Snowballing Real Estate Strategy

[Michael Lopez]

I have heard of a snowball strategy of paying off rental properties that can speed up the number of doors you can acquire over time. Can this strategy work with partners in which 2 - 4 people put in enough to purchase the first rental then implement the strategy moving forward utilizing the rental income and equity? Can something like this work and has anyone ever heard of such a thing?

For example: 4 people put in equal amounts to purchase a $200000 property in which $2000-$2200/mn rent can be collected. How can we make this strategy work moving forward now that we have a $200k property paid off and collecting monthly rent. We obviously have to take into account monthly fees for the property such as maintenance, CAPX and so on. Can this work? Thoughts?

[Chris Seveney]

@Michael Lopez

While it’s not a bad idea - having leverage on properties is not a bad thing in a low interest rate environment. If you put 25- 40% down and financed 60-75% on $200k properties you would be able to acquire more properties. If you can earn more than the rate you are paying then it’s worth it to take on some leverage but always be careful not to over leverage