Zero To 100 Doors - But How?
Hi all,
I currently have a 2 unit and will be hopefully acquiring a second 2 unit this year or a short term rental in a ski town. Still deciding which route to go. The STR looks more attractive from a cashflow perspective.
I have been a licensed agent helping investors buy cash flowing real estate for just over 7 years in the RI market. Many of my friends have turned into investors and it’s great to see so many people build their real estate portfolio.
Now I want to build a large portfolio of my own. The question is how do investors scale so fast. I know the answer is to raise capital but my question is about structure and mistakes to avoid.
What are some common ways people structure partner deals when raising capital to build a portfolio? I am assuming both go on title as a joint venture and cashflow is split monthly depending on the percentage of ownership agreement.
What are some best practices about partnerships?
What are some important mistakes to avoid?
What are reasonable percentages on deals?
Hopefully this post can open conversation and help some investors who want to turn their small portfolios into larger ones.
My opinion is that it's not a good plan to focus on # of doors. Talking about the # of doors you own will give you some bragging rights at a dinner party. Or it'll give you a great title for your next blog post. But in real life, the # of doors you own alone is kind of a meaningless metric.
Instead focus more on buying quality properties, in strong locations, with a long term strategy in mind.
Regarding your question around raising money, you should start having conversations with various local lenders, other local investors, and high-net-worth people in your network. Share with them some potential deals you have in mind and your investment goals. Start to get a feel for who has money to deploy and who has an appetite for investing with you.
I have this question as well and I am pretty sure I know the answer. The investors who are scaling quickly are able to syndicate and get multiple private investors, have a healthy amount of good deals being brought to them first, and are actively investing in multiple areas - with boots on the ground in each area.
This is what I believe but I am not sure since I havent done it. For me the first step once I need to scale is finding one private lender that trusts me and is willing to invest in what I say is a good deal. Even with just one private lender, if you are actively searching for deals, you could probably get around 20 deals / year in my opinion.
There's always more to the story when it comes to the scaling quickly stories. Details seem to be left out...rich parents, spouse that has a high paying job, crappy equity splits on partnerships, being leveraged to your eyeballs, etc. Call me old fashioned, but I still think that slow and steady wins the race. And as mentioned above, number of doors is the wrong goal. That's like focusing on number of customers or top line revenue as a business. What are your unit economics, gross margin, and free cash flow?
I am a fan of short term rentals because they get you to the next property faster than anything else that I am aware of, but those are also very expensive to start and difficult to do well. You can't go into a project strapped for cash. The basic renovation and proper furnishing is very tedious, stressful, and expensive. You spend a boat load of money before you make a dime of revenue. If you happen to find a market that offers furnished places, that likely means that it is a pretty mature market and/or the current owner knows the STR value or what it can do in annual gross rents. You need to find the unsuspecting home owner that has no idea what their place could do on short term rental platforms.
Quote from @Christopher Lynch:
Hi all,
I currently have a 2 unit and will be hopefully acquiring a second 2 unit this year or a short term rental in a ski town. Still deciding which route to go. The STR looks more attractive from a cashflow perspective.
I have been a licensed agent helping investors buy cash flowing real estate for just over 7 years in the RI market. Many of my friends have turned into investors and it’s great to see so many people build their real estate portfolio.
Now I want to build a large portfolio of my own. The question is how do investors scale so fast. I know the answer is to raise capital but my question is about structure and mistakes to avoid.
What are some common ways people structure partner deals when raising capital to build a portfolio? I am assuming both go on title as a joint venture and cashflow is split monthly depending on the percentage of ownership agreement.
What are some best practices about partnerships?
What are some important mistakes to avoid?What are reasonable percentages on deals?
Hopefully this post can open conversation and help some investors who want to turn their small portfolios into larger ones.
Get around people that are doing what you want to be doing. First focus on your long term goal and what is a good deal. If you have a good deal and you have the network you can figure the rest out later.
- Conner Olsen with The Moorhead Team
- 702-521-0034
- [email protected]
@Christopher Lynch why 100 doors? For ego or for something else. Focusing on door count misses so much. 100 one bed units in class D won't be nearly as good as 50 three bed units in class B. For scaling you have to have two things capital and deal flow. Having one without the other is not ideal unless like you can sell off the deals to raise capital. If you are looking to really scale find value add properties and use the equity through sales/ financing to acquire more properties.
However if you have capital and deal flow and start to scale if you don't have systems and teams you are just scaling a headache to turn migraine. Move at a speed that works for you and you can manage.
Lastly IMO if you have 100 doors with a 25% equity you really only have 25 doors. It would be no different then buying into a syndication that has 500 doors and saying you have 500 doors when in reality you only have a percentage of ownership. Figure out the path and plan that you want. If you want to be completely passive go that route if you want control go that route.
Quote from @Scott E.:
My opinion is that it's not a good plan to focus on # of doors. Talking about the # of doors you own will give you some bragging rights at a dinner party. Or it'll give you a great title for your next blog post. But in real life, the # of doors you own alone is kind of a meaningless metric.
Instead focus more on buying quality properties, in strong locations, with a long term strategy in mind.
Regarding your question around raising money, you should start having conversations with various local lenders, other local investors, and high-net-worth people in your network. Share with them some potential deals you have in mind and your investment goals. Start to get a feel for who has money to deploy and who has an appetite for investing with you.
Wished I would've read this a year ago.. I've made so many mistakes thinking "doors" are the answer. They are to some degree, but quality is better I find.
Quote from @Chris Davidson:
@Christopher Lynch why 100 doors? For ego or for something else. Focusing on door count misses so much. 100 one bed units in class D won't be nearly as good as 50 three bed units in class B. For scaling you have to have two things capital and deal flow. Having one without the other is not ideal unless like you can sell off the deals to raise capital. If you are looking to really scale find value add properties and use the equity through sales/ financing to acquire more properties.
However if you have capital and deal flow and start to scale if you don't have systems and teams you are just scaling a headache to turn migraine. Move at a speed that works for you and you can manage.
Lastly IMO if you have 100 doors with a 25% equity you really only have 25 doors. It would be no different then buying into a syndication that has 500 doors and saying you have 500 doors when in reality you only have a percentage of ownership. Figure out the path and plan that you want. If you want to be completely passive go that route if you want control go that route.
100 Doors is just copywriting to get the interest of people to click the post and engage in conversation. The 100 doors do not matter. The meat and potatoes of my questions is how you grow a large portfolio with limited cash.
Quote from @Christopher Lynch:
Quote from @Chris Davidson:
@Christopher Lynch why 100 doors? For ego or for something else. Focusing on door count misses so much. 100 one bed units in class D won't be nearly as good as 50 three bed units in class B. For scaling you have to have two things capital and deal flow. Having one without the other is not ideal unless like you can sell off the deals to raise capital. If you are looking to really scale find value add properties and use the equity through sales/ financing to acquire more properties.
However if you have capital and deal flow and start to scale if you don't have systems and teams you are just scaling a headache to turn migraine. Move at a speed that works for you and you can manage.
Lastly IMO if you have 100 doors with a 25% equity you really only have 25 doors. It would be no different then buying into a syndication that has 500 doors and saying you have 500 doors when in reality you only have a percentage of ownership. Figure out the path and plan that you want. If you want to be completely passive go that route if you want control go that route.
100 Doors is just copywriting to get the interest of people to click the post and engage in conversation. The 100 doors do not matter. The meat and potatoes of my questions is how you grow a large portfolio with limited cash.
You grow it by adding value. Either by finding deals and bringing on partners or taking down deals solo and creating value. It isn't complicated, but it isn't easy either. If you change the thinking to capital instead of cash it will help move the mind set to where you need to be to grow a portfolio. Either way you will have to find ways to add value to scale rapidly with limited funds.
Best of luck and keep moving towards your goals!
Doors do matter-
Contrary to opinion, doors do matter. If your intention is to be in real estate and grow a business that will include investors and partners then doors matter. Lenders, brokers and investors are more likely to be open to talk with someone who has some # of doors.
But to the investor who wants to be hands-free and not have active involvement then doors are irrelevant. Its about returns, diversification, and tax advantages, etc. whats the IRR, the equity multiple, and how long is the hold? will they 1031?
And yes if someone has 100-500-1000 doors unless their a Rockafeller, they are in a syndication either as Limited Partner or General Partner and share in the ownership.
I think the bigger question to investors should be- Can I leverage someone else's expertise to access a high-growth market, participate in a project with conservative underwriting behind it, and get a strong return for my investment?
The LP route allows an investor to learn the process, see the Investor deck and know why the operator wants to acquire the particular asset. They should see the experience of the operator and their performance record. They will see tons of market data and comps. The business plan will include how the asset is financed and planned hold period. They will also see what returns the project is going to payout. All before making an investment decision. Lastly they will see the Private Placement Memorandum and the operating agreement. All part of the process.
In talking with investors they want to hear about the deal, the financing, how its being acquired, the team and their track record. not about # of units.