Stacking and how does it work?

Question

Hello BP,

I am new to the site, fairly new to the real estate market and I am looking for help to get this going.

I watched a video on BP on stacking.

The concept seems simple however the devils in the details.

So I’ll ask away.

If I have $50k to start.

I use that for a 20% down payment for my first house that is worth $250k . The home Loan is $1000 and rent is $1500.

That’s $500 cash flow, 66% DTI and the home has 20% equity (50k).

With that, how do I buy 2 houses the next year and 3 the next, so on and so forth?

Will a bank Loan money to me if the saw my first home has positive cash flow?

How do I take it to the next level ? Or will I need to save another $50k for another 20% down payment?

Really appreciate some clarification

Thanks

Blake Dailey · Answer

@Cameron Lim I would urge you to check the operation of that first property. If the rent is $1500 and the mortgage is $1000 you will likely lose money because of the other expenses you aren't accounting for. Maybe you just mean that for example purpose but I just wanted to make the the distinction that cash flow is not equal to rent - mortgage. Cash flow is rent - ALL operating expenses and the mortgage.

As for the stack, it refers to double your efforts and stacking them on top of each other with each deal. So if you bought one property the first year, you would buy 2 the second year or a duplex and then 4 the third year or a 4 plex and so on. You could do this by saving all the cash flow from the first property and saving from your other income as well and combining that to purchase the next and so on.

Or you could buy under market properties, rehab them to add value, and refinance your money out to use it again to buy another property. This is the BRRRR method - buy, rehab, rent, refinance, repeat. This is the method I have used and it adds velocity to your money and allows you to execute that stack.

Robin Frazier · Answer

@Cameron Lim

If I’m not mistaken you can buy a primary residence for as little as 3% down and I think you can buy a first time homebuyer loan once a year.

Cameron Lim · Answer

Hi Blake, you are right, I simplified the example for the purpose of keeping it simple. I am aware of PITI and everything else.

So it sounds like I have to either wait a long time to build up 20% for another down payment or have some other means of income to pay down the 20%.

How can one afford 20% down on 4 or 8 properties trying to execute a stack year by year?

Can I not leverage the equity coupled with the positive cash flow to get another loan?

I know one house sound small, what if I had 3 or 5 ? That still takes years to save up to 20%

:(