@Brittany Baker if you read most of the answers it comes down to leverage, debt and partners. I choose not to be heavily leveraged or in debt, so my equity remains high and my cash flow is not burdened. Where do you want to be? $10k in cash flow with $1 million in debt is fine for so,e, but in a bad economic turn, you need to make sure all your debt is serviced. Too much stress for me.
The answers here are great. The following is what I actually did and am currently doing:::
I saved up money for many years and in 2012, I bought two properties, a sfh and a commercial property with a tenant. I sat on those properties for 4 years while working and saving money. Then I did a cashout refi on the townhome and got a lower monthly payment. I sold the commercial building and made substantial money. I used those funds and 1031 exchange to acquire 2 more SFH, a small Apt Bldg, and a Commercial bldg with several units in a desirable downtown area. I rolled all the properties into an S Corp that I created to get huge tax advantages. I sat on the properties and collected rents for two years. Then did cashout refis on all 3 SFH properties and again lowered the mortgage expenses and dumped the cashout money into the stock market to grow the money at 18-25% per year in preparation for my next REI strategy. I then sold the apt bldg and did a 1031 exchange to acquire two more properties in desirable areas for STR and LTR. Did cashout refi on commercial property. I bought another home for myself that I expense through the business and live rent free. After expenses and not including gains from securities, the Corporation is earning 9k-11k net profit per month
(it dropped about 50% for about 6 months during Covid) in rents from 6 properties plus 1 for me. I have chosen not to pay myself out the company but kept saving the money and dumping a portion of it into securities. The tax write-offs from the property assets is huge. This was longer than the 5 year plan but the growth is solid with good return and the wealth building is starting to become exponential. I still have my primary job. Now I am taking a portion of the money saved and dumped in stock market while using HELOCs that I acquired from multiple properties to start BRRRR. Basically, I have enough money and credit from HELOCs under the S Corp to be my own bank and do BRRRR without having to always rely on high interest loans and hard money. I am currently studying for my real estate license before I quit my main job and jump into REI 100% at which point, I will start paying myself out of the company, if need be. Also the balance sheet and reserves are at a point at which the banks are willing to loan money at low rates to the company to leverage future purchases without much headache. It's all about the long game!
@Joe Villeneuve I am interested also. Is that some rate of compound interest?
Would like to connect and see if you could help. Looking to invest.
That is an awesome question and I get that question a lot. It's all about finding decent deals and leveraging the velocity of money mindset. So an example is if you are able to find deals but have limited funds look into private money/financing options that is prudent and gives you the opportunity to build at a reasonable pace. As long as you don't overleverage and are able to cash flow/have some reserves you are in a great position to succeed. An example I had was purchasing a couple properties right with private money and only leaving 3K in each property at the end of the day after doing a rate and term refinance since I never put anything in the deals to begin with that's why I chose that method and not cash out. (After financing costs for front end and back end). But while I could have purchased those all cash it made more sense to not tie all my capital up and go that route to build business once again at a reasonable pace. So in year 1 I personally have 6 properties, all at the 75%-80% LTV level (so nice amount of equity in each), lower monthly payments and cash flowing no problem with some reserve with each property. So I would encourage talk to private lenders to see what programs they offer and then eventually traditional lenders because as time goes on and appreciation happens you will be able to utilize the first properties as seed money through refi or fixed loan/HELOC on property to keep growing if you choose. That is how I have been helping my investors and have had success on a personal level and of course assisting customers as a Realtor. I hope this helps and have an awesome weekend!!
I'm on track to do 100k a year in profit by 2030.
Currently about a 1/3 of the way there.
For me it takes saving 60-80% of my take home pay to do this but the finances work out long term as long as I'm selective about finding rentals that fit the strategy.
$500+ mo in profit
10% coc ROI
2-4 family (risk management)
Local so I can self manage
I've seen hundreds of houses over the past three years probably made 10 or so offers and got 3 places under contract with a total of 9 units.
It's not easy, it can definitely be stressful, and I'm trying to get out of the stage of still doing allot of my own basic repair labor.
I have had a plumber steal a small sum from me, I've had plenty of contractors ghost me. I've been yelled at a couple of times and told I'm going to make it a couple of times.
But at the end of the day, I own these units and I'm proud of them. I carefully place tenants and have very few issues, some even fix basic stuff on their own!
The road to financial self sufficiency is hard, to quote a mentor "if it were easy we'd all have 1000 doors and be fabulously wealthy, but it isn't and we aren't"
@Michael Johnson Dude you're like super human. Pretty amazing what savoy investors can do with the market(s) is down. The appreciation on your properties obviously fueled more investments. Reading these posts makes me feel like I'm moving at a snails pace.
If you don't mind me asking what has been the 9-5 job? How can you expense a property through a business if you live in it? Wouldn't that be a primary residence? It's my understanding you can only expense space based on the use, like an office, work shop, or garage.
1) probably buying cheap houses in like C and D areas. Not sure if it’s the best areas long term, rolling dice on appreciation or tenant issues. Market tanks, you’re in the bankrupt stage
2) they have a lot of money to begin with
3) they have friends and family with money and strike deals that way
4) they are flexing hard core, ask for proof
For me, i stick to the tried and true. Buy only A and B class areas that cash flow with some appreciation. Has to be in a decent and safe area with strong economy or population migration. Slowly save 20-25% then do it again. This is a safer route for me and minimizes down fall and bad tenants. I’m the tortoise, though, others what to be the hare. Don’t want to get burned, but good luck to risk takers.
@Brittany Baker I'm funding my own deals too, but the Burr method is a great way to scale. The one deal I did that bought me 3 units then I bought another 4 like 2 weeks later. Crazy. But when an opportunity comes you gotta jump on it!
@Salvatore Lentini great post! I'm curious as to what sort of returns your passive investors typically receive, and how these deals are typically set up in regards to securing financing. Do you bring in investors to cover the down payment? And then the LLC becomes the borrower on the note?
I use a family members house as a home of record for everything tax related. I also rent the house to myself and signed a lease to myself from the company since a S Corp is considered its own entity/person. Therefore, I am considered a tenant/client. I am just a very bad tenant because I seldom pay rent. ;) I am an auto mechanic. These days I manage a shop. My pay scale is considered barely middle class by Silicon Valley standards. It is all about making wise decisions with money. I did a lot of reading over the years to figure out how to invest money, how to play the bankers game, how to start and run businesses. I attended classes in college to learn about financial accounting. Besides, I am really handy, and have been blue collar most of my life. I worked in the construction trades when I was young. All of this I have been able to apply to my REI.
I bought the bulk of my rentals when I was making $13-14/hr using low and no money down seller financing. I went from 4 units to 64 units in a 60 month period. I quit my W2 at 28 units and started a painting business so that I could have a more flexible schedule to continue to build my portfolio. That went on for about 5 years and I was able to sell a few and refi most of the remaining portfolio and ditch the painting altogether. That gave me time to network and figure out what I really wanted to be doing. I'm now using creative financing techniques to build a self storage/industrial portfolio with 3 partners. That will lead into being able to sell off my residential stuff and free me up even more to continue to scale into commercial.
Search my name on BP along with the keywords land contract and you'll find many posts.
BP has a lot of selection bias. People tend to post successes on social media rather than failures. Outside of certain threads dedicated to mistakes, people are less likely to share them. No one is posting about taking a 100k loss on a flip or condos that lose $200 /mo because of HOA fees, yet these things happen to people as well.
The great thing about scaling is once you've started, it gets a lot easier. Can you buy more homes if your investment budget is 10k /yr or 10k/mo? It's easy to be rich and scale up when you already have 100 units feeding you money.
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?
Notice what you said here Brittany "....I'm not able to scale THAT fast.". The human brain is always in 100% support of it's host, so if you say you can't ___, your brain cements that as a fact, and places into subconsciousness that it is a fact that you can not, which reinforces your beliefs, and it becomes a spiral of a self-fulfilling prophecy.
You absolutely COULD, you simply do not readily know how you could.
So step 1 is correcting your language, to correct your programing, to correct your vision, which will expand your knowledge, which will expand your capabilities, which than transforms your life. This is THE exact road map, 100% fact and I have a list of "impossible"'s that I have DONE to prove it, all because I live the above as much as humanly possible. It does take work, constant practice, effort, falling down and jumping right back up.
When you start asking the right questions, the answers will start appearing. Without that, all the technicals of how are pointless, you wouldn't believe them, you'd argue them, because your brain is trained that you "can't" and therefor trained to believe all "can't" and those who have, are anomalies, lottery winners, freaks who by some luck of chance achieved an "impossible" outcome. All of that programing is false, and the reward for having such thoughts is to live a limited life.
@Brittany Baker firstly don’t compare your progress with anyone else’s you will never win like that. Second some people start with money and other people put the effort in and learn different strategy’s. Others immerse themselves in the business. Everyone has a different strategy and different backing. You’ve got to find the one that works for you. Let me tell you if I used my own money every time I bought a property I’d be broke and bankrupt. Part of this business is to find partners that want to join you on your journey.
Another part is to find property that is either incredible deal￼ or pays you a great return. One with which an investors wants a part of the action. There’s probably lots of info right here on how to raise private money. Good luck
However, my best advice is build an amazing team around yourself. Most of your team members can be zero upfront cost, and 100% back-end commission, such as an amazing realtor, a rock solid 1-2 mortgage brokers, the best and most seasoned title agent, incredible home inspectors, outstanding contractors/handymen. The best realtors already have strong teams ready to go, that can jump on your band wagon and help get you there with as little risk and cost and as much profit/return, as is possible.
Hang in there, and continue to build a team that helps you succeed at higher levels. You've got this.
I remember someone asking a similar question a couple years ago on the forums. One of the answers really stood out. The woman went on about how you need to hustle, find deals, work hard, etc. Then when someone started questioning her on funds to get started, it turned out her entire portfolio was funded by BOD (Bank of Dad). She was totally disconnected from reality in acknowledging that she would not have acquired properties that fast without family funding. She kept saying she did it all on her own. She said that she had to put on a presentation for her father to get him to invest. I bet he put a copy of it up on the fridge, lol.
There are many ways people scale quickly. Some truly do hustle it. Some get lucky. Some distort reality to look more impressive than they are. Some scale and fail, meaning 50 units in two years and bankrupt in 5.
Everyone is looking for the secret, so let me share it. The only way to create wealth is using your mind. Your mind can create money from thin air or it can mindlessly watch Netflix for hours every day. Your choice.
I would be interested in the juicy details if you are willing to share!
I’ll share my story because I think it offers some perspective on an unconventional path.
2016 I bought a primary residence with my brother. We had $15k between us to our name at the time so I bought a $295k patio home with 5% down (with concessions toward closing costs) and drained our accounts. We lived there for 2 years splitting the mortgage (which was about 20% of our incomes each bc of the split). We saved money for 2 years as fast as we could which amounted to about $30k. We decided to jump head first into rentals. Before we had a full plan we put our house on the market for rent that we were living in. When we found a renter we moved our stuff into a storage facility and moved ourselves into an Airbnb. After 3 months in the Airbnb we were under contract on our second place which was a $245k condo with 10% down. Once again we were back at zero savings. The first house barely broke even because of the low down payment but it was fairly new so low capex/maint required. After 2 more years of saving we had about $30k but I was starting to feel the pressure of having no safety net.
I took a “disaster distribution” from my 401k under COVID and skipped the tax penalty entirely. This game me about $30k in a liquid safety net.
We bought house #3 in July 2020 with that $30k we had saved between us over the course of those 2 years and my 401k cash in reserves. This was new construction, again to avoid costly capex/maint while we were cash poor. We saved for another year and had about $15k.
April 2021 we bought a condo for $245k with 5% down with that $15k we’d saved. Still we only had about $30k in reserves. We then refinanced property #1 to pull about $50k in equity which we used to pay off all our other debts and banked about $10k bringing our reserves to $40k with a portfolio now worth about $1.6M because of the appreciation we’ve experienced in Phx.
July 2021 we put 3 of our properties into forbearance. Our renters experienced some payment issues but are getting back on track. We will likely take the year of forbearance to fill our reserves coffers, save personally, and defer the missed payments to the end of our loans.
After that year is up and we are able to again borrow conventionally our reserves should be approx $100k with a portfolio valued at $1.6M to $1.7M.
We are collectively at less than 80% LTV across the 4 properties because of the appreciation. We are cash flowing $200 min after capex on each property.
Our plan for the next year is to 1031 the first 3 properties which have about $550k in equity between them into about $2.2M worth of properties. This will take our portfolio to about $2.5M with prop 4 included while we sit on $100k in cash reserves.
This is where I remind you we had $15k to our names BETWEEN us 5 years ago. This REI game is a beast. Pay attention to the political and tax loopholes. Put them in your bag and lean on them early and often.
Side note…every house we own has an HOA handling much of the maintenance. There is little to no yard for each. The newish builds were KEY to us because they were predictable on the cash outlay to get started. We only truly own 1 roof. In 5 years we've had one giant expense of replacing 1 AC unit. The rest has been appliances and minor stuff. Suffice it to say, there are ways to minimize your cash outlay on the front end when you are clawing at the walls from the bottom of a pit.
@Michael Johnson . How do u write off the house u live in as a business expense?
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.
What’s a healthy equity ratio in your view?
@Whit B. I’m assuming both you and your brother are single. If y’all both go get married I’m sure you would start rethinking your plan. It’s a high probability you’re wives would see to that.
@Brittany Baker something most folks haven’t mentioned yet is family situation. If you have kids and a significant other, your growth trajectory will be different than a single, no dependents, hustler.
That is common sense, but posts with “Look, I grew an amazing amount of doors/properties in 0 time” rarely disclose if their success is at a risk or leverage ratio beyond the comfort zone of an investor with responsibilities to dependents.
To that point, I feel like I see as many “how do I get my spouse/partner to invest in RE with me?” Posts as I see the “success story” posts, but human psyche isn’t programmed to recognize the frequency or the balance between the two.
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