Make no mistake, buying 100 properties in a year is absolutely possible, but will require a lot of time, energy and careful execution. Last year, I bought and sold 125 properties, but in the coming year, I’m going to attempt to buy and hold 100 properties. One of the reasons for my shift in focus is the availability of portfolio financing that has recently become available to investors. Additionally, the continued availability of low priced rental properties, low interest rates and decreased competition from hedge funds leaves the window of opportunity still open for investors.
Without getting too deep into the weeds, I’m going to attempt to lay out a road map for acquiring and holding 100 properties next year. I will make assumptions on pricing, interest rates, etc., but the general principles behind this strategy remain applicable to many investors.
Source of Inventory
Before you can set out to buy what averages out to about 2 properties per week, you need to determine what kind of homes you will be targeting and where you will acquire them. As I’ve said time and time again, every market is different. In some markets, inventory is in abundance and picking good deals off of the MLS is no problem. In other markets, it takes more effort and marketing (i.e. postcards, wholesalers, bandit signs, etc.).
Before you can set your goal for the year, it’s important to determine whether or not it will even been realistic to find 2 properties a week. If there simply aren’t that many worthwhile properties to buy in your target market, perhaps you should set a more realistic goal — perhaps 50 in a year is more attainable.
In regards to the types of properties you will be buying, I would assume if your goal is to buy and hold, then the properties need to make sense from a rental standpoint. Therefore, you need to make sure that the properties you target are in areas with strong rents and prices that make sense in terms of price/rents.
Also, I would assume if your goal is to buy 100 properties, you have some experience with where and how to buy rental properties. As such, I won’t go into detail about managing subcontractors to get properties in rent-ready condition, leasing properties and/or using property management. Luckily, there are plenty of articles here on BiggerPockets specifically addressing these topics if you want more information.
Short Term Money
The ultimate goal will be to roll all of your recently purchased rental properties into a portfolio loan. However, to do that, you will need a way to buy, fix and lease your properties before putting them on the loan. This is where short term money comes into play.
I would suggest using private financing if you have that available to you (ie. friends, relatives, partners). If you do not have access to private financing (or not enough private financing), partner with a reputable hard money lender who can lend you the money you need for a short period of time (i.e. 6 months). Again, the goal here is to use the temporary financing as a bridge loan that will allow you to fix and lease the properties before placing them onto a permanent portfolio loan.
There are now a handful of lenders out there who offer portfolio financing on pools of investment properties (PM me if you want some referrals). This development in the lending industry is what really makes this aggressive acquisition strategy attainable.
Most of these lenders have a minimum loan amount of $500,000 and a maximum of $5,000,000. Thus, you can allocate your 100 properties into different sized loan pools based on your circumstances.
For instance, you may be buying and fixing properties for approximately $50,000 per property. However, you may only have the ability (or desire) to use short term funding on 20 houses at a time (about $1,000,000 worth of short term financing). Once you’ve stabilized your first 20 properties, you may decide to refinance them into a single portfolio loan. Over the course of the year, you could repeat the same steps and put 5 different packages of properties together for a total of 100 properties owned in 5 separate portfolio loans.
Again, there are so many variables here, it’s tough to say what it will look like for you individually, but hopefully you get the gist. Ultimately, you may have 1 portfolio loan with all 100 properties, or perhaps you will have a handful of smaller portfolio loans that add up to your 100 properties.
So, here’s the million dollar question: How much money will I need to do this?
The short answer is it really depends on how you structure your deals. From the get go, your hard money lender will require some equity contribution on your short term loans. Maybe you are able to front the money yourself, but perhaps you can bring in equity partners to help with the equity requirements.
Also, when it comes time to refinance into the portfolio, the portfolio lenders will typically require 30% equity based on your true cost (purchase + rehab). As you can imagine, when you are talking about 100 houses, this amount quickly adds up. Using the scenario above, 5 million dollars worth of property (100 at $50K/property) at 70% loan to cost would end up requiring $1,500,000 in equity. I don’t know about you, but most folks don’t have $1.5M under their mattress for just such an investment.
This is where equity partners become your best friend.
Again, it’s up to you how you structure your deals with equity partners, but they will typically have some sort of preferred return on their investment and likely some ownership as well. For example, maybe you give your investors 12% preferred return (meaning they get paid before you do) and 30% ownership. Really, the sky is the limit when it comes to structuring deals. The basic gist is that your investors get some kind of handsome return for partnering with you on the deal.
I will mention that in some cases, the portfolio lenders will use Loan to Value (rather then Loan to Cost) to determine equity requirement after you’ve owned the property for 12 months. Thus, if you are able to utilize short-term financing for 12-15 months and can buy properties significantly under market value, you can greatly reduce (or almost eliminate) the equity requirement on the portfolio loans.
I realize this may seem out of reach to the average investor — and in reality, it probably is. However, there are many real estate investors that have the knowhow and the connections to endeavor something of this magnitude. Yes, it will take a large investment of time and money, but the long term cash flow and wealth creation that can be obtained through owning 100 properties can be life changing.
Do you think 100 properties in 2015 is a reasonable goal? What are your projections for the upcoming year?
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