How do I responsibly scale cash flowing investments?

4 Replies

I've consumed dozens of BiggerPockets podcasts and blog posts and am stumped on a big question: How do I responsibly scale up a passive portfolio to the level that would replace my income. Let me explain my situation: my wife and I, both in our mid-30's, are pretty well paid and motivated professionals but also want the freedom to engage in work on our own terms as we get older. To me that means achieving something like financial independence in about the next decade. 

Last year, I purchased a solid duplex that's cash flowing a healthy $500 after mortgages and expenses- it's going great and now have the confidence to start to scale up. What I can't figure out is, long term, how to get the funds I would need to scale my portfolio to a point that would replace our income in what I think is a pretty generous time horizon (10 yrs). By my calculations at our current cashflow level, we'd need 20 duplexes to pay our expenses (that's living pretty simply with a family in Boston). Each decent (turnkey) duplex in my investment market (Upstate NY) requires about $80K for initial investment (down payment and reserves), which is a lot more than I, or most people I'm guessing, can save in 6 months. I realize I could dip into equity I have, but interest to service that debt wipes out the cashflow. I don't have a construction backgrounds and am investing out of state so rehabs aren't appealing to me.

When you read or listen to BP, it seems that getting to financial independence isn't all that rare. How are people getting the capital without wiping out their cashflow? What other strategies should I explore that won't be too risky? 

@Rob Gifford

I buy properties at a discount and then improve their value and cash flow in order to build equity. I then tap into that equity via cash out refinances, Home equity lines of credit, or 1031 exchanges to expand my portfolio.

I also save the cash flow I get from my properties as well as a portion of my pay from my job to further finance my real estate.

There are other ways to expand that are faster, but momentum builds over time.

The quickest way to scale is by not using your own money. Find motivated sellers. Wholesale to cash buyers. Do sandwich lease options. Fix and flip with JV partners. Do long-term buy rent and holds with JV partners. Use the income-generating strategies to pay down your long-term rentals as quickly as possible. Buy out your rental JV partners after 3 to 5 years

The goal is to get all your rentals to mortgage-free status. That's how you can replace your income. You can also invest in other long-term strategies but rentals have the best leverage.

@Jim Pellerin @Anthony Gayden I'll look into these options. What I'm taking from both your responses is that I may need to think more creatively around financing and partnerships. JV's are an interesting suggestion. I might be able to find a partner to offset my lack of boots on the ground to ensure a rehab goes a bit more successfully. Thank you!

@Rob Gifford

I would agree with @Jim Pellerin

Finding a fixer-upper and performing a remodel allows you to force appreciation and add value immediately. For these you may need to take on a capital partner. It does take money to make money and create wealth for the most part. It doesn't always have to be your money.

Would love to have a conversation with you about your experiences and business. Please feel free to reach out to me and schedule a call. Best of luck in all your endeavors.

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