Making Multifamily Money - Dec 27th 2023

Real Estate Updates

Let’s talk about leverage.  Leverage is a double-edged sword.  It can help you scale a real estate portfolio, but can also kill you if over leveraging.

The good about leverage…

How I scaled with leverage.  I bought my 1st single family home with 10% down ($80,000).  The property appreciated about $500,000 over 6 years which is a 6.25x return on my money for doing nothing.  I bought my 2nd single family home with 10% down ($110,000).  The property appreciated about $400,000 over 4 years which is a 3.63x return on my money for doing nothing once again.  I repeated this process again for my 3rd single family home.  Rinse and repeat.

Once interest rates dropped in 2021, I did a cash out refinance to pull over $1,000,000 tax free from 4 single family homes to buy a 26 unit, 20 unit, and mobile home park.  More leverage.  I bought my 26 units with 15% down, 20 units with 15% down, and a mobile home park with 10% down.  This is how I scaled to 90 units without partners and built a $5,000,000 net worth.  All with leverage.

I have lines of credits on my stock portfolio, a personal line of credit, and line of credit on my whole life insurance policies to use for renovation as well.  Leverage is great for scaling.

I leveraged the skillset, knowledge, and expertise of my property managers, general contractors, and lenders.  I am based in California and invest in Oklahoma/Alabama which are over 1000 miles away.  I am leveraging all the experience, skills, and most importantly time of my boots on the ground to help me make decisions and scale.  Leverage is great for expediting your knowledge.

The bad about leverage…

Overleveraging isn’t good either.  You want a balance based on your goals.  I’d rather have 50 good units that cash flow well vs 90 bad units that are cash flow negative.  After selling my mobile home park, I had the opportunity to pause and assess my debt vs equity position in real estate.

I own 8.4 million worth of real estate.  4.4 million is debt and 4 million is equity bringing me to 48% equity and 52% debt.  My goal is to be around 50% equity and 50% debt, but it fluctuates depending on which season I am in.  During the season of scaling, I will be in a higher debt position as I leverage to buy more real estate.  During the season of stabilization, I will be 50/50 equity and debt.  The key message is to constantly assess how much equity and debt you have to make sure you aren’t overleveraged.

What I Learned

Simple scales, fancy fails.  Scaling builds lots of inherent complexity.  For example, if I were to just own 4 apartment complexes (100 units) in Oklahoma City, that in itself is already more complicated compared to owning 2 apartment complexes (50 units) in Oklahoma City.  Even though I have the same team - lender, property manager, general contractor, insurance broker - and know the market better, there is just more complexity with scaling.  

Knowing that scaling comes with complexity, it gives me clarity and helps me combat shiny object syndrome.  No need to invest in another asset class (i.e - mobile home parks, self-storage, etc).  No need to invest in another market - why start over from zero in a new market?  No need to syndicate and raise money - why jump into a different business model?  I can scale to 100+ units without raising a single dollar in 3 years.

Weekly Self-Reflections

I over complicated my life to build wealth to build wealth.  Now that I have obtained wealth, I am simplifying my life.

I bought 2 value add apartments and 1 value add mobile home park while launching 3 businesses (Amazon drop shipping store, independent pharmacy, and mentorship program).  I identified the ones that fit with my lifestyle the best and made me the most money then ruthlessly trimmed the rest. I kept apartments and the mentorship program which aligned with my goals and lifestyle the best.  I trimmed and took losses on the Amazon store, independent pharmacy, and mobile home park, but now my life is much simpler.

During the grind, it is hard to pause and self-reflect so be intentional with giving yourself a pause from the grind.

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