How people scale at a fast rate

Member since 2021 · 27 posts · 5 votes

I realize using the BRRR strategy and pulling equity to reinvest is one of the best ways to scale, but I often read success stories that don't add up to me. If you're starting with very little money and it takes 6 months to cash out refi wouldn't the max be 2 in the first year assuming you used most of your capital on the first one? Obviously you could end up with more equity pulled than you began with but I often see extreme numbers of units in a short time frame and have yet to figure out how?

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Owen DashnerPro Member

Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes

The fastest way to scale with limited capital is to become the deal finding expert, then partner with others for the capital and/or management once you get them under contract.

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Owen DashnerPro Member
Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
4y
The fastest way to scale with limited capital is to become the deal finding expert, then partner with others for the capital and/or management once you get them under contract.
9 Reply
Jon KellyPro Member
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Brandon Montgomery you can find smaller/local lenders that will let you cashout refi in 3 months or less.

If you don't want to BRRRR you can consider three other options:

1. Seller financing

2. Using Other People's Money (hard / private money lenders)

3. Partner with others as @Owen Dashner mentioned. You need to add value to the arrangement, so maybe you are the one that finds the deal, becomes the property manager or puts in sweat equity to fix up the property.
There's no perfect method. You can do all of the above. Just get started. 2 BRRRRs per year is better than 0.
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
4y
@Brandon Montgomery Some good advice in already but don't forget the time scale. Some of those investor stories happened years ago when prices were cheaper, and deals could be found all over the place. A lot of the successful investor that are interviewed on the BP podcast are proof of that. As investors in 2022 we have little chance acquiring properties at that rate. If someone tells you otherwise they're either buying skinny deals, leveraging to the moon, or a combination of both. I'm not entertaining any of that.

There is no perfect strategy. In my opinion (given this market) most buying strategies used from 2010-2015 don't work. Flipping, STR, or buy/hold at break even cash-flow seems to work in my market. Let that sink in, process it, and accept or reject it. It doesn't really matter. All that matters is you're happy with the numbers, have confidence in the market, and got into the game! Time in the market can be just as important as location.
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Stephen Brown
Real Estate Broker · Huntsville, AL · Member since 2019 · 1k+ posts · 872 votes
4y
One way to go is to buy a lot of cheap properties in cities like mine, fix them up with a partner who has a lot of cash and rent them out. Afterwards you get a portfolio loan on them and go to larger units. That's what people do here at least.
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Malcomb StapelPro Member
Investor · Topeka, KS · Member since 2020 · 669 posts · 488 votes
4y
Quote from @Brandon Montgomery:

I realize using the BRRR strategy and pulling equity to reinvest is one of the best ways to scale, but I often read success stories that don't add up to me. If you're starting with very little money and it takes 6 months to cash out refi wouldn't the max be 2 in the first year assuming you used most of your capital on the first one? Obviously you could end up with more equity pulled than you began with but I often see extreme numbers of units in a short time frame and have yet to figure out how?

No, the max would not be two. There are so many variables here that it would be impossible to list them all, but the following are things that you should be looking at.
1. Loan product - nothing is going to stretch your dollars more than the appropriate loan product. If your doing 20% conventional and you find a lender that can do 10% plus 10% of repairs, your essentially doubling your buying power with the same capital. Or if you can get into a 5% or 3.5% down product (but those are less competitive in the current market).
2. Buying the right deals - if you bog yourself down from day one buying a low performing deal, or one that doesn't carry a lot of equity coming in, your going to stall for a while. The right deal could be flipped or refinanced for a big cash infusion, which can then be used to fund more deals.
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Larry Turowski
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
4y
@Brandon Montgomery For most, real estate is a get rich slowly thing, but still exponential.

Let's say that by cashing out a bit more than you started with and by saving all the cash flow you are able to do one more then for every 4 houses you have (fractions discarded). For instance, if you had 4-7 houses, the extra money you pocketed from the rehabs and from cash flow you were able to BRRR 2 with your original money and another from your new money. But with 8 houses you'd be able to do a total of 4 BRRRs the next year.
I know that this misses some details. And I won’t show all the math but here is how many houses you’d have at the end of each year.
1, 2
2, 4
3, 7
4, 10
5, 14
6, 19
7, 25
8, 33
9, 43
10, 55
11, 70
12, 89
13, 113
Thirteen years to have over 100 houses. Some hand waving for sure but it gives you the general idea of how things can grow.

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Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
4y
Quote from @Larry Turowski:

@Brandon Montgomery For most, real estate is a get rich slowly thing, but still exponential.

Let's say that by cashing out a bit more than you started with and by saving all the cash flow you are able to do one more then for every 4 houses you have (fractions discarded). For instance, if you had 4-7 houses, the extra money you pocketed from the rehabs and from cash flow you were able to BRRR 2 with your original money and another from your new money. But with 8 houses you'd be able to do a total of 4 BRRRs the next year.
I know that this misses some details. And I won’t show all the math but here is how many houses you’d have at the end of each year.
1, 2
2, 4
3, 7
4, 10
5, 14
6, 19
7, 25
8, 33
9, 43
10, 55
11, 70
12, 89
13, 113
Thirteen years to have over 100 houses. Some hand waving for sure but it gives you the general idea of how things can grow.

This was my thought. Don't turn your nose up at 2 in the first year. The stack is powerful.
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Malcomb StapelPro Member
Investor · Topeka, KS · Member since 2020 · 669 posts · 488 votes
4y
@Larry Turowski hit the nail on the head. At some point, your going to have enough cash flow coming in to pick up another property every X number of months. Timeline wise this could work out really well, especially if you are buying value add properties. It would give you the time to turn one and get it leased up, but also start looking for the next deal when your a month or two out from the projected finish date. That way you've always got something cooking.
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Brandon Montgomery
OP
Member since 2021 · 27 posts · 5 votes
4y
@Owen Dashner I have pondered this as well. What is an example of a partnership in an eventual rental look like percentage wise? Or would you just structure the deal to where they are your lender and you pay them interest after the refi? To be clear I used a HELOC on my primary for the down payment/rehab on my first deal and we are getting close to the refinance now. I'm just trying to gauge ideas for the next deal/deals so I appreciate the info for sure!
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Brandon Montgomery
OP
Member since 2021 · 27 posts · 5 votes
4y
@Jon Kelly absolutely! We are in the rehab of our first one now and used a HELOC on our primary to fund the down payment/rehab and will refi in June which will free up the heloc to be redistributed in other deals. My hold up is if we keep breaking even (which we will most likely do on the first one) when we would eventually get to multiple deals, but I didn't take in to consideration the cash flow of the first two being added to the original funds. How would/could a potential partnership in a deal look percentage wise? I've thought about this a lot but have yet to come up with something that would make sense to both parties in order to bring it to someone with the funds.
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Eric Gerakos
Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
4y
Keep in mind that most of the time when someone claims they went from 0 to “2,000 doors” in a year they really don’t own 2,000 units. They bought into a syndication and only have a small percentage of ownership. Always keep in mind that the goal isn’t to quickly build a highly leveraged stack of cards that can be toppled by a single unexpected expense. The goal is to have every property you own make money.

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Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
4y
There's plenty of ways to scale quicker, that strategy being one of them. Another common strategy to scale quicker is syndication or leveraging OPM. That's how I scaled.
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Brandon Montgomery
OP
Member since 2021 · 27 posts · 5 votes
4y
@Larry Turowski this is extremely reassuring! I guess I never worked out the amount of math it takes to get the full picture. The stories you read or hear on bigger pockets are the "24 properties in 2 years using the BRRRR method" and it never quite gives you the full story or how much seed money they started with. I'm not in any way trying to rush my way in to being over leveraged, it was just more of a curiosity thing than anything else. My wife and I are a one income household (stay at home mom), and while my income is really good, it would take a LONG time to save the kind of money it takes to buy houses for cash around here so a HELOC on our primary is where we landed and will be refinancing our first property in June to pay that off and redistribute. Where my math stopped was after we refinance we will have the exact same amount of money available that we started with, or maybe a little less depending on appraisal, but never took in to consideration the new cash flow on top of that so I really appreciate it!
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Jared HottleBusiness Member
Real Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
4y
Not all banks or loan products are created equal maybe for fannie and freddie loans that is the case but I have been using in-house loans from a local bank and cross-collateralizing the loans to tap into the equity created after a BRRR. No seasoning period and if you do it well. 1 great BRRR can provide equity for the next 2 which is how exponential growth starts happening. It still takes time and effort but definitely can do more than 2 a year. Personally, I would talk to as many local institutions as possible and explicitly let them know what you plan to do and see what they say.
[email protected]319-288-5382
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Brandon Montgomery
OP
Member since 2021 · 27 posts · 5 votes
4y
@Jared Hottle are you using them for the initial purchase or using cash for the purchase and using them for the Refi? Also by cross-collateralizing you just mean using the first house as the collateral for the next correct? If you’re refi’d at 75% how do you have enough equity to do that?
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Jared HottleBusiness Member
Real Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
4y
@Brandon Montgomery cash down for first one. Yep use first house as collateral for next one.
All in purchase and construction line 85,000 so our loan was for 68,000 and the appraisal came back at 155,000. 75% puts us at 116,000 so the difference between 116,000 and 68,000 was enough downpayment for the next 2. Since then values have gone up a bit so hoping that'll help with the next couple
[email protected]319-288-5382
Jared Hottle Real Estate59 Reviews
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Bryce Bunton
Investor · Saint Louis, MO · Member since 2014 · 25 posts · 7 votes
4y
Quote from @Jared Hottle:

@Brandon Montgomery cash down for first one. Yep use first house as collateral for next one.
All in purchase and construction line 85,000 so our loan was for 68,000 and the appraisal came back at 155,000. 75% puts us at 116,000 so the difference between 116,000 and 68,000 was enough downpayment for the next 2. Since then values have gone up a bit so hoping that'll help with the next couple

Hey Brandon, this is similar to my story. We bought our first one with 20% down, and it took a while for it to build back up, but as it did and we strengthened our relationship with our small local lender, we were able to get into our 2nd one with 10% down instead of 20, our cash flow improved significantly and the market moved up (good timing).

We then bought 6 the following 2 years, 3 of them with 10% down, then we sold our very first one, did a 1031 and was able to use all proceeds and original 20% to turn it into 3 more. We have new leases and moved rents up and starting next month our cash flow will have more than doubled from where we were 12 months ago.

We also now have equity from appreciation in those properties our lender will let us use as collateral against new purchases. Like many others have said, it’s not a get rich quick system, but with the right places and buying right, the opportunity is there with patience and time. We purchased our first in summer of 2016, we’re nervous and patient for a couple years and then got rolling in 2019 through 2021. Now our cash flow from property has doubled our income allowing us to keep scaling if we want.

we are also being patient and picky on what we buy right now. Deals are much tighter and more competitive to get. Start networking in FB groups in the area you want and messaging PMs or owners trying to get places rented and see if they have anything that people are wanting to sell. I’ve had some luck doing that too.
good luck
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Tanh Truong
Investor · Cincinnati, OH · Member since 2018 · 136 posts · 87 votes
4y
It's all about the fabled OPM (other people's money). When you find a good deal, the money will come.
1 Reply
John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
4y
@Brandon Montgomery
I bought 14 buy n holds over 7 years. 2 a year was about as fast as I could do. I bought 10 of them from cash out refis on properties that had some equity, including my primary. I even bought one with a 401k loan. Lol. I did whatever it took to scale up because of this major housing shortage.
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
4y
@Brandon Montgomery lots of good comments here. Like @Larry Turowski said sometimes people take a decade to become an "Instant Success"
But a serious question for you, "Why do you want to scale quickly?" Many scale quickly by taking risks and building a house of cards. Some people look like geniuses simply because they had the good fortune to chose the fastest growing market in a generation.
A large portfolio of rentals may look amazing from the outside but you don't know the hassles and troubles that person may have managing it and keeping it all under control. Many people sacrifice a great life to have a great business. It is not always a good trade off. If you are making the assumption that scaling big means a great life you might be wrong.
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Brandon Montgomery
OP
Member since 2021 · 27 posts · 5 votes
4y
@Ned Carey I just want to be able to be around for my family as much as possible. I love my W2 and wouldn’t want to do anything else (outside of having a sustained business of my own) but it takes me away from my family far more than I’d like to admit. I work for a power company so I’m on call a lot, which is why my first goal is to have enough cash flow to not be in the position I’m in now getting called in to work all the time or working over and missing the little bit of time my 8 month old is awake in the afternoons. Close to 50% of my income comes from overtime so I just want to replace that as quickly as possible, but I DO want to do it in a sustainable way.
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Larry Turowski
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
4y
@Brandon Montgomery How about a little dose of reality. I really like @John Morgan ‘s example. 14 houses in 7 years.
Yes, there are outliers. You could become an amazing wholesaler and generate lots of cash and buy 10 houses this year. You could develop a great relationship with a private lender, buy houses in rougher areas that cash flow really well and be able to pay that off in a few years or keep partnering and buy more. You may find some amazing deals on apartment complexes and partner with someone who can syndicate them in exchange for a percent cut (and then eventually do start doing it all in your own).
But what I love about real estate is that you don’t have to be one of the superstar outliers to do really well.
John Morgan, like me and most of us, doesn’t sound like he was lucky or a juggernaut of super driven ambition or super smart or had the right connections and relationships or had some sort of head start or lots of money. And yet here he is with 14 houses! People who have never bought one investment are probably amazed and think he is an absolute expert
I didn’t (and don’t) want something that I have to be an outlier in to be a success. I don’t trust myself to be an outlier. I want something that if I just keep working at it, it will work out. I have 40 doors now and have flipped dozens and dozens of properties. And I’m nothing special!
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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
4y
Many ways: Seller financing, private money loans, partnerships, syndication, having more money to buy multiple deals at once, doing a refi in less than 6 months, by using a local bank/CU, flipping/wholesaling to get more money, etc.
Also, don't get caught up in success stories. The only massive scale stories started with a ton of money, leaving out some details or straight up lying. It takes time to scale.
My first full year I was only able to buy 8 houses, through refinancing and finding private money, but by year 3, I did over 30 and now 14 years later, I buy 500+ units/year. Even now, I am not using only my money. We partner with our passive investors to buy.
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Scott KronePro Member
Investor · Northbrook, IL · Member since 2017 · 352 posts · 295 votes
4y
@Brandon Montgomery - When we structured our model, we didn't look at the "fast rate" model. We looked at the successful models built over time. The rapid growth models tended to include many that didn't last very long for one reason or another. The successful models withstood market corrections and recession/inflation. I find it interesting when people promote real estate as a get quick rich investment strategy. Going slower also insures you have the ability and systems to manage your portfolio.
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Paul MoorePro Member
Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
4y
Hi @Brandon Montgomery. A lot of investors jump straight into medium or even large scale multi family, typically with mentors or partners, to increase scale faster.
My mentor had over 100 individual single-family homes. He sold them all and started doing multi family. He said it was much easier to do two 100 unit apartments than 100 individual homes. And he got twice the scale.
It’s very hard and dangerous to start out in large scale multi family without mentors or partners. Some investors I know have moved over to other asset classes as a result. RV parks, mobile home parks, and self storage all are great options. Good luck!
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