Author Topic: How do I scale my portfolio?  (Read 2021 times)

FrugalSaver

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How do I scale my portfolio?
« on: January 05, 2017, 10:11:58 PM »
I typically try to buy houses that have cash on cash return of at least 10%.  I own a couple in that range and a couple in the 15-20% range.

I'm typicalliy buying properties between $100,000 - $130,000.

I've not put more than say $10,000 in property improvement into any rental property, but as such, it's not really adding a whole lot of value to the property.  I don't buy for appreciation, although that is always a nice bonus but I always buy for cash flow (so far in the 10-20% range).

Given that, each house typically has 20-25% down.

Closing costs are typically about $5,000.

All in, for each property, I'm having to to write a check for $25,000-$40,000.

From there, I put a renter in it and bam I'm cash flowing.

I put the properties on 30 year notes and then try to pay them off in about 7 years or so with the profits.


Is there any way to scale doing this?  What I've been able to tell, most people trying to scale are buying properties that are very distressed, fixing them up, re-appraising them at a significantly higher value than the purchase price and then doing a cash out re-fi to put more mney in their pocket than they put into it to fund the next deal.  Then they either sell the property or rent it out to keep cash lowing.

Is there any other way to scale doign what I've been doing or is the above paragraph really the only way to do it (other than waiting 7+ years to pay the property down and then have it fill up your accounts with a renting paid off house.?

Thanks!

marty998

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Re: How do I scale my portfolio?
« Reply #1 on: January 05, 2017, 11:34:41 PM »
Scale? Buy properties that are worth more?

Could you do the same with properties in the $200-$250k range?

sammybiker

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Re: How do I scale my portfolio?
« Reply #2 on: January 06, 2017, 12:35:14 PM »
I think you already know what you need to do - establish a line of credit or go get some private funding, buy under market, renovate, rent, refinance and go do it all over again.

Using a good local commercial lender for the cashout refis (less underwriting, unlimited refis, very quick vs conventional), you could run this cycle a few times over the next year or two and be done with scaling and just focused on stabilizing (and enjoying the cashflow).

dandarc

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Re: How do I scale my portfolio?
« Reply #3 on: January 06, 2017, 12:44:15 PM »
Is there any other way to scale doign what I've been doing or is the above paragraph really the only way to do it (other than waiting 7+ years to pay the property down and then have it fill up your accounts with a renting paid off house.?
So you're putting all of your rental profit into paying down the mortgage, right?  Just don't do that - pay minimum payment, save up another down payment, buy another house.  Repeat until you've got however many houses you're shooting for, then deleverage if you're still inclined.

Your "house acquisition rate" should accelerate as you add more rentals, assuming you're beating inflation in your market, which if you've got cash on cash of 10%, you probably are - First house = however long it takes you to save up from other income.  2nd house = however long it takes you to save up from other income + 1 rental's profit.  3rd house = other income + 2 rental's profits.  4th = other income + 3 rentals.

FrugalSaver

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Re: How do I scale my portfolio?
« Reply #4 on: January 06, 2017, 06:36:49 PM »
I think you already know what you need to do - establish a line of credit or go get some private funding, buy under market, renovate, rent, refinance and go do it all over again.

Using a good local commercial lender for the cashout refis (less underwriting, unlimited refis, very quick vs conventional), you could run this cycle a few times over the next year or two and be done with scaling and just focused on stabilizing (and enjoying the cashflow).

Can you expound on this a bit?

1)Once I rehab and rent, do I have to wait a certain amount of time before refinancing?

2)what does it cost with a local lender to refinance?

3) as part of the refinance, is the house reappraised so I can then get more money out of the house immediately than I put into it to them redeploy to my next house?


Berubeland

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Re: How do I scale my portfolio?
« Reply #5 on: January 08, 2017, 01:58:04 PM »
This is how I have heard it explained, and it depends where you live and what your credit history is. Cash is the problem after a while because even though all your houses cash flow a bit, it's not really that much money per month and it takes a long time to get your initial down payment out.

Buy one house, put the lowest down payment you can, let it pay itself off slowly (no mortgage prepayment) and accumulate cash flow
Buy another house, put the lowest down payment you can, let it pay itself off slowly and accumulate cash flow,
Rinse and repeat... and eventually if you do it right you should start to be able to buy houses using your accumulated cash flow from previous houses.

At one point, you'll have a chunk of equity in house #1 and you can refinance. If you get a good deal on a house, and buy below market, there's nothing preventing you from refinancing from day 1 except the fact that appraisers don't generally put much appreciation on because they always think that you bought at market value. Basically the fact is what you paid made the market.

It depends on the relationship you have with your mortgage broker and appraiser and what the market is like in your area. Some people wheel and deal a great deal, but are in danger of getting over extended, cash poor, and in trouble.

Honestly a safer strategy is to just use your own funds and cash accumulations to pay for new houses. Let appreciation and inflation do the work for you. Year 10 you'll be cash flowing a lot more as your original mortgage amount shrinks relative to rents received due to inflation.

Another common barrier is that banks & lenders don't like you to have a lot of mortgages. 5-10 tends to be the limit here in Canada. With some lenders only going to 5 and some going up to 10. Basically they want you to be able to use your salary to pay for all your mortgages.


sammybiker

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Re: How do I scale my portfolio?
« Reply #6 on: January 09, 2017, 02:40:13 PM »
Below in bold:

1)Once I rehab and rent, do I have to wait a certain amount of time before refinancing?  Totally depends on the bank - you have to shop around but you should be able to find one that will refi as soon as you appraise (aka as soon as you're done with rehab, appraise and then move forward with the refi - no seasoning required).

2)what does it cost with a local lender to refinance?  Again, this will depend on the bank but shop around - 8wks ago, I was seeing under 5%, amortized for 25 years, fixed rate for 10.

3) as part of the refinance, is the house reappraised so I can then get more money out of the house immediately than I put into it to them redeploy to my next house?  Yes, the house appraised for the cashout refi.  No appraisal is required prior to that as you're purchasing with your own line of credit/private lending (aka cash).

Again, this is commercial real estate lending with a local bank or credit union.  Start calling them - most will understand what you're going after immediately, a couple might not.  These are banks that hold their own notes and don't sell them off - hence they have a lot more control and flexibility over their lending terms.  My discussions with my local banks a few weeks ago was pretty exciting - I told them all I wanted to buy/reno/refi 10+ homes in the next 12mo and they didn't blink an eye.

I can see them having an issue once your portfolio reaches a size where they have too much of their loan capital with a single source (you) - but given that these folks are usually lending on $5M+ apartment/commercial units, you have a lot of runway if you're looking to scale single family.  And once that happens, you move onto the next local bank.

« Last Edit: January 09, 2017, 02:49:50 PM by sammybiker »

FrugalSaver

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Re: How do I scale my portfolio?
« Reply #7 on: January 09, 2017, 07:15:16 PM »


2)what does it cost with a local lender to refinance?  Again, this will depend on the bank but shop around - 8wks ago, I was seeing under 5%, amortized for 25 years, fixed rate for 10.


1) When you said seeing under 5%, is that the closing cost?  Purchase price x 5% = closing cost?  Say $200,000 it would be $10,000 closing cost?

2) after the first 10 years in your example, what may the loan typically adjust to over the remainder of the loan and how many times, etc for the remainder of the term to 25 years?

NoNonsenseLandlord

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Re: How do I scale my portfolio?
« Reply #8 on: January 09, 2017, 08:33:19 PM »
I just continues to buy until I had enough money to replace my W2 income.  Then paid off mortgages, so now I have even more.

sammybiker

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Re: How do I scale my portfolio?
« Reply #9 on: January 10, 2017, 05:16:59 AM »
Under 5% - I was referring to interest rate.  I don't remember what closing costs were but they are nothing largely different vs conventional mortgage.

After the first 10 years, when the loan adjusts - completely depends on the bank.  Most I spoke with readjust to prime + X.

Hate to redirect you but investfourmore has a couple really good articles that lay out this type of financing better than I can explain - see below:

https://investfourmore.com/2013/05/12/how-to-find-a-portfolio-lender-who-will-finance-multiple-investment-properties/



2)what does it cost with a local lender to refinance?  Again, this will depend on the bank but shop around - 8wks ago, I was seeing under 5%, amortized for 25 years, fixed rate for 10.


1) When you said seeing under 5%, is that the closing cost?  Purchase price x 5% = closing cost?  Say $200,000 it would be $10,000 closing cost?

2) after the first 10 years in your example, what may the loan typically adjust to over the remainder of the loan and how many times, etc for the remainder of the term to 25 years?