How to Build Your Real Estate Portfolio Faster Using “The Stack”

by | BiggerPockets.com

You know the common advice all the finance gurus teach:

“Save 10% of your paycheck, put it away in some slow growth stocks or mutual funds, wait 50 years, and you’ll be the richest person… in the cemetery.”

I don’t know about you, but I didn’t want to take the slow route.

I wanted financial freedom faster.

So I jumped into real estate investing!

But that can take a long time, too. I mean, if you buy one house every few years, saving up enough for the down payment each time, it could take 20 years to get the financial freedom you want.

So, if you want to build a portfolio fast, what should you do?

Today, I want to teach you a powerful strategy that I follow called “The Stack.” I think you’re going to like this.

Now, first, let me show you how most people build wealth through real estate.

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How Most People Build Wealth (the Slow Way)

They buy a house, then maybe another house, then a few years later another one. They are growing their portfolio linearly.

Nothing wrong with that. It’s just slow.

If you want to achieve faster growth, you’ve got to grow exponentially.

And that’s where the stack comes in. So let me show you a hypothetical example of what I mean.



Related: The Real Estate Investing Strategy I’d Recommend to Newbies (As a Seasoned Investor)

How “The Stack” Can Help You Grow Wealth Exponentially

Let’s say you buy one house this year.

That’s it. Just one house.

Buying that first deal is a lot of work, and when it’s all said and done, truth is, one deal isn’t going to get you freedom.

But what it does give you is knowledge and experience.

So, let’s say you wait an entire year and then, after knowing how to buy a single house, you buy two units. Maybe a duplex, maybe two single-family houses.

Awesome!

(And hey, in case you are wondering where you’re going to get this money, I’ll explain that in a moment.)

OK, so now in the second year, you own a single family and a duplex.

The next year, can you double down again? After all, you already own three units. What’s another four? You add the experience and knowledge from the last deal, and now you buy a fourplex or maybe a couple duplexes.

Then, the next year, you double again and buy eight units. Then the year after 16. Then 32.

Each year, you are adding experience and knowledge, dialing in your systems and finding an easier time getting financing.

So, here we are in year six, and you’ve got 63 rental units. If each unit is averaging $150 in profit after all expenses, that’s almost $10,000 per month in income. And that’s with just one purchase per year! What if you double again?

Now, if you wanted to do this faster, maybe you do two purchases per year. Or maybe you go from one unit to four to 16 to 64, and you’ve done it even faster.

The point is: If you grow exponentially, you can grow your portfolio fast. No one gets to hundreds or thousands of units by purchasing one unit at a time. They grow exponentially. And the really fascinating thing is that because you are starting small, you keep your risk small at the beginning. As your knowledge and experience grow, so does your portfolio. You aren’t jumping into a 100-unit for your first deal.

You scaled up smart, you scaled up fast, and you scaled up secure.

Related: Does the BRRRR Strategy Work? (And Introducing the BRRSR & BRRHR Methods)

How Do You Finance Your “Stack” Portfolio?

Now what about funding?

Well, there are a ton of ways to finance deals, and in fact I wrote an entire book about it.

But my favorite strategy and one that works really well with The Stack method we’re talking about today, is known as BRRRR investing.

It’s where you:

  • Buy a fixer upper (with short-term money, like a hard money loan, line of credit, or partner)
  • Rehab it (and make it look ooooh soooo cuuuute!)
  • Rent it out (to great tenants who are thrilled to have a remodeled home—and pay top dollar for it!), and then
  • Refiance it, pulling out all the money you put into it. This gives you your cash back, so you can then…
  • Repeat the process again and again.

But this post is long enough, so to learn more about BRRRR investing, check out this video I made a while back—when I had a much smaller beard.

A Call to Action

Real estate investing is SO powerful, and I hope this post and video are going to help you accomplish your real estate goals even faster.

But remember, it only works if you work.

So set a goal: How many units will you buy this year? One? Two? Forty?

Then go out and crush it. 

(Watch the video below of exactly what you read above! And don’t forget to subscribe to our YouTube Channel!)

What do you think about The Stack method? Would you use this to start building your portfolio faster?

Weigh in below!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.

34 Comments

    • Tess Robinson

      I don’t know how you get out of rehabbing if you want to invest in real estate…. I feel like there’s always going to be some rehab involved. Even if you buy a turn-key property today, and put tenants in it, there will be some rehab down the road.

        • Tess Robinson

          I was thinking of properties only… I think fixers are the most efficient & effective way to force equity & ensure cash flow ….

          So I go back to turn key. Buy a property that’s already fixed up & rent it out for enough $$ to hit (or exceed) your target numbers. Then just maintain it through the years.

          Or… have you thought about wholesaling?

    • Cody L.

      Buy a turnkey property at a retail price. You don’t have value add ops but you get a nice steady 4-8% return depending on location / class.

      Buying a property for $1m, putting in $200k, and having it valued at $1.6m is the way you’re going to actually build wealth. I’m sort of making up those numbers but that was close to my first deal. Then at $1.6m I did a 80% LTV loan, got a $1.25m loan that paid off my first loan and my upgrade $. Now I’m in it with $0 of my own money and cash flowing.

      Find the next deal, do it again.

      Before you know it you have 1000 units throwing off more money than you can spend.

      Or, if rehabbing is not for you, then buy the no-value-add and relax.

      • Paul Doherty

        What bank is allowing you to refinance an apartment complex that was valued at 1 million within a single year? I know you’ve updated it but the way I’ve heard it, since comps aren’t a thing and cashflow/revenue is, you’ll have barely any history of the new rent rates and occupancy rate, and most banks would want a long term history of that occupancy and rents before allowing it to be refinanced at a new valuation.

    • Frank A Piccirillo II

      Rehabbing doesn’t necessarily need to be a big process, it could be just putting money into smaller projects like redoing the paint, and bathrooms. I re-did the floors, 1 whole half bath, my banisters, my entire ceiling, painted a few rooms, and added some light fixtures. I did all the labor myself and it cost me about $3000 for everything. Would have cost $10,000+ if I hired someone to do it.

      If the physical labor part is what turns you off, maybe another BP Forum member would be willing to help out and strike a deal for it!

    • Cody L.

      At the point you have 5-10 stabilized SFH, find a portfolio lender to clear out your traditional financing to open those ‘slots’ back up. I have a dozen or so single family homes and a pile of multifamily. If a traditional SFH lender ran my credit, they’d see two homes (my primary and my vacation house)

      • Cindy Larsen

        Cody,

        Your comment is very interesting. I have a couple of questions:

        Why do traditional SFH lenders not see your multifamily portfolio loan? Don’t you have to disclose that (income from the rentals, and montly debt payment) when you apply for a new SFH loan? The lenders I have been working with want to know everything in my financial life.

        Do portfolio lenders charge higher interest rates than SFH lenders? How much higher?

        Could you please provide pointers to some portfolio lenders? I have a total of 4 loans, on 4 multifamily parcels, (10 units) all done this year, hoping to beat the rise in interest rates.

        Thanks,
        Cindy

  1. Olga Marquez

    If you are pulling the equity, won’t you diminish the cash flow after repair and refi mortgage payment on that first property unless you buy it super cheap? Does that first house matter, if you are cash flowing on future properties?

    • Kenny Lincoln

      Yes you will diminish the cash flow each time you refinance and pull out equity. The key is to make certain that you still achieve at least $150 profit/cash flow per month after all expenses (PM fee, vacancy, maintenance, mortgage) are paid. I assume Brandon intends on refinancing each new purchase one year after obtaining the property … this is the “REPEAT” part of his plan. I’m concerned with this strategy because the new property purchased has to be one that will have strong equity growth in order to refinance in one year and keep the pattern going. Imagine that you take equity out of property #1 to purchase property #2 (20% down payment) BUT property #2 doesn’t grow fast enough in value over the course of one year. You have equity in property #2 because you put down 20% BUT will you have enough to refinance, keep at least $150 cash flow, and purchase property #3?

      • Michael Andrews

        I think it’s important to note the $150 per unit cashflow not really a good measure for whether a property is profitable. Using the cash on cash return rate is a much more accurate portrayal of how much your money is making you. In my area you are lucky to get $100 per unit cashflow, but the property I own is returning upwards of 17% CoC. Per unit cashflow doesn’t really matter as long as you’re achieving your desired percent rate of return, as any investor, real estate or not, should be focused on.

    • Chris Field

      Yep, and than when the economy turns You go underwater.

      It’s not how many units you own it’s how much profit you make per unit.

      The refinance to the max montra and buy for slim cash flow reminds me of 2006-7 articles I read.

      • Vaughn K.

        I would say yes and no…

        In 2007 the people who went under were the ones running negative cash flow, where they couldn’t continue to make debt service, and were DEPENDING on the refi out.

        AKA Coastal investors.

        If we had another 2007 level event, and you were running positive cash flow on all your units, what would happen to you? You’d keep paying the mortgages, and eventually the market would turn around and… You’d be fine and have made a ton of money.

        You might not be able to continue rapid growth during the downturn as your paper net worth would be in the toilet, but as long as you have the cash to pay the debts you are fine. This is why I will never buy negative cash flow properties. I imagine a lot of midwest investors just sat out 2007 as a nuisance, but didn’t get destroyed like the people in negative cash flow areas.

  2. Chris Gottshall

    I recently met with my CPA and mentioned that I plan to refinance the loan on a property I own, and he advised that “cash out refis” will cause the mortgage interest on the entire loan to be excluded from Schedule E deductions as a result of the new tax law changes unless the cash goes directly back into that exact property. This puts a kink in the Refi step, as I see it. What are other people hearing on this topic?

    • Darin Anderson

      The money has to go back into the real estate business but not back into that one property. There are no changes in the new tax law that make the radical interest deductibility rule that you just cited.
      I suggest getting a new CPA.

      • Chris Gottshall

        Thanks, Darin. Like most people, I haven’t read the details of the new tax law, but I have attended a fair number of webinars that have highlighted the key changes. The fact that I had not heard of this up until last month struck me as odd. I’ve only been working with this guy for a few years now. The quest for a really great CPA seems to be never-ending. I prefer someone I can meet with face to face in the Twin Cities area and I’m always open to suggestions. Thanks again for the reply.

    • Darin Anderson

      As a side note there is a change to how HELOC interest is treated for a non-business homeowner. If your CPA is confusing that with business interest deduction for a real estate business then you probably aren’t getting very knowledgeable real estate tax advice from this CPA.

  3. Jose Rivera

    Good info on a nutshell, yet, leaving many details a newbie like me still cant figure out; like where does the downpayment and closing cost come from? I havent bump into a lender who would lend 100% of the purchase and repairs money yet. Specially to a newbie. If there’s any out there tell me where to find them. Also, in my case I don’t know anybody with money to ask if they want to invest. Finding a partner hasnt work well for me so that option is not an option. I hope to get a response.

    • Cody L.

      No (okay, very few) lender is going to do 100%. So if you don’t know anyone, the initial down payment comes from your own savings. It’s very hard to start when you truly have $0. One option would be to find deals for an investor in exchange for getting a piece of the pie. I had a young kid offer that to me. I didn’t want to give him part of the deal but I told him I’d pay him 5% of any off market deal he brought up and some of the upside. The first deal he found me I bought for $880k. He made $45k and I gave him $10k when I refinanced it (since I did that vs. selling)

      Thats’ $55k. Enough to buy a $250k home w/ 20% down. But it still came from his ‘savings’ or earnings. He just earned it a non traditional (non “9-5 job”) way.

    • Cody L.

      Oh, and I should add. In SFH land, you can find lenders who will loan higher than 80%. It’s just in commercial world, at least the loans I do, 75-80% is about all ya get at least with normal 4.5 – 5% rate terms

    • Corey Adams

      Definitely just have to save up the money for the down payment and repairs. But after that when you refi you pull your money back out so you don’t have to do the same thing for the next one. Ideally if you’re in the right market and add a ton of equity you can pull out more money than you invested when you refinance. This might allow you to buy 2 more properties and then exponential growth really starts to kick in. I bought 3 properties in my first year, sold one and refinanced another and now I’m looking to buy 5 more properties. It really starts to take off after the first one, especially if you maintain a high savings rate. Best of luck!!

  4. Lee S.

    I think a couple newer investors are a little confused, here are some examples:

    Buy a 200k house turn key, put your 50k down and make your cash flow.

    BRRRR – buy the same house as a fixer for 100k, put 50k into rehab. House is now worth 200k, refinance 150k out to get your money back, get your cash flow and take your 150k and do it again.

    It isn’t always going to work out perfectly, maybe you only get 80% of your money back, it’s still better than having 100% stuck in the deal. It’s hard to grow the business exponentially buying retail and having to “save” the down payment each time.

    BRRR is the only way to go imo, I don’t even look at houses that don’t need a rehab or that I can’t get well below market for some reason.

  5. Alan Brown

    yes, ‘velocity of money’– how fast you can turn your money around and have it working for you again! Especially wonderful when you’ve been able to pull all your seed money out, and basically have infinite returns on your investment, because you have none of your money tied up in that deal anymore!

    ‘Value Add’ is really the only way to make all this happen, imo; finding the deals is the key.

    I happen to have most of my accounts at a local bank, and they happen to be wanting to expand their market share, so have been happy to make portfolio loans, which are technically commercial loans, but fixed for 20 years and the rates arent bad at all, maybe a point higher or so, but if it works into the numbers, who cares?
    Just be very careful not to edge into your 20% equity at the top end of that loan… those that were careless about that in 07 often got hammered in 08 and beyond. ONe guy in the BP podcasts had something like 2000 properties between Memphis and Florida, and was waaay too leveraged, but apparently worth 50 million… then he crashed and burned because his empire was maxed and the whole house of cards came crashing down. Lost every penny.

  6. Max Briggs

    Brandon writes a lot of great stuff and i think “the book on real estate investing” is fantastic, but I’m a bit of a math nerd and this post rubs me the wrong way. First of all, people live the idea of “exponential growth” without really understanding what it is. What brandon describes as “linear growth” in this article isn’t actually linear it’s exponential, albeit with a slower time constant (nerd alert). For example. If I buy two houses that profit $400 per month per house in year 1then I make $10,000 in year one. That’s not enough to put a down payment on a house, so I have to wait until year two. When I buy another. Now I’m making $15,000 per year, so it only takes me a year and a half to buy my next house, and a year to buy my next house, and less than a year to buy my next house, etc,etc. that is also exponential growth, not linear. If, after I buy my third house I choose to spend that money and only use the profits from my first 2, that’s linear growth (and I agree with Brandon, probably a bad idea).

    But the BRRR method is not the only path to exponential growth. Good ‘ol save for the next down payment investing is exponential too as long as you reinvest your profits. Also, the BRRR method tends to net you substantially less cash flow per house after the refi, so you may be doubling your number of units more frequently, but that doesn’t mean you’re necessarily doubling your profits. I’m not saying that one is better than the other, and BRRR may be the way to go for people that have the money, skill, and team for major rehabs, but calling one linear and one exponential is a misunderstanding of math, or an intentional mismarketing of strategies.

  7. Jerry W.

    Brandon,
    I like most of your articles, but this one is kind of how to take huge risks in the real estate business on steroids. So someone in their 3rd or 4th year should be doing 4 or 8 rehabs a year and next year do 16, all while getting every penny out of every property they invested in and come up with enough money to buy a 32 unit the following year. This is not feasible to 99.8% of the investors out there. Furthermore this kind of over leveraging has bankrupt a lot of wanna be investors. This is not really a roadmap, it is a map that is likely to end at a cliff. The odds of finding a banker to show even remote interest in this huge of a fast play is also very unlikely. How are they going to get the kind of reserves in the bank that any serious commercial lender will require on these kind of properties? Not counting the down payment?

    • Jeremy elcox

      @Jerry, this is also what I’m seeing in my area. I do understand that we should enlarge search area but with a solid professional job that requires OT staying local is more realistic. Banks today really dont want to hear “investor” or “rental”. I would also love any tips on finding friendly banks because even with cashflow and 50k cash I get a lot of NOs even on cheaper places. Do people find that FHA is workable or 203k easier to get? I enjoy all the wisdom but sometimes articles do seem a bit in the clouds and asking for another crash. Thanks everybody. J

  8. DIANIE KANHAI

    I am in Palm Beach County Florida, and even though I have 7 units free and clear, with decent income, I cannot get a loan to purchase another unit. I did get some small lines but really high interest rate. Wells Fargo approved me for 5K, that was a slap in the face. My Credit Score is Over 750. So I decided to save up and maybe find some options where I can flip to build my cash flow. I don’t believe in borrowing a high amount to yield a small return. It has to worth my time. It is difficult to find great deals but I am working on it. I looked into Cleveland, Ohio for a little but it was a little too slow and I was hesitant to take the risk since I am in Florida. If anyone has any suggestions, I am all ears.

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