Which real estate investing path? 1, 2 or 3?

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Which real estate investing path? 1, 2 or 3?

Jared Smith
Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes

Do you recommend...

1. continuing to grow slowly by acquiring 1-2 properties each year.

2. start paying off properties.

3. go all in buying 1 property per month?

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Stone Jin
Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
6y
Originally posted by @Jared Smith:

Do you recommend...

1. continuing to grow slowly by acquiring 1-2 properties each year.

2. start paying off properties.

3. go all in buying 1 property per month?

We've been practicing 1 and 2 for the last 10 years and it's pretty amazing when you look back at the wealth that was created with a little luck, a little sweat and a little patience.

Good to see another OHIO and ARIZONA investor. 

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  • Blake Harris
    Kansas City, MO · Member since 2020 · 35 posts · 10 votes
    6y

    @Jared Smith

    Are buying rentals, or are you buying flips?

    1Reply
  • Ujwal Velagapudi
    Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
    6y

    If you have the experience, capital (or leverage), and team (contractors, PM, time, etc.) to purchase 1 rental a month (or more), then do it if the deal checks out with your analysis! If not, then get those things in alignment first to have a solid foundation to take off from. 

    1Reply
  • Matt Lowry
    Member since 2020 · 5 posts · 4 votes
    6y

    Of course there are a lot of factors, like: your systems in place, ability to purchase multiple properties fitting your established criteria, funds or loans available etc.  I tend to go the slowly but surely route.  As time goes on, my systems are improved, my comfort level grows, and I am able to pull the trigger faster, as I learn to recognize what fits my goal easier.  Some guys have a higher risk tolerance than me.  So I am personally a number 1.

    1Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Jared Smith

    Neither! Go big and start buying commercial.

    Just kidding. Probably 1 because it seems to be the most realistic. I’d shoot for number 3 as my goal though.

    1Reply
  • Filipe Pereira
    Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    This is sort of impossible to answer because it's so situational. 

    In my situation I am going the route of 1. continuing to grow slowly by acquiring 1-2 properties each year. 

    My goal is to have 1 million worth of paid for real estate by 35. My plan is to buy about 1 mil of real estate by 30, then spend 30 to 35 paying off the mortgages from the cashflow that is generated off the rentals.

    Of course that's subject to change. For example - if we continue to have rates in the low 3s when I'm in my early 30s, I don't think I'll be paying down those mortgages. Seems a bit foolish, because rates won't be this low forever. 

    2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    6y

    It depends, I would do 1 and 2. Maybe not pay them off but hold between 30-60% leverage on each one. If you can find that many deals to buy once a month - then great but I find many people and companies grow too fast and then end up getting in trouble. REmember most businesses do not go out of business because of profitability - they go under because of cash flow.

    Just my 2 cents. 

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  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Blake Harris:

    @Jared Smith

    Are buying rentals, or are you buying flips?

    Blake, I am a buy and hold long term investor in both Cleveland, OH and Arizona. I currently have a portfolio of SFH, Small MFH and have bought turn key and have done complete gut job/renovations.

    0Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Ujwal Velagapudi:

    If you have the experience, capital (or leverage), and team (contractors, PM, time, etc.) to purchase 1 rental a month (or more), then do it if the deal checks out with your analysis! If not, then get those things in alignment first to have a solid foundation to take off from. 

    Ujwal, great points! I have the team in place but have run out of financing. My current strategy has been to work my W-2 Career and build that which allows me to qualify for loans and grow slowly each year. After building my new construction in Scottsdale, I am near my peak on debt to income ratio. I also have been self-financing through my HELOC which has proved beneficial over the years at 4.18%. I am now more of an opportunist and will wait for the right deal but I need to build some relationships with private money/hard money to continue to grow at a much faster clip. Over the past 8 years my REI journey has evolved and changed but one thing remains - buy in a great location and never sell*

    I personally feel like I am in a very crucial point in my life where I can live comfortably juggling both or really set myself up for long term wealth to take care of my parents, family and give back etc. Also curious on people that go into FT REI and what their number is in cash flow each month to walk away from a FT Career?

    1Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Matt Lowry:

    Of course there are a lot of factors, like: your systems in place, ability to purchase multiple properties fitting your established criteria, funds or loans available etc.  I tend to go the slowly but surely route.  As time goes on, my systems are improved, my comfort level grows, and I am able to pull the trigger faster, as I learn to recognize what fits my goal easier.  Some guys have a higher risk tolerance than me.  So I am personally a number 1.

    Matt, I appreciate your feedback and agree with it! For the last decade I have maxed out my 401k/Roth IRA's and then invest everything else into real estate. My risk tolerance is extremely high, so once a property fits into my criteria I find a way to make it happen through the leverage of my own properties/HELOC. I am now at a point where Funds/Loans are the obstacle holding me back from more than 1-2 properties each year. Curious on how you get your financing and if 8-10% is about right? Thanks!

    0Reply
  • Matt Lowry
    Member since 2020 · 5 posts · 4 votes
    6y

    Thanks Jared!  You are already past my numbers, and hitting an issue that is still around the corner from me.  My business is primarily building and selling new homes.  The majority of my holdings are unimproved residential lots.  I have a few rental homes, and plan to grow it.  Many of them I have built with my own money, since I haven’t been able to find anyone to loan me money, in order to build my own rentals at a reasonable amount.  The homes I have purchased with loans have been few enough to stay within Fanny/Freddie guidelines.  I have just started to see what my future loans will look like.  I have been told I will be facing 8-10% but that’s was talk, and that talk was before the pandemic stresses on the market.  My current homes have been 4.25 to 5.25 since they are still fitting under the Fanny/Freddie programs.  Congratulations!  I hope to be finding enough good deals that meet my criteria to have your current problem, some day!

    1Reply
  • Steven Ko
    Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
    6y

    I’d see how much money I have in my bank account before I’d pick an answer. Most likely that will determine your answer

    2Reply
  • Blake Harris
    Kansas City, MO · Member since 2020 · 35 posts · 10 votes
    6y

    @Jared Smith

    I would say one a month... if you are finding a deal that works with your goals and you have the money to fund it (plus the reserves). One might argue that you could be leveraging yourself up to your eyeballs, but if you know the market, the trends, the vacancy and prepare for the worst, then go for it. What's being an entrepreneur or an investor without risk.

    1Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Matt Lowry:

    Thanks Jared!  You are already past my numbers, and hitting an issue that is still around the corner from me.  My business is primarily building and selling new homes.  The majority of my holdings are unimproved residential lots.  I have a few rental homes, and plan to grow it.  Many of them I have built with my own money, since I haven’t been able to find anyone to loan me money, in order to build my own rentals at a reasonable amount.  The homes I have purchased with loans have been few enough to stay within Fanny/Freddie guidelines.  I have just started to see what my future loans will look like.  I have been told I will be facing 8-10% but that’s was talk, and that talk was before the pandemic stresses on the market.  My current homes have been 4.25 to 5.25 since they are still fitting under the Fanny/Freddie programs.  Congratulations!  I hope to be finding enough good deals that meet my criteria to have your current problem, some day!

     Matt, you got it! You will definitely get there. Just keep plugging away. Going slower allows you to minimize any mistakes and learn without losing money. My rates are 3.5% to 5.5% in my loans and trying to decide if it makes sense to refi the 5.5% loan. I currently have all my loans from big banks now so looking ahead to keep up I can either network with private/hard money lenders or pay off properties to free up my debt to income ratio. This seems to be the safest route but having access to more capital will give more opportunities in the future. Best of luck to you!

    0Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Steven Ko:

    I’d see how much money I have in my bank account before I’d pick an answer. Most likely that will determine your answer

     Steven, is there a specific dollar amount that you personally go off of before purchasing another property?

    0Reply
  • Joseph CacciapagliaBusiness Member
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    If your biggest issue is financing, because of your DTI, why not move up to larger multifamily? Once you're buying 5+ unit properties, the underwriting changes, and your W2 income becomes much less important. Lenders will look more at the property and to your net worth, liquidity, and track record.

    [email protected]979-218-2286
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    1Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Nick Rutkowski:

    @Jared Smith

    Neither! Go big and start buying commercial.

    Just kidding. Probably 1 because it seems to be the most realistic. I’d shoot for number 3 as my goal though.

    Nick, thanks! The snowball effect is real. I started with a triplex and house hacked. Then I learned property management, learned every part of the real estate transaction, got my RE license and went from 1 property per year to 2 properties each year. I still feel like I am a small time REI but always looking 5 years out and mapping my behaviors/actions to achieve that. Best of luck to you!

    0Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Filipe Pereira:

    This is sort of impossible to answer because it's so situational. 

    In my situation I am going the route of 1. continuing to grow slowly by acquiring 1-2 properties each year. 

    My goal is to have 1 million worth of paid for real estate by 35. My plan is to buy about 1 mil of real estate by 30, then spend 30 to 35 paying off the mortgages from the cashflow that is generated off the rentals.

    Of course that's subject to change. For example - if we continue to have rates in the low 3s when I'm in my early 30s, I don't think I'll be paying down those mortgages. Seems a bit foolish, because rates won't be this low forever. 

    Filipe, that sounds like a good plan! I am 34 and my REI journey has taken me many different directions and places! OH-AZ. I have a growth mentality and my risk tolerance is extremely high, although I take very calculated risks. Looking back I focused on Location and Appreciation - now looking at cash flow to balance out my portfolio and diversify so I don't need to sell off any of my properties. Stay in touch and let me know how your journey goes!

     

    1Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Chris Seveney:

    It depends, I would do 1 and 2. Maybe not pay them off but hold between 30-60% leverage on each one. If you can find that many deals to buy once a month - then great but I find many people and companies grow too fast and then end up getting in trouble. REmember most businesses do not go out of business because of profitability - they go under because of cash flow.

    Just my 2 cents. 

    Chris, Thank you very much! I have the luxury of time and have been putting much thought into this. I don't want to go "broke" from great deals and focusing on more cash flow is my next move. I was looking at an AirBnB property in AZ but my gut told me it was too seasonal and then Covid hit so I am thankful I did not purchase that one! I do believe there could be some unique opportunities in the next 2-4 months. 

    Cash flow is the reason I am debating paying some of them off, it will lower my debt to income ratio as well and position myself better in a few years but won't be able to capitalize on BIG opportunities. My interest rates are 3.5 - 5.5% and my lowest balance is 84k. 

    I built my portfolio out of Class A & B properties and only bought where I would personally live and feel comfortable walking around the block at night. Just like anything, I want to have a great vision/plan and then be able to pivot fast when needed.

    Thanks for your input and let me know on what I mentioned to give a little more context.

    0Reply
  • Jared Smith
    OP
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    6y
    Originally posted by @Joseph Cacciapaglia:

    If your biggest issue is financing, because of your DTI, why not move up to larger multifamily? Once you're buying 5+ unit properties, the underwriting changes, and your W2 income becomes much less important. Lenders will look more at the property and to your net worth, liquidity, and track record.

    Joseph, that is a good point! I have specialized in SFH and Small MFH 2-4 plexes. That is where I have all of my experience, knowledge and expertise. I am starting to dive deeper into larger MFH, but don't want to bite off more than I can chew. Also I am self managing 10 units so I like to deal with Class A & B Tenants that require minimal headaches and I always make sure all properties cap/ex etc is top notch which also helps.

    How did you get started in MFH 5 units and larger?

    0Reply
  • Joseph CacciapagliaBusiness Member
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Jared Smith:
    Originally posted by @Joseph Cacciapaglia:

    If your biggest issue is financing, because of your DTI, why not move up to larger multifamily? Once you're buying 5+ unit properties, the underwriting changes, and your W2 income becomes much less important. Lenders will look more at the property and to your net worth, liquidity, and track record.

    Joseph, that is a good point! I have specialized in SFH and Small MFH 2-4 plexes. That is where I have all of my experience, knowledge and expertise. I am starting to dive deeper into larger MFH, but don't want to bite off more than I can chew. Also I am self managing 10 units so I like to deal with Class A & B Tenants that require minimal headaches and I always make sure all properties cap/ex etc is top notch which also helps.

    How did you get started in MFH 5 units and larger?

    Early in my career I worked as an acquisitions analyst for a large multifamily REIT, and then later I worked on the financing side of commercial real estate. That's where I developed my basic understanding of the asset class. I bought my first 10 unit property several years ago with 2 partners. I put the deal together, and then brought them in for both equity financing and to run the management side. I always like to bring in more experienced and better capitalized partners when I'm stretching. I don't have a large portfolio of my own, as I had to liquidate almost all my properties when I was sick and out of work for several years (I didn't have even close to enough to live off of the cash flow yet). I've really only been back at it for a year and a half. At the moment, I spend a lot more time working as a buyer's agent for multifamily investors than I do investing on my own account.

    [email protected]979-218-2286
    Joseph Cacciapaglia powered by Morty
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    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    @Jared Smith

    Option 1

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    6y

    Figure out your end goal and work backwards.

    1Reply
  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    @John Morgan

    Do you really live in Grand Prairie, Texas? I actually currently own 128 units in that fair city! It was supposed to close several weeks ago and fell through at the end.

    @Jared Smith

    Here is a new thought on your choices:

    Buy one home a day for 30 days and speed up the process. I actually accepted a challenge approximately 10 years ago to try and buy one home a day for 30 days. I came close! I relocated to southern Texas for the effort. Great state to buy real estate!

    1Reply
  • Alan Crookham
    Flipper/Rehabber · Dubois, PA · Member since 2018 · 27 posts · 12 votes
    6y

    @Jared Smith personally I have been doing the slow acquisitions, number 1. I am a big believer in not over extending and putting myself at unnecessary risk. However, like others here have said, once there is a really solid foundation in place and you have a strong structure, teams, finances, etc..., you could definitely ramp it up.

    1Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    6y
    Originally posted by @Jared Smith:

    Do you recommend...

    1. continuing to grow slowly by acquiring 1-2 properties each year.

    2. start paying off properties.

    3. go all in buying 1 property per month?

    We've been practicing 1 and 2 for the last 10 years and it's pretty amazing when you look back at the wealth that was created with a little luck, a little sweat and a little patience.

    Good to see another OHIO and ARIZONA investor. 

    3Reply
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