These people tend to tell that the key is to use capital that’s not your own – like from a bank. I understand how it works with common mortgage. But let’s say I already have a mortgage, thus own one property/real estate. Now I’m in debt towards the bank and they’re not giving me another loan to buy another flat since I need to be repaying the first one (?).
So, how does it work? Where do these people get the needed money to buy the second property? The third one?
In: Economics
I’ll approach this as myself and my partner. We started as fulltime 9-5ers and now have 9 rentable units.
It’s 50% luck and 25% hard work and 25% know how. Luck is market based (now is not a great “luck” time to buy vs. 5 yrs ago for example) as well as how secure&good your job/income/life are. Unfortunately, this is a huge part…
Hard work is doing renovations yourself and willing to live in hell for 1-5 years. Know how is knowing how to do electrical/plumbing/etc or ability to easily learn stuff via YouTube.
Otherwise, the BRRR method is the secret.
1) Buy. Buy something with *potential*. A single family house that has 90s or worse finishes and is zoned in an area that allows you to build/change of purpose a garage into an ADU. *Creating* rentable units is THE BEST potential! That’s what you’re looking for, a property where you can create equity. Our first was a fixer upper duplex that due to unique layout had potential to add a 3rd unit.
2) Renovate. You will want to do this yourself as much as possible, especially if you’re starting out. Living in the house while you renovate it is technically illegal in most states. However, it saves a lot of money. If you do hire out people understand that there is absolutely a bimodal cost to labor – you will either pay 50k for a kitchen renovation or you will pay 5k – often the determining factor for whether someone ends up falling into the 50k trap is knowledge of what the work entails. Understand what the job is and how long it’d take someone. If you’re paying 50k for 100 hours of work, you’re paying them 500$/hr. That. Is. Insane.
3) Refinance. If you’ve done steps 1 and 2 properly, then you will have put less into the house than the house is now worth. Get a bank to appraise the house – if you added rentable units, it’s helpful to rent them out before refinancing. This gives you backing of the additional value of the property as that income is essentially a nullifying amount of the mortgage. We purchased our first property for 220k and put 200k into it over 3 years, it refinanced for 600k, We cashed out 200k, and had 2 rentable units (generating 3k/mo) and we lived in 3rd unit. Essentially that means it was 200$/mo away from being cash positive (aka we were paying 200/MO for our living expense… Not too shabby)
4) Repeat. After sitting on that property for 3 additional years, we saved up 500k in cash and bought a 2mil 6 unit apartment Jan 2024. Now we are renovating it while we live in it.
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