How are people scaling so quickly

110 Replies

Originally posted by @Todd Rasmussen :
Originally posted by @Joe Villeneuve:
Originally posted by @Todd Rasmussen:
Originally posted by @Joe Villeneuve:
Originally posted by @Marcus Auerbach:

@Joe Villeneuve is that your CPA's phone number?

@Brittany Baker great question; I would say often just smoke and mirrors, a superficial success. 

Networth and percent equity are better metrics than cashflow or number of doors to gauge success. 

You can grown your portfolio wide or deep, or a balance of both. If you acquire a lot of units fast without equity you are growing wide, but not deep.

It is easy to scale when you are 100% leveraged (a money partner plus a bank for example), so the investor actually owns nothing. It's like being the CEO to a business that someone else owns. 

Many portfolios that I have seen also carry a huge liability in form of deferred (ignored) capex. That is a very unhealthy condition and a few economic ripples combined with some vacancies and urgent repairs can sink that portfolio.

In the end it's a balance between growing wide and deep. You have to find a balance between gowing healthy and growing fast. If you grow too fast and not deep enough your portfolio is volnerable to storms, just like a tree with shallow roots.

I have been BRRRR ing properties for over a decade here in Milwaukee and we have been growing every year, but it was always important to me to maintain a very healthy equity ratio. In the last 3 years it has been increasingly difficult to generate substancial equity during the rehab. Granted, we tend to overrehab a bit, but I'd rather be done with the property than having to come back every few years to replace something else. All of the deals I have bought this year I have (will have) actual money invested after refi, so of course that slows you down, but I think that is healthier.

Sometimes it's good to grow wide, but than take some time to consolidate. Succesful businesses can fail (not only in RE) when they grow too fast, that's a real concern. 

 LOL, no it's not my CPA's phone number.

...and percentages are useless...they lie to you...and should be left for use in the Stock Market. Percentages in REI, when used as a way of measuring success, will lead you in the wrong direction more often than not.

 I could only get to 32768. Am I halfway there?

 Nope

 Doubling a dollar 30 times was my guess.

 Correct.  The power of compounding.  1 penny, doubling 30 times = $10,737,418.24
2^30

Originally posted by @Andrew Syrios :

Some probably started with money but the market of late has really put the wind in RE investors sails. Things are tough on one side with the eviction moratorium, but really nice for property values.

That being said, there is an unfortunate tendency for many to exaggerate their success. $10K in cash flow probably doesn't include CAPEX expenses. And I've seen more egregious exaggerations than just that. I'm not accusing anyone in particular, but be weary of the "bragging about my success" posts out there.

 When you say what you said, you are actually accusing everyone since by not including "anyone in particular", you also didn't "exclude" anyone in particular.

Originally posted by @Joe Villeneuve :
Originally posted by @Andrew Syrios:

Some probably started with money but the market of late has really put the wind in RE investors sails. Things are tough on one side with the eviction moratorium, but really nice for property values.

That being said, there is an unfortunate tendency for many to exaggerate their success. $10K in cash flow probably doesn't include CAPEX expenses. And I've seen more egregious exaggerations than just that. I'm not accusing anyone in particular, but be weary of the "bragging about my success" posts out there.

 When you say what you said, you are actually accusing everyone since by not including "anyone in particular", you also didn't "exclude" anyone in particular.

Did you want him to name names? 😎

Originally posted by @Joe S. :
Originally posted by @Joe Villeneuve:
Originally posted by @Andrew Syrios:

Some probably started with money but the market of late has really put the wind in RE investors sails. Things are tough on one side with the eviction moratorium, but really nice for property values.

That being said, there is an unfortunate tendency for many to exaggerate their success. $10K in cash flow probably doesn't include CAPEX expenses. And I've seen more egregious exaggerations than just that. I'm not accusing anyone in particular, but be weary of the "bragging about my success" posts out there.

 When you say what you said, you are actually accusing everyone since by not including "anyone in particular", you also didn't "exclude" anyone in particular.

Did you want him to name names? 😎

 No.  That's not the point.

Originally posted by @Brittany Baker :

I've seen a few posts of people starting a year and a half ago but that already have 4k in cash flow and multiple properties. These same people are on track to reach 10k/month in cash flow by year 5 of investing. 

How are people doing this?

I'm funding my down payment with money from work. I've got a high-paying job but I'm not able to scale THAT fast. Any insight?

 I would click on reply to the people posting and saying that and ask them 

Originally posted by @Joe S. :
Originally posted by @Patrick Britton:

@Brittany Baker  There's also the possibility that a lot of people are exaggerating their accomplishments. But suffice it to say that it usually comes down to finding additional sources of money, a business partner, very inexpensive houses, or a combination of the aforementioned. I went from zero houses to 8 within 18 months and am happy to give you the juicy details privately if you're interested.  

Possible that some people are exaggerating for sure. Like the people that say they own 9000 units when really they only own a small percentage.

 That is very common. Even among the people interviewed on BP videos. They are with a group of investors, but claim all the units as "theirs".

There are two main ways to scale quickly. The first is to use other people's money which requires some negotiation and sales skills all by itself. The more technically difficult way is to learn how to negotiate creative finance deals.  The first way is much easier but it involves more risk on your part, and the part of the people who are lending you money. The second requires a LOT of learning and effort to perfect your craft. 

Please keep in mind that a lot of people don't always open the door to tell the full story behind each acquired door, you may just get a peak..... so to speak.

Just some food for thought about this.. A few (not all because it's definitely possible to acquire a substantial amount of doors in a short amount of time!) investors on social media and some who have a bit of a following who do this did not mention that they partnered with someone else and are counting those doors for themselves completely even though the cash flow is a 50/50 split.

Other than that, yes, recycling your money (cash out refi) BRRRRing definitely works, working with private money also etc. but in this current climate it has slowed down for most investors due to lack of inventory. 

Three factors: 

1. Leverage 70-80% LTV (Debt): Borrow max amount of money at artificially low rates, with complete disregard to what will happen once the Fed loses control of bond market and treasuries spike.

2. Syndicate 80-90% of Equity Stack (Equity): Raise the majority of your equity down payment from LP's who you give no management control to. Why put up 20-25% of purchase price with your own equity, when you can raise it from HNW friends/family/colleagues and still keep all the control

3. Charge Aggregious Acquisition Fee(s): Charge said LP's high acquisition fees to compensate for your "expert knowledge" or cookie cutter 80's-90's vintage "value add" multifamily deals. 


Repeat.

You will constantly see people on LinkedIn bragging about "all the deals they're buying" and that "we're at 5000+ units". What they don't tell you - is that it all OPM (other peoples' money). 


Believe me - I see all the organizational charts.


This is interesting topic. I am in socal. And scaling is not that easy. I buy with 25% dp. Now it is locked for good time. Unlike pandemic time where we saw 25% upward movement in 2 years. But other than that I don’t see a way of scaling.

Also most of the properties I see they cover the monthly costs when I pay 25% down payment. So not much room there to increase the rent. Even if rent goes up by 100 every year, any saving from this will take long time. So i guess unless you jv or syndicate, there is not much way. ..

@Brittany Baker I have been providing the down payment then financing the rest through equity in the property and the cash value in the leases added to my income. These I have been self managing in my local market.

I’m at the point now that I’m ready to go bigger and am going to start bringing in partners to scale up from small buildings, 2-10 units to larger buildings, 20-50 units with property management in place most likely out of state.

@Brittany Baker I bought 4 properties in my first year. 2 single family with low money down (moved out of the first one and rented it out) and 2 short term rentals with 10% down second home loans (one with a partner).

Over time I’ve learned that there are so many different lending options. It’s cheesy but constantly asking “how can I” instead of saying “I can’t” has done wonders for figuring out how to scale quickly.

The cash flow on short term rentals is insane compared to LTRs so I do expect to be at around 10k in cashflow by the end of year 2.

Originally posted by @Marcus Auerbach :

Networth and percent equity are better metrics than cashflow or number of doors to gauge success. 

That is huge. You could do syndication and "manage" 1000 units but have very little ownership in them. Don't get me wrong, at the end of the day you're going to make money but you don't actually own 1000 units. It's a bit misleading to some. 

IF the goal is to scale quickly, partner up. Partner for experience, partner for capital, partner for economies of scale, partner up...

Of course that's IF the goal is to scale quickly. The destination might seem like the goal, but I assure you the journey is far more exciting.

@Andrew Syrios

I do not include capex in my cash floe numbers because I don’t save $100 per month for big repairs and renovations that will cost thousands of dollars. I have a savings/emergency fund of thousands of dollars for my properties for that.

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