How to get to the next level of RE investing

Question

My strategy is to buy a single family house as a primary house every year for the next five years. After I own four or five properties my question/advice is how can I use the properties to get to bigger investments or invest in bigger investments assets or what would you do if you were me with four or five profitable, cash flowing rental properties?

FYI, I am open to house flipping but it is not my top strategy to go forward with at the moment

Joe Villeneuve · Answer

Bad strategy to begin with.  NEVER set a strategy based on goals of number of properties per any timeframe.  That will cause you to buy deals based on a timeframe, not income/profit based.  You'll get to the end of a year, and make a deal because time is running out.  Bad decision.

Expanding your portfolio can only be done with access to funds.  Funds cost money, and availability of those funds have too many factors to list here.  The only real way to expand, and control your costs, is to flip.  When I say "flip", I don't mean properties, I mean "cash".

When you flip, the property is just the vehicle your cash rides to get from one deal to the next.  The idea is to pick up passengers along the way.  These passengers are called "profit" and "cash flow".  As your cash continues to move forward, you become your own source of funding, and you control the costs.  You make the decisions of when (your REI plan), where (from your market analysis) and how (the specific strategies you use at that time for that deal) that cash moves forward.

Kerlous Tadres · Answer

That’s a smart approach. With 4-5 cash-flowing rentals, I’d recommend refinancing to pull equity for bigger deals like multi-family properties, which can boost your cash flow faster. You can also look into portfolio loans to simplify financing. Stick to buy-and-hold if flipping isn’t your focus, and watch your cash flow and reserves as you scale. Where are you investing? Some markets make scaling easier.

Dave Foster · Answer

@Juan David Maldonado When it comes time to scale, knowing the tax advantages available can have a significant impact on how quickly you can do so.  There are two major tax-mitigating opportunities in the IRS code for real estate sales

The first tool is the primary residence exclusion (sec 121), which allows you to take the first $250k ($500k if married) of the gain tax-free when you sell your primary residence as long as you have lived in the property for two out of the previous five years you have owned it. This would allow you to use the proceeds that you get free and clear, and reinvest them into another property if you like. Tax-free.  You can't beat that!  And you can do this once every two years.

The second tax  is the 1031 exchange. The 1031 exchange specifically pertains to investment real estate, but it allows you to sell investment real estate, and use the process to buy new investment real estate and indefinitely defer all of the tax and depreciation recapture from the sale.,  This strategy allows you to scale up your RE portfolio by using all of the tax to your advantage and start investing in more and larger properties.

There are also opportunities to combine these two parts of the code to your benefit as well.   Say you lived in a property as your primary residence for two years and converted it to a rental for three. You would get to take advantage of the primary residence exclusion because you lived in it for two out of the previous five years of owning it, and second, you converted it into a rental property, so the property also qualifies for 1031 treatment. If you sold the property, you would not only get the 121 exclusion, but if there is any tax left over, you could do a 1031 and reinvest it into another investment property.

Sultan Ali · Answer

Love your strategy, Juan – slow and steady with strong cash flow wins in the long run. Once you have 4–5 SFH rentals, you’ll have built great equity + lending power to either refinance and move into small multis or JV into larger assets.

I’m actively networking with investors and professionals. If you’re ever looking for off-market deals or need a reliable team member (agent, lender, etc.), I’d be glad to connect you. Let’s stay in touch as your portfolio grows!

Min Zhang · Answer

That's a solid game plan, Juan! you’re setting yourself up with a strong foundation. When you get to 4–5 cash flowing properties, there are a few ways to level up: you can look into leveraging the equity through a blanket refinance or a HELOC (if the loans allow), 1031 into a small multifamily, or partner up on bigger deals. I’ve seen people use their portfolio as proof of concept when approaching private lenders or JV partners, too.If it ever helps to talk through ideas or explore next steps, always open to continue the convo.

How to get to the next level of RE investing

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