What separates investors who scale from those who stay stuck?

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

Understanding that the true value of the equity you build is what you are paying for that property. Then understanding what that equity is actually buying. When you figure that out, it's pretty simple to set up a system that scales.

Nick Robinson

Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes

@Christian Grosskopf
Time. I do not move as fast as others I am 38 and have 26units. The big thing is do research to understand what a good deal is and then buy it. Once you own it let appreciation work collecting cash flow monthly and saving for the next deal.

If it was me starting over and if I were single, I would be house-hacking value-add residential MF, ideally fourplexes, as fast as I can. That to me makes the most sense cut my current expenses on shelter and let the rents come up to a level where when I move out it cash flows. Then go to the next one.

Biggest hurdles I have seen from people is they do too much research and then they never do anything or they do no research or buy deals that don't make sense. Both of these can put you in a bad spot especially when you are starting out. You do not need a home run you just need a solid base it and continue to build on it.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

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Mindset.. not every investor who dreams of being a landlord and scaling a portfolio is cut out for this Niche. Many in fact grow to hate it :) I know personally I made a run on C class that was probably 1/4 D class post GFC got up to 300 houses.. and after about 18 months I hated it way to much drama and way to much captial tied up for the amount of cash flow even in those days were we did quite a bit better than what you can do today on cash flow.

I took a buy out from my partner moved into the debt side of the bizz and building new construction.. Still own a few A class and some NNN commercial If i had it to do all over I would have bought the commercial and passed on the Drama of the American tenant . Just sayin and this is just me personally I know its quite contrary to 90% of the folks on BP who are pro SFR landlord

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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
2mo
Quote from @Jay Hinrichs:

Mindset.. not every investor who dreams of being a landlord and scaling a portfolio is cut out for this Niche. Many in fact grow to hate it :) I know personally I made a run on C class that was probably 1/4 D class post GFC got up to 300 houses.. and after about 18 months I hated it way to much drama and way to much captial tied up for the amount of cash flow even in those days were we did quite a bit better than what you can do today on cash flow.
I took a buy out from my partner moved into the debt side of the bizz and building new construction.. Still own a few A class and some NNN commercial If i had it to do all over I would have bought the commercial and passed on the Drama of the American tenant . Just sayin and this is just me personally I know its quite contrary to 90% of the folks on BP who are pro SFR landlord

Did you BRRR those 300 C class rentals? If so, would that mean you had a lot of equity in them, but not your own capital?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2mo
Quote from @Eric James:

Quote from @Jay Hinrichs:

Mindset.. not every investor who dreams of being a landlord and scaling a portfolio is cut out for this Niche. Many in fact grow to hate it :) I know personally I made a run on C class that was probably 1/4 D class post GFC got up to 300 houses.. and after about 18 months I hated it way to much drama and way to much captial tied up for the amount of cash flow even in those days were we did quite a bit better than what you can do today on cash flow.
I took a buy out from my partner moved into the debt side of the bizz and building new construction.. Still own a few A class and some NNN commercial If i had it to do all over I would have bought the commercial and passed on the Drama of the American tenant . Just sayin and this is just me personally I know its quite contrary to 90% of the folks on BP who are pro SFR landlord

Did you BRRR those 300 C class rentals? If so, would that mean you had a lot of equity in them, but not your own capital?

I used a syndication model with private money with equity kickers.. So for about 25 million in prop the ups and downs of cash flow was not a good use of 25 mil of capital.. Much much better to take 1/4 of that and build new homes at least thats what I did.. Had I bought grade A assets for some nicer commerical I probably would have a different opinion and maybe still own the portfolio.. But I am happy with were I have ended up lending to others that want to build portfolios and building new construction in multiple markets.. I like closing a deal and getting 100k to 200k net profit on one deal in less than a year :)
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Eric James

Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes

Depends on what you mean by "scaling". To me that word means rapid expansion. To do this requires either a lot of capital or a type of acquisition that doesn't require a lot capital, which not many can do.

Christian Grosskopf

OP

Investor · Louisville, KY · Member since 2017 · 92 posts · 38 votes

A lot of good insight in here. I appreciate everyone sharing their thoughts and expertise. Seems like we have diverse opinions from people who come from a variety of backgrounds in real estate. I find it interesting that nobody has mentioned networking or relationships up to this point. Perhaps that's just a given for some of those who have commented, but as a newer investor, I would think that this has a major influence on someone's ability to scale and advance in real estate investing.

I think that's a lesson a lot of newer investors need to hear. It's easy to become so focused on avoiding debt that you end up limiting your ability to scale. Sounds like the key is using leverage responsibly while protecting yourself with adequate reserves.

Arman AhmedPro Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 956 votes

[email protected]614-418-6081

Quote from @Christian Grosskopf:

I've been spending a lot of time thinking about this as I work toward building my own portfolio.

From the outside, it seems like successful investors all have different strategies—BRRRRs, flips, turnkey rentals, notes, STRs, commercial, partnerships, etc. But I have a feeling their success has less to do with the strategy itself and more to do with the systems, relationships, and mindset behind it.

For those of you who have built portfolios of 10, 20, or even 100+ units:

Looking back, what do you think was the biggest inflection point? Building a network? Finding better financing? Learning to analyze deals faster? Hiring the right people? Taking bigger calculated risks? Something else entirely?

I'm a firefighter who's transitioning into real estate investing and sales, so I'm always looking to learn from people who've already walked the path. I think this discussion could help a lot of newer investors as well.

Looking forward to hearing everyone's thoughts.

Great question. In my experience, the investors who scale usually stop trying to do everything themselves and start building systems and relationships around them. The right market, financing, property managers, contractors, and deal flow all matter more as the portfolio grows. For anyone looking at out-of-state investing, especially in the Midwest, having a reliable local team can be the difference between owning rentals and constantly managing problems.

Alfath AhmedBusiness Member

Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes

[email protected]614-802-5698

Quote from @Christian Grosskopf:

I've been spending a lot of time thinking about this as I work toward building my own portfolio.

From the outside, it seems like successful investors all have different strategies—BRRRRs, flips, turnkey rentals, notes, STRs, commercial, partnerships, etc. But I have a feeling their success has less to do with the strategy itself and more to do with the systems, relationships, and mindset behind it.

For those of you who have built portfolios of 10, 20, or even 100+ units:

Looking back, what do you think was the biggest inflection point? Building a network? Finding better financing? Learning to analyze deals faster? Hiring the right people? Taking bigger calculated risks? Something else entirely?

I'm a firefighter who's transitioning into real estate investing and sales, so I'm always looking to learn from people who've already walked the path. I think this discussion could help a lot of newer investors as well.

Looking forward to hearing everyone's thoughts.

Just buy your 1st deal in a good market. Select the right investment realtor and have them do the work for you by connecting you with their core-4 team of contractors, lenders, and property managers.

You will always make mistakes but having the right people will open you up to better deals, better contractors, and overall a better experience.

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Stuart UdisPro Member

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

Focus on real estate with strong or emerging fundamentals. A lot of investors think scaling means buying as many units as possible, as fast as possible which leads them to acquiring the lowest barrier real estate (also usually the least sustainable real estate). I'd rather own fewer properties that hold up over time than a large portfolio that's difficult to manage and constantly needs attention. The base built focusing on quality over quantity can often lead to a more scalable business overtime. That's of course if it's in your DNA. Not everyone wants massive exposure to real estate and that's perfectly fine as well.

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Evan Polaski

Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes

@Christian Grosskopf, it is a little bit of everything.

Some people, me included at one point, was grit to fight through some hurdles. At the time, it wasn't as much "grit" as it felt like time. I was growing in my career and at that time, the career was able to move the needle more with additional time than buying another property (in hindsight that was only partially true).

For others it is capital, combined with risk, combined with knowledge. They run out of money so stop buying until they save up. If they don't know they can use higher leverage loans or OPM, they get stuck. Alternatively, there are people that know those options are out there and simply don't want to take on the risks associated with it.

And as others noted, Mindset. This hits a bit on my prior comment, specifically about risk. Everyone assesses risk differently. Low leverage, no outside money seems better to some. While I have a friend that uses no outside investors, but does leverage deals pretty high. And then you have the syndicator side, that where, right or wrong, they use max loans +pref equity + LP money to buy as much as possible without any of their own money in deals, and this doesn't keep them up at night.

And lastly, there are people who like the real estate, but don't want to "run a company". "Scale" is a subjective term, but to me it is the people that own thousands of units. But even at about 10 units, it becomes a job versus a hobby. You need systems, you need to outsource more, which means you make less per property/door, but you can make up for it with more doors. And this moves your role from sourcing deals and overseeing PMs, to managing those people and making sure they are properly motivated and helping drive your business. And, having owned a small business, those early years are hard because you can't afford to pay good talent, but you can't manage it all yourself, either, so you just need to take a leap of faith one way or the other.

Andre Brock

Investor · Cleveland, OH · Member since 2013 · 120 posts · 77 votes

I think it’s all perspective and mindset one my my first mentors had a big operation before the crash in 09 after the crash he regrouped his motto changed to “to keep it small keep it all”

I think it really boils down to that investor and where he/she is at at that point in life and finding what makes them happy at

Eric Gerakos

Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes

Many new investors confuse being a successful investor with owning many units. Plenty of new investors end up owning 50 money losing properties which is why only new investors are impressed by quantity. Fewer but better properties are usually much more profitable, and profit is the goal.

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Hiring the right people if you want to scale a company but also recognize that scaling a company is not for the faint of heart, it’s not easy and it will constantly challenge you. Just remember the grass is not always greener on the other side for every person, I know some who have $5M from investors and can make 8% a year on that which is $400k, and I know people who have a lot more and make less.

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Ashish AcharyaBusiness Member

CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes

[email protected]941-914-7779

The strategy mattering less than the systems behind it holds up on the tax side too. Once someone's past a handful of units, the real inflection point is usually when they stop treating tax planning as a once-a-year filing task and start building it into every deal decision, entity structure, cost segregation, whether to pursue real estate professional status, all decided upfront rather than reacted to after the fact. That shift tends to line up with the same point people mention building a real network or better financing, a good CPA becomes part of the team you're relying on, not someone you talk to in March.

For a firefighter specifically, that shift schedule can actually help you hit material participation thresholds if you're eventually aiming for real estate professional status or the STR loophole, firefighters often have more contiguous free days than a typical 9 to 5, which makes those participation hours a lot more realistic to log.

Happy to connect!

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Sean O'KeefePro Member

CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes

[email protected]628-241-0888

Quote from @Christian Grosskopf:

I've been spending a lot of time thinking about this as I work toward building my own portfolio.

From the outside, it seems like successful investors all have different strategies—BRRRRs, flips, turnkey rentals, notes, STRs, commercial, partnerships, etc. But I have a feeling their success has less to do with the strategy itself and more to do with the systems, relationships, and mindset behind it.

For those of you who have built portfolios of 10, 20, or even 100+ units:

Looking back, what do you think was the biggest inflection point? Building a network? Finding better financing? Learning to analyze deals faster? Hiring the right people? Taking bigger calculated risks? Something else entirely?

I'm a firefighter who's transitioning into real estate investing and sales, so I'm always looking to learn from people who've already walked the path. I think this discussion could help a lot of newer investors as well.

Looking forward to hearing everyone's thoughts.

@Joe Villeneuve and @JD Martin both touched on this from different angles, equity and leverage, but there's a tax piece that ties the two together that nobody's brought up yet. When you sell to "trade up" as you scale, most investors don't realize how much of that equity gets eaten by depreciation recapture, taxed at 25 percent regardless of your bracket, on top of whatever capital gains hit. A 1031 exchange lets you roll that gain and the recaptured depreciation into the next property instead of cutting a check to the IRS every time you move up. It's one of the few tools that actually rewards scaling instead of penalizing it, but a lot of people don't structure their sale as an exchange until it's too late to fix.

The other thing worth watching, especially for someone still working a W2 like you are now, is what happens to your losses once you start doing cost segregation without real estate professional status. The depreciation is real, but if you can't show enough material participation hours, those losses get suspended instead of offsetting your firefighter income, so you end up with a big loss on paper that just sits there until you have passive income to soak it up or you sell. People assume cost seg is a free lunch every year, and it isn't unless the participation piece is actually in place first. Worth running the numbers before you lean too hard on it.

Happy to Connect!

This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.