How long would it take to build your investment property portfolio to fifty units, a hundred, or even more? If you waited until you saved up enough money each time you wanted to add a new unit, how long would it take you to acquire twenty units?
Building a portfolio of rental properties with this method of waiting and saving is only reasonable for starting and learning the basics of how to own and manage rental properties. This linear method, which relies on buying one new unit every few years, will not get you very far if your goal is to build a rental property empire.
You can use a method that lets you increase the number of units you have each year to expand your portfolio exponentially. With this approach, you may start with only one single-family home, add a duplex the following year, a fourplex the year after, and so on.
With this method, you will get to your destination faster and maybe with less work (in terms of the effort it takes to finance those properties). But to make this strategy successful, you need to operate with a different playbook than most property investors use. How do you apply this method?
1. Get experience with your first property
You’ll want to start by familiarizing yourself with real estate investing terms. Owning and operating an investment property is a lot of work. Traditional schooling, career, and education probably didn’t prepare you for the realities of managing a business, which is what owning rental properties is. You will need to find a way to get that education.
That’s why it is vitally important to start with one (maybe, low-cost) property and manage it yourself to become familiar with all the things that can go wrong when you own a rental property. Once you have done this successfully for one or two years, you can start buying additional rentals.
2. Fine-tune your ability to find great deals and finance them
You want to determine how much money you’ll make from an investment property when you buy it. Your goal should always be to find promising properties priced below market value. Knowing what makes a property a good deal and finding those good deals will put you in a position to make a lot of money.
You also need to be able to finance those properties quickly when you find them. Given that you cannot hope to grow your portfolio at an accelerated rate with your own money, you need to know how to use leverage (borrowed money) to your advantage. How do you do all of these?
3. BRRRR – Buy, Rehab, Rent, Refinance, & Repeat
BRRRR is one of the most-tested strategies for quickly and profitably scaling up your real estate portfolio in the shortest possible time. This method follows five steps that, if you master them, will let you build that rental property empire you have been dreaming of. What is BRRRR?
To start, you have to find a bad-looking property that is selling well below its market price. The property should not have structural issues that will cost much money to fix. It should only need a cosmetic fix to improve its appearance. Moreover, it should be where you can find a tenant quickly and get decent rent. After you find that property, you finance it using a private money lender.
The next step is to rehab the home. If you did your homework when evaluating the property, you should not encounter major issues, like foundation damage. Keeping your rehab costs low is vital for making the BRRRR strategy work. You may need to hire an expert to work with you when looking for that ideal property.
How well you renovated the property and how much effort you put into ensuring you find a home in a great location will determine how quickly you can find a tenant for the freshly-rehabbed rental. The quality of work also influences the rental rate for the unit. Once you have a tenant in the property, you are ready for the refinancing step of the BRRRR strategy.
This is where you replace the short-term loan with a conventional mortgage. Short-term loans are costly, and you don’t want to use this option for a long time. But banks will typically not talk to you until your tenant has been on the property for six months. But by this time, the property’s value should have increased, and after refinancing it, you should have enough money to pay off the short-term loan and put it in your pocket.
Repeat the entire process. But this time, look for a bigger property than the one you just finished. With this method, even if you do just one deal a year, you will be amazed at how quickly your portfolio of rental properties will stack up.
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