How are people scaling so quickly

110 Replies

the people who are making the moves typically are not the ones sitting all day on here. Yes the younger people in the business are. (better then being on tiktok that is for sure)  I have clients and friends who have over 100 total units, which include apartment buildings, sfhs, duplexes, trailers, commercial buildings, mixed use and air bnbs. I have friends who I have helped land their first duplex to house hack. Yes you need some money to get started/ or someone else's money. Its what you do with the profit(hopefully you made some) the people I know with over 100 units drive f150s and work vans. They are making multiple moves daily. putting in offers, checking out properties and running with their crew to get work done. This is a hustle. Alot of people dream about getting into this. Others do it! 

@Brittany Baker

My personal tips

I don’t spend my cashflow. I just let it stack in a mutual fund so it grows on its own.

I’ll buy a house under market , force appreciate it, and cash out refi my down payment and Reno cost back out.

I only buy properties that cashflow 1k or more a month

Look at all your debt service. See if you have equity and can restructure it in maybe a commercial blanket mortgage with a line of credit. Use loc for future downpayment and then refi the property to recoup the funds

Remember it’s not a race. Move at your own pace.

cutting down on your personal spending, while still making maximal income in whatever job youre in. 

If you have the ability to buy multifamily it can give you much greater returns, a lot of factors are behind that but in general that's the case. Also if you are able to do Airbnb in your area or get properties with a high volume of travelers, your earning potential sky rockets if you can create a successful system. You could cash flow 2-3k off one property if it meets people's criteria. 

Originally posted by @Justin Gottuso :

@Ian Stuart

So what do YOU do with YOUR investments?

Buy high-quality liquid assets that can be disposed of in event of significant currency/bond market volatility to raise cash and avoid deflation.

-Equities: Heavy EM/Commodities/Tech/Growth

-Cryptocurrency: ETH/BTC/LINK/AAVE/DOT/SOL - network effects / illiquid markets sensitive to future institutional flows.

-Precious Metals (Gold/Silver): Insurance

-Opportunistic Bridge Notes / Rescue Capital: Clip 6.00-7.00% on the note plus fees on distressed value add multifamily. If operator blows up - I get great real estate on the cheap that I can then flip and dump proceeds into opportunity zone developments.

If bond market blows up and yields spike spike significantly in a short period of time - illiquid real estate assets will go bid-less in short run until seller expectations adjust (3-12 mos. down the road) to higher interest/cap rates. People forget - your target buyer pool is leveraged to the hilt (70-80% LTV - and that's just the debt) - and depends more and more on artificially cheap debt to make deals pencil at your listing brokers' 4.00%-4.50% caps target.

Since 1982 - real estate has essentially been directly correlated / a call option on treasury bond prices (whose yields underpin the interest rates on all your fixed rate loans - think Fannie/Freddie/HUD). Investors who've been buying since the 80's (treasury rates >14%.5 top tick) or new blood that started buying post GFC (2009-2012) think they can't lose - since their investment has (essentially) been buoyed by asset inflation tied to declines in treasury yields --> interest rates --> cap rates --> increasing govt intervention/QE/debt monetization.

One of the key implicit assumptions of the bulletproof BRRR model (which so many people here swear by) - is that interest rates will always and forever continue to decline. Since 1982 - this has been one of the most reliable, lucrative, and no-brainer business plans in existence. However - if and when rates turn, the real estate business will change dramatically (especially if you have an IO loan).

Originally posted by @Ian Stuart :

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.


You're forgetting about the best part, when there are 25 "different syndicators" on the GP side, all claiming to have just added 500 doors. Not to mention they have 1/25th of the 25-30% equity chunk on those 500 doors and that is after a preferred return.

Originally posted by @Jim Kittridge :
Originally posted by @Ian Stuart:

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.


You're forgetting about the best part, when there are 25 "different syndicators" on the GP side, all claiming to have just added 500 doors. Not to mention they have 1/25th of the 25-30% equity chunk on those 500 doors and that is after a preferred return.

Lol - hit the nail on the head. 

These guys are all Kroger store-brand Grant Cardone wannabes IMO. 

Will be entertaining to watch these guys get cleaned out / start jumping off bridges when rates rise on their max leverage IO loans, pref investors bail, and their models' 3.75% exit caps don't pan out. 

Originally posted by @Justin Gottuso:

@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.

I add in a Recurring CAPEX or Replacement Reserve to may analysis to account for those costs going forward.

Originally posted by @Justin Badillo :

@Joe Villeneuve if you start by funding from a job, where else would you get the money. What strategy would you use to start? How much to start with? I have also never seen those sequence of numbers before. Sorry for all the questions!

 There are many places to get funds from.  The key is based on the strategies used.  There is no one strategy to start with.  The strategy used is based on the best one for the best deal for a specific property.  Start with what you have.  Learn strategies based on where you are starting from money wise.  Learn as many strategies as you can.  Don't fall into the mistake of learning one strategy, and get really good at it.  That makes absolutely no sense at all.  You'd be severely restricting yourself, losing out on so many opportunities you couldn't count them, and end up forcing deals that you shouldn't buy...just because you get frustrated and impatient due to your limited knowledge of strategies.

That number sequence is my secret formula for decision making.  It's based on a few basic rules:

1 - Never spend you seed money, but use it to infinity.
2 - Never invest for linier returns...only compounded ones.
3 - learn the difference between "your" cost and "total" cost.
4 - If total cost = your cost,...you lose
5 - Understand that the asset isn't the property...it's the cash in the property,
6 - The property is just the temporary transportation for your assets.
7 - Keep your assets moving.
8 - Equity is dead cash.  You don't own it...the property does.
9 - The more your equity grows in the same property, the less it is worth.
10 - Never spend you seed money

Originally posted by @Justin Badillo :

@Eric James trying to break that ground to get into real estate seems to be tough to say the least. Is there a better way than just funding a down payment? Or would say partner up with someone, private lender?

 If you're a novice you don't want to scale quickly. First, because you're going to make mistakes. Second, because you need to learn financial discipline. Skipping that by finding someone to hand you a bunch of cash will likely lead to disaster.

Some are lucky.

Some are lying.

Some are really good at what they do.

Too many factors to nail it down to a secret sauce that can be repeated by anyone. I started to get serious in 2016 by purchasing a hoarder house for $55,000 that I renovated myself. I learned that I'm too slow and don't enjoy it as much as I thought, but the home turned out to be a great investment (rented with 0 vacancy and worth $200,000+ today). I kept saving and investing as opportunities presented themselves, without much of a plan until 2019. Long story short, I am now netting over $15,000 monthly from my investments. Over half of that comes from the three properties I just bought in the last year when I finally had enough money to buy a little smarter.

I scaled quickly by earning extra money in my primary job (property management and sales), living debt free, sticking to a budget, and putting every dime (including all cash flow) right back into investments.

To be honest, I kind of surprised myself these last two years.

@Brittany Baker   Forget how "they" did it, lets figure out how you're going to do "it".  

I'm in Self Storage but still have the same financing decisions as it relates to Scalability/growth.

A. Point "A": How much Cash and Collateral (65%) do you have. What is your financing mechanism? Cash, SBA 10%; SBA 15%; conventional 5%; Conventional 25%; Conventional 40%. Get to Syndication later. The combination of these factors determines your project sizes. Also when you "CAP" out with your existing Collateral and have to find a new funding source.

B. Point "B: Where do you want to get to and how fast? Also how much risk/passivity. As people have mentioned, need to keep it apples to apples. Before/after income tax; with/without Capex set aside; etc.

C.  Now build a spreadsheet going from Point A to Point B.  Put a timeline along the side.  Now insert "Deals".

D.  Risk Assessment- perform one.  Interest rate change.  Bank 5 year renewal.  Inflation.  Scalability- cant do it all yourself, need a team?, etc.

E.  When do you quit your day job?  Or do you?  Part of your Risk analysis.  If you don't build a Team, then you have to quit your day job.  So along this timeline add in your team.  Just because your making $10,000 per month, you might need a $50,000/benefits maintenance person as you scale.

F. On your bank, find the following out: 1. Federal Lending Cap. Does this fit your goals?; 2. LTV loan to Value; LTC Loan to Cost; What are their expectations?; 3. Will they do "interest only" construction loans? How long or occupancy %?; 4. Etc.

Lets say your target is $10,000 per month. Again make sure this includes income taxes and Capex.

Lets say your first deal had $20,000 collateral/cash, and cash flow $200 per month after income tax and Capex set aside.

To get to $10,000 per month using $200/month you need 50 deals.  Also you need 50 x $20,000 collateral= $1,000,000.  

Now use the BP folks to challenge this. Example: 1. You don't need $1,000,000; part of this should come from refi., 2. Can you source 50 SFH's and BRRRR them; or do you need to switch to MFH?, This has to fit your "Life"; not someone else., 3. Etc, etc.

Key point is to visualize the path.  These folks have been down the path, and can help you adjust it.  

If this path doesn't get you there or if the time frame you want, then need to search out a different REI model or financing tool.

Start small and Make Your Big Mistakes Early.

We have been doing Self Storage for about 6 years.  Only in the last 2 years, have we gotten to scale where I am more than comfortable to compete/win with the larger REITS in self storage.  It took a lot of mistakes and learning to get to this point.  Also my bankers, contractors and family trust me based on our past performance.  We could not/should not Scale to where we are today in years 1 to 3.  Go at your own pace, risk tolerance and goals.  With the knowledge and experience we have now, we could easily scale in 3 years with low risk; but we started from zero knowledge base.

Develop a path, then put it on this post string and have these folks help you challenge it and improve it.

Slow and steady for me-maybe...maybe add one a year. The last person that I talked to, who has been scaling quickly (8 singles/dups per year with no income other than from managing the SFR's) was doing this with hard money from another friend who has a high income. I want to get there myself, but when he told me about the 12% rates + points he's paying, I just can't see how it's sustainable. If 4 of the units go vacant for 3 months and you get someone who throws a window unit off the roof and into the neighbors living room then you've just got yourself a whole world of problems to deal with. I may be too conservative but I'd rather have higher cash reserves and equity built up for all the craziness that can happen.

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