITI. The rest will probably take in the ballpark of $35k-$40k to replace all flooring with nice LVT, repaint, repair, and replace stolen items. But since I put all proceeds from my previous sale, which amounted to basically 30% down, my bank gave me a $50k LOC for repairs.
Think there's stress involved? Haha, definitely. But I bought someone's problem...at the right price which is key. And I should say that "the right price" is IMO. My advice to newer newbies is run number, run numbers, run numbers. Included everything you can even think of. And do like the line from "The Patriot"....aim small, hit small. IOW, aim as accurately as possible and if you're wrong, you'll probably still be close. And then jump in the pool even if you're not sure if the water is cold. Have the confidence to know you won't drown. Thanks for reading this book if you made it this far :)