How are people scaling so quickly

110 Replies

@Michael P. - around 60% to 75% leverage is healthy on a quality property with little or no deferred capex and at least slightly positive cash flow. So there are a number of qualifiers that come with that ratio. 

Once you drop below 50% your return on equity is not very good. At that point you can either refinance back to 75% or just keep reducing leverage, that's a matter of personal preference and startegy.

Shareholders will demand healthy leverage from a business. It is better to invest cash into new product development, marketing and distribution than to pay off low interest debt or maintain a huge equity position.

Brittany

First - do not compare yourself to others.  You do not know their background or their pockets.

There are some strategies that may help you depending on your risk tolerance and knowledge.

- if you are in a high cost state, you may look at locations that have more reasonable properties.

- Are you comfortable being highly leveraged, you can put as little down as possible and maybe have the ability for 2 instead of one (Always make sure the numbers make sense and there is cash flow).

- if you are in an appreciating marketplace, in 18 months you can use the BRRR method to own 3 properties (if your lenders require 8 months before refinancing).

If you continue to learn about how others do business and do not stop purchasing you will get there as well.  Let me know if you have any questions.

@Patrick Britton I would very much welcome hearing the strategy details of your impressive growth. My wife and I have had a LTR for the past 7 years giving us $2k cash flow each month. We have tons of equity in the property and now badly want to start investing out of state. We know we can somehow “tap” that equity to invest but it hasn’t clicked for us how to best do so. Maybe your story will hold some helpful info for us

@Ravindra Gandhe I am also in SoCal. As for scaling, I do feel that there is a ceiling when doing it on your own. Getting creative does help. Risk tolerance and work ethic is the hidden factor that can set you apart.

For example, I have not yet used OPM, but I am trying to learn and do it. I have only been using my money. Timing has worked out because of real estate growth and low interest rates.

I too use 25 - 30% DP... my money. But because of the above, I have been able to purchase 4 properties in the last year, totalling 24 units. To be clear, I pulled 150k equity from my house, had 50k in savings. Bought two 3plexes at 25% DP each. Asking was about 385k each, I negotiated to 357k each.

Fast forward a few months, pulled equity, purchased an 8plex for 700k. It only appraised for 660k but the hidden value was in the details. I paid the additional 40k so I can take over an apt that is government subsidize. That 40k is to get to know the director of the program. Fast forward another 2 months, I'm now closing on a 10plex A FEW BLOCKS from the 8plex.

So let's add it all up monthly cash flow...

two 3plexes = 2000

8plex = 3500... will be 4200 shortly

10plex = 3500... will be 5000 shortly.

I have other properties with good cash flow as well, but not that multiplicity. The key component was my risk tolerance. I invest in the outskirts of Los Angeles county. I have had 100% occupancy. I feel it will always be 100%. I do my own management and most repair. It's an hour each way. I have a full time job. I hustle my butt off and I drag my 3 little kids with me to see it. It's a way to instill work ethic. I have a 5 year goal to grow to 100 units and build a management team so I can be free with at least 30k cashflow per month. I would like to begin to use OPM because I think I only have a few deals left in me with my own money.

It all started when I accidentally clicked on a bigger pocket video 18 months ago. It took me down the rabbit hole of youtube. I'm a refugee from Cambodian jungle and came to America about 30 years ago with 0 in my pocket. If I can do it, anyone can. And education is free so there is nothing to hide. Sharing can open up even more opportunities.

@Sam Yin first of all, I have visited Cambodia and was blown away by it and it’s people as I traveled from Siem Reap to Phnom Penh.

And I'm impressed with your story and your recent REI growth in Cali.

I’m wondering what outskirts you focused on and why? And how did you go about tapping your equity to rinse and repeat for those additional doors?

Did you use a line of credit or a cash out refi in advance of your search or after you had a deal in your sights?

@Craig Borzelliere great to hear that you have visited Cambodia... not many people even know where it is and about the genocide of the 70s and 80s.

I did a cash out refi on my primary and put of 2 SFR rentals. The cash out refis were costly but in the long game, worth it. It cost about 20k on my primary, and a total of about 30k for the rentals. I felt it was the only way at the moment to seize the opportunity to grow since I was stagnant for a decade.

I can go into detail if you want to hear, but the short of it is that 99% of the costs were built into the refi. The new loan payments still left me with some positive cash flow on top of the money to invest. I refied the rentals first to buy two 3plexes. Then I refi the primary house that was 3 yrs into a 15yr loan to buy the 8plex while actually dropping my mortgage by 1000/month going from 15 to 30 yr. Then, after all that, I re-refied to buy the 10plex.

As I'm typing this, I'm starting to get confused myself... it would take detailed explanation to clear it all but I think you get the gist. I still have about 300k in my house to tap into. The rental properties all have between 30% to 50% equity in them, amounting to about another 2M. This is why I still feel comfortable repeating but i know it will end soon.

As for where, I focus in San Bernadino County. I have lived there before and I know the area well. For example, Ontario is a growing area, likely to surpass Los Angeles in near future growth because of the availability of space, an international airport, and the crossroads of major freeway corridors. Take a compass and draw a 30mile radius. Within that circle is the arena. People usually tolerate upto a 30 mile drive to get cheaper housing and stay close to work.

I can go on and on, but I'm very new to this and I'm sure people can pick me apart. I'm learning everyday and I try to listen to bigger pockets podcasts from the past to get tips. I have now officially been in this arena for just over a year and I have enought income to quit my job, but I wont. I need my job to accelerate to 5x in 5 years.

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