The Personal Finance Trick That Helped Me Build My $9Million Portfolio

When you think of the different tips that you’ve read about that have helped successful investors build out their rental portfolios, you’ll probably recall some different marketing strategies, tips on underwriting and analyzing deals, and maybe some rehab and construction notes. That’s the sexy stuff that everyone wants to know, because mastering these skills, you believe, will immediately help you in your steps to building out a portfolio.

I’m definitely not the first person to say this, and I know I won’t be the last, but before you dive into the mechanics of real estate investing, you need to get your money right. More specifically, you need to be able to build out some strategy with your financials so that you can save money to make your first or next acquisition.

The Simple Concept Thats Catapulted My Portfolio

I’ve heard numerous wealthy people speak about this concept in different books or podcasts. Before I bought my first investment almost 4 years ago, I remember reading one of Grant Cardone’s training materials where he was talking about this concept of “stay broke”.

It’s a very simple concept; every time you make some money, whether through a W2 job, 1099 job, or other business, stash that cash away to somewhere you can’t touch it. Once you have put aside enough and have done your homework from a knowledge perspective, you can then go empty that account and buy an income-producing investment. Then, you should go back into the marketplace and continue putting in the work to re-grow that account all over again.

I’ve always kind of kept this concept in the back of my mind, but what’s funny is that I recently heard another successful entrepreneur speak about this concept as one his core principles of success. Bobby Castro, who recently sold an insurance company he built ground-up for about a billion dollars and owns about $300 million in real estate, calls it the “stack and rack”. Stack the money you earn, and then rack them into a cash-flowing investment. Hearing this from another ultra-successful person really cemented this strategy for me.

How the Principle Works in Action

You’re probably thinking “well that’s not super complex”, and you’re absolutely right. What you’ll need to do is just create a separate checking account where you can stack away any excess earnings you have. I literally nick-named this account my “RE Investing” account, which helps me differentiate between my different accounts as well as motivate me to fill it up as quickly as possible.

Next, and most importantly, you’ll need to re-assess how you are spending your current “take-home” income and where you can cut off significant expenses. Now it’s really, really important to understand that I’m not talking about cutting out Starbucks from your life or squeezing every penny at the grocery store to save a few hundred dollars every month. Especially in an expensive market like Boston where I live, saving an extra few hundred dollars a month will make almost no dent in my journey to save for significant cash to invest in real estate.

Here, I’m talking about the expensive habits you have that are costing you real money. Let’s start with your housing and car choices. Do you choose to live in a luxury apartment/condo downtown with all the sexiest amenities, or would you be ok living in a smaller, older apartment that’s significantly cheaper? What about your car selection? As a real estate broker, it always blows my mind how many young brokers I see spending tons of money on luxury cars, whereas I’ve been driving the same Toyota that I bought when I graduated college (and I still have gotten plenty of luxury listings and worked with million dollar buyers, so if you’re going to comment about how you need it, spare me). This concept holds true for lavish vacations you might have taken that cost you several grand, and everything else in between that you might be spending significant change on.

Before moving onto the next section, I do want to make one very important disclosure. If you couldn’t tell from the rest of the article’s tone, I do not subscribe to the philosophy that you need to pinch every penny you earn, and that a dollar wasted here or there is a terrible sin. As I mentioned, I will spend money on some of the smaller things that make me happy such as restaurants, Starbucks, and (a lot) of craft IPAs! I just made a conscious decision to minimize large ticket items that can really drain a lot of the money I take home.

What If I’m Buying Real Estate with No Money Down

You may be pushing back on me here because maybe you want to do real estate deals with different “no money down” strategies and thus you may not need to save all this cash. I hope I’m not the one that’s bursting your bubble, but even with “no money down” strategies, you still need cash. How do I know? Well, that’s exactly how I’ve grown out a large chunk of my portfolio.

I’ve used the BRRRR strategy many times now to buy large acquisitions and have raised lots of private money to buy the deals. Even though I’m technically not funding the down-payment myself, I’ve had to use a lot of my cash on other aspects of the transaction, such as the transaction deposits, soft costs, or other operating costs. I’ve also had to bridge a couple of raises where we were a hair short with my own cash to close the deal.

Conclusion

The point of all this is that regardless of your strategy, it’s impossible to play the real estate game without having cash in your account. So, before you even get into the mechanics of how to play the real estate game, you need to get your personal finances in check, and start learning how to stack and rack your cash for future success.