A recent blog post on a big real estate investor forum outlined one investor’s goal to acquire 100 “buy and hold” properties in 2015. Can it be done? With deep enough pockets you can do it in a day. Can the “little guy” do it? Maybe. It’s not impossible. So who here wants to buy 100 rental properties in a year? Or even buy 100 rental properties over more than a year?
Some people do. Think about the cash flow you could get off of 100 properties, bought correctly. Think about the bragging rights you’d have for owning 100 properties, much less acquiring them all in one year.
Now think about the logistics. Well, having good property management in place is a must. Yes, you can manage 100 properties yourself (I have a friend who does) but for at least that first year, you’re going to be too busy acquiring properties to manage them. You’ll also need to have your team in place: Realtors, private money and portfolio lenders, rehab crews, maintenance crew, an admin, closing team, etc. There might be one man running the show but 100 houses in a year is definitely a team effort.
While he seems to have put in the numbers for expenses such as vacancies, maintenance, and property management fees, as one commenter pointed out, all it takes is for one air conditioning unit to conk out to wipe out six months to a year’s worth of profit on a property. One month’s vacancy can cut three months or more of profits. What happens if two properties go south? Now you’re borrowing from other properties’ profits to cover your losses, which might be the point of having so many properties. What happens if the big employer in town goes out of business? As any experienced investor knows, it doesn’t take much to tumble a house of cards.
The big question in my mind as I read the article was “Why?” Why do you want to acquire properties so quickly that you put your financial footing at risk? Why do you feel the need to hit such a big round number? What are you going to do with those properties once you have them?
Even kids playing Monopoly know enough to trade in those four little houses and get a hotel. Experienced investors tend to cull their portfolios, constantly upgrading and advancing as their financial situation improves. 100 single family houses involves a lot of management, and economies of scale are hard to capitalize on. Sears found this out in the 1980s; today’s hedge fund managers are finding this out even as we speak. (And yes, I am a bit gleeful when I say that.)
What will 100 houses get you that 50 or 30 won’t?
Most U.S. investors have 10 or fewer properties. And 10 is about all it takes.
It’s a manageable number. You can do a slow, steady build and buy two properties a year for five years. Or buy more if you like. But don’t get sold on “having to have” a certain number of properties.
Everyone’s investing goals are different because everyone’s situation is different. In his talk at the November West Florida REIA meeting, Pete Fortunato said that as a young man, he needed $3,000 a month coming in to pay the bills. He set out to own enough properties so that the net rents would cover that amount. Did he buy 100 houses? 50? No. When he had somewhere between 10-15 houses, he was meeting his monthly expenses. He could spend time with his family, travel, and didn’t have to take orders from anybody.
Ten is not only a nice, round number – it’s a MANAGEABLE number. Get your feet wet with your first couple of rental homes. Put your systems in place. Find out if you like being a landlord. Get a feel for the types of houses that rent quickly. If you want to buy more houses, more quickly, plunge ahead. But don’t feel that you HAVE to.
As you move along in your investing business, you may upgrade your properties, keeping the better houses in better neighborhoods and selling off the lesser properties. You may fix and flip or wholesale a few deals a year to pay down the mortgages on your “hold” properties, increasing your cash flow.
It’s always better to work with a specific goal in mind. But you want that goal to be attainable and more than that, you want to make sure that you are in real estate for the long run. Comparing yourself to other investors doesn’t make sense. They may have different needs than you and they may have a different set of circumstances. Buying properties just for the sake of having more than the next guy is poor fiscal thinking.
Figure out how much money will get you to where you want to be. Most of us know by now how much money goes out the door every month to various bills – mortgage, utilities, car payments, insurance, etc. Set a goal to have at least one of your bills paid by rental income. Then two. Then three bills. Little by little you can build a solid foundation of net rents that will support your lifestyle.
Take your time. Analyze your deals. Build your portfolio to meet your specific needs and desires, not for bragging rights.