Best way to scale ?

Question

Hey all, long time reader - first time poster.

I started investing in RE in late 2020 and have slowly built up portfolio and have bought 4 SFR (LTR ) + 1 Multi-Family LTR (~2.5K NOI per month) in Central Texas - all were turnkey - I self manage and live in California. All are 10% CoC or higher.

I have decided that I need to acquire at least 1-2 units per year and gradually build up - and eventually will have equity to deploy into other investments. I understand one way to go faster is to value add / take the BRRR route of course...

I have a long-term goal of achieving 20K passive income per month - and I understand this is considered $2M invested at a 10% CoC return. What are your thoughts on the most effective way to scale a portfolio?

Chris Seveney · Answer

@Pejmahn Choupani

There will be 1000 opinions on this as it really boils down to you. What I mean by that is what is your expertise. When you look at it from 30,000 feet- your question is how can I make more money. You can do this as being more active or being very passive. Typically you can scale faster being more active but is that what YOU want to do.  You are off to a great start. What I recommend you start with is brainstorming an afternoon and work through numbers to get there and work backwards.

So if your goal is $20k a month, let’s say you want it in 10 years - realistically it’s not $2k a year but may start out at $500 first year, $750 year 2 and scale to get there. Put it down on paper so you have that roadmap. During this you will also realize oh is it single family rentals, is it a MF building.

As a reminder real estate is not a sprint but a marathon and how you get there and how long it takes is not a zero sum game against competition- it what works for you.

Dan M. · Answer

BRRRR is the fastest but risky if your not 100% with your numbers, and the appraiser feels the same way. Its alot of work to manage contractors throughout the renovation process but it can be rewarding. You built a decent portfolio already, keep snowballing your income into more properties. If you saved that 2.5k per month, plus whatever your earning - living expenses you can buy another property in x amount of months depending on the purchase price.

You can take a 401k loan if you have one.

You can take out a HELOC if you own your primary residence and have equity.

You can cash out refinance if you own your primary and have equity.

You could partner up with someone who wants to make passive income. You do all the work and get some equity ( or 100% whatever you negotiate) in exchange.

You could look for seller financed deals and negotiate to get in for less than the banks requirement of 20=25% down with a bunch of closing fees.

I personally was very frugal and saved as much money as I could any way I could to get to the next downpayment, 401k loans, home equity, credit cards at 0%, I had a second job when I was growing and put all that money aside.

Jake Baker · Answer

@Pejmahn Choupani

I agree that value add through BRRRR is a fast way to scale. We do 20 flips/brrrrs per year and it is a long of work.

My advice would be to do whatever helps you buy real estate faster and get you to your passive income goal . i.e. Some people don't have the time right now to start a BRRRR business. If you have a really high paying job, focus on that and saving money for down payments. Or do hybrid approach.. find a partner that can run the rehabs.

Pejmahn Choupani · Answer

Agree, thanks for the thoughtful responses. Excellent insights into sources for down payment. The working backward approach is very strategic and tangible. Cheers

Salvatore Lentini · Answer

@Pejmahn Choupani - I always teach, have an Escape Plan for Your Money.  The BRRR method has that plan built in with the refi portion but you need to keep tight to your estimates.  If your rehab costs are more than you expected or the appraisal comes in lower than expected some of your money will remain trapped in the property.  It will stay there until the property appreciates enough in the future and you refi again.  Could be many years.  So if your plan is aggressive, make sure you build in a plan B.  Your calculations right now are factoring in getting x amount of your money out of each property in order to keep growing.  Make sure your calculations are not based on Best Case Scenario.  It's ok if things don't go according to plan (they usually don't), just make sure you're ready for it!

Jaron Walling · Answer

@Chris Seveney @Dan M. Both amazing responses.

Best way to scale ?

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