← BiggerPockets Real Estate Podcast
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- [00:00]
Dave Meyer
This is how to buy five rental properties in just five years. Landing five rentals in five years can change your entire life and your financial future. But getting five properties within a short time span, it can be daunting, especially with housing prices as high as they are. But this is absolutely still possible. And today I'm going to share with you three strategies you can use to buy one rental every year for the next five years and set yourself up on a course for financial freedom. Hey everyone, it's Dave. Welcome to the podcast. On the show, we often hear people say things like 10 rentals in 10 years or getting five properties in just the first few years of an investing career. And of course, this all sounds great, but the question, the obvious question is how do they actually go about doing this? Because for many, getting one deal is understandably a challenge. In addition, even if you land one, you often use your savings and then the question becomes, how do you get that second property or the third property, let alone your fifth in just five years? It becomes a real challenge. There are absolutely ways to do it, many ways in fact. But there are three time tested approaches to scaling and many of those in our audience can use to get firmly on the path to financial freedom in just the next five years. In today's episode, we're going to hit them one by one. First up is what is probably the most conventional, classic approach to getting five properties in five years. And this is an owner occupied house hack. And I'm going to explain to everyone why house hacking is a really good way to do this, but I know it's not for everyone. So we have two other strategies that are not owner occupied strategies that I'm going to share with you after this. So again, we're talking about house hack. First, if you've never heard this term, it's basically just an owner occupied rental property strategy. And there's two different ways that you can do it. You can buy a single family home, live in one of the bedrooms, and then rent out the other bedrooms to roommates or other tenants. Or traditionally, you buy either a two, three or four unit small multi family property, live in one unit and rent out the other ones. And I specifically say 2, 3, 4 units because that qualifies as residential property. That means you can get a traditional mortgage on it. You can put in many cases as little as 3.5% down. And so this is a great way to get started for one of the reasons I just said you can put less money down. But there are other really good reasons why house Hacking is such a good way to get started and scale to those five properties in your first five years. Like I said, you put that list money down. You also can just learn a ton from it. But it also opens you up to a lot more deals because cash flow when you are house hacking isn't as high of a priority. Now don't get me wrong, if you are going to house hack, if you're going to spend all your time and your money on an investment like this, it absolutely needs to improve your financial position. That should go without saying, but whether or not you're actually generating positive cash flow every month isn't that important. When I house hack, this is how I did it. I wasn't cash flowing, but I reduced what I would have been paying to rent to very close to nothing. And that really improves your financial position and it allows you to save more money that you can use a year from now in order to buy that second property. So those are just some of the great benefits of house hacking. But if you're curious, why does this work? Well, like I said, the low down payment, that one goes without saying. But the other reason is that when you get these loans that allow you to put as little as 3.5 or maybe you put 5% down, you have to own or occupy. That is the rule. You need to live in that property, but you only need to live in that property for one year. That is the only requirement. So after a year of successfully house hacking, saving some money, maybe earning some positive cash flow, but either way saving a lot on your living expenses so you can put more money away, then one year later you can move out and you can apply for a new owner occupied loan. So again, on that next property you can put as little as 3.5% down and you could just keep doing this year after year. That's why so, so so many different investors start with this strategy of house hacking and hopping from one house hack to another over five or maybe even longer years, doing one per year. To help sort of explain this and hammer this point home, let's just talk quickly about an example here. So say you buy, let's call it a duplex for $300,000. And I know some people might think, oh yeah, you can't buy a duplex for 300 grand. Do not tell me that is impossible. I have done it recently. It is absolutely possible to still buy duplexes for that price. Maybe you live in an expensive city, but there are absolutely places that you can do this. So as an example, we're going to say we buy a duplex for 300 gr grand. We're going to put, let's call it the minimum 3.5% down, $10,500 that you're going to need for a down payment. Plus you're going to need closing costs for sure and you're going to need some cash reserves. So let's estimate that we need something like $17,000 in cash to close on this deal. And it is important to note that if you are going to put three and a half percent down, that you're going to get lower cash flow. But if the numbers work, do it. If you, if you are in a position where you can put 10% down or even 20% down, I usually recommend people do that because that's going to lower your overall interest cost. You're not going to be paying pmi, which is private mortgage insurance, and you're going to have a better cash flow or better financial savings if you put some more money down. So if you can do that, you may want to, but in this example, you can have as little as $17,000, which is of course nothing to sneeze at. But if you're talking about buying real estate, only needing $17,000 to buy, that is a pretty incredible deal, especially because in this scenario you are buying two units at once. So that's the money you're going to need to put into it. And then let's just say that each side of this duplex that you're theoretically buying rents out for 1500 bucks. That means that you're going to have $3000 a month in total rent potential. And your payment on the mortgage that you would need putting 3.5% down, which is, would come to 20 to 50. And let's assume that you are going to need to put in, let's call it 250amonth on top of that in additional expenses. So total expenses would come out to about 2500. So if you're doing this scenario where you live in one side and you rent out the other, this would come out to you paying $1,000 per month in living expenses. Now that might not sound like a lot, but let's assume that you were previously renting a very similar apartment to that would cost you 1500 bucks. Right? We just said to rent this apartment cost 1500 bucks. And so by doing this house hack, you are saving $500 per month in living expenses, which equates to $6,000 per year. That's about 40% right there. Just from your living expense savings of what you need to buy that next property. And if you're already saving money each month, hopefully you are, because you need to be. If you want to be financially free and to invest, that's just kind of how it works, then really, really help you get into that next property. You're already getting 500 bucks a month in savings. That's going to get you $6,000 a year. So you need about 800 bucks a month more in savings per month. That is probably easier for couples to do. Right? Especially if you have two incomes. So that's how a lot of investors approach getting their first house hack. And then you could just basically repeat this every single year. The other approach that you may want to consider is let's just say each side of this duplex has three bedrooms. You ren one unit completely, but in the unit you live in, maybe you find roommates and you rent out two of those bedrooms. This is a more common approach for single and younger investors. And I know this isn't for everyone, but I really genuinely have seen a lot, a lot of investors do this approach and it really works. It is a very powerful financial move if you're willing to live with roommates. And I should mention actually we have another episode coming out on Monday with Miller McSwain who's going to talk about sort of a co living model. So if you're interested in doing this, make sure to check out the episode coming out Monday. But let's just go back to our example here. So if each side of this duplex has three bedrooms, maybe you are going to be able to rent each bedroom out for 500 bucks, right? We were saying it's 1500 bucks. You just divide that by three, you are going to pull in a total of 20$500 in rent, right? 1500 dollar from the side that you completely rent out and then a thousand bucks from the two bedrooms that you're not living in. Remember, we said our expenses were 2500 bu bucks a month. So now you are living essentially for free. And that should hopefully allow you to save up enough money to buy that next property one year after you close on your first house hack. And this is just one example. Some house hacks actually might be even more profitable and more beneficial to your financial situation than what I'm laying out here. Some might not work as well, of course, but I'm just trying to show you how this would work for your first one. And then again, the whole thing we're talking about here is how do you scale that up well, after one year, you're going to qualify for another FHA loan. You could put as little as 3.5% down. Again, you rent out the unit or the bedroom that you are living in, you get a new property, hopefully around the same price. And obviously you're going to need to save up some money in that time. But you can just rinse and Repeat this for five years. You could do it for 10 years if you want to. This is just something that you can scale and it really works. I can't even tell you how many people who have come on the show have done something just like this. So if this is appealing to you, definitely something to think about. Now, I get that this approach isn't going to work for everyone. Not everyone wants to move every year. That's totally fine. It might delay financial freedom a little bit for you because this is a very powerful approach. But I get that not everyone wants to do this. It's more for that really motivated group that wants to accelerate financial freedom as quickly as possible. But if that doesn't describe you and you want a less lifestyle impactful way of scaling up to five properties in five years, there are definitely ways that you can do it. I'm going to share my second strategy with you when we come back from this quick break. Landlords Are you ready to take your rental game to the next level? Avail is here to help you crush this rental season. Get custom rent analysis reports with local pricing trends and demand so you can set the perfect rent for your property. You need tenants fast. Avail automatically distributes your listing to 20 top rental sites, maximizing exposure. Want even more eyes on your property? Promote your listing to get a competitive edge and stand out on partner networks. For a limited time, Avail is running a listing promotion to help you get the most out of this rental season. Let's crush this rental season together. Visit Avail co Biggerpockets today and get started. Are you looking to level up your investing game? BAM Capital can be a game changer for investors seeking reliable returns with a proven track record of success. They've distributed over $215 million to date thanks to their hands on management approach and deep market expertise. BAM Capital specializes in carefully managing your investments, ensuring they are handled with precision and care to maximize growth potential and mitigate risk. Whether you're new to investing or looking to diversify your portfolio, BAM Capital offers the tools and expertise you need to reach your financial goals. So take the first step towards savvier Investing today. Visit biggerpockets.com Bam. To learn more and get started, that's BiggerPock.
- [12:18]
Nomad
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- [12:54]
Dave Meyer
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Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's perspectives@fundrise.com flagship this is a paid advertisement. Welcome back to the BiggerPockets podcast. I'm here talking about how you can get five units in five years. Before the break, we went with a time tested approach of house hacking once per year, taking advantage of that residential financing that allows you to put very low money down and can scale every single year. But there are other options. Non owner occupied options. Two more that we're going to share with you today. The next one is a very popular strategy, but it's popular for a reason. It is called the BRRR method. If you listen to the show a lot, you've definitely heard me talk about this. You've heard a lot of people on the show talk about the BRRRR method. But if you aren't familiar, BRR is an acronym. It stands for Buy, Rehab, Rent, Refinance and repeat. So basically what that means is doing the BRRRR method is sort of like doing a flip, but you actually keep the property. So you buy a property that is not up to its highest and best use. There is a lot of room for value add, there is room for improvement. So you got to find one of those juicy deals that's going to allow you to really drive up the value through a renovation. Remember, that's the first R. So buy was one. First R is renovation. So you need to be able to increase the that property considerably through renovation. That's kind of why it's like a flip. But then instead of selling the house, you rent it out. So you start generating income and then you refinance it. Because selling is one way to get the equity out of your deal once you've done value add. But refinancing a property is also a great way that you can pull equity out of a deal once you've done a value add project and driven up the property value of the project that you're working on. So this is a great strategy for anyone, whether you're trying to scale, you're trying to do your first deal, whatever. It's a really good strategy because it combines a lot of the things I personally love about real estate investing. It allows you to generate rent and passive income. It allows you to get big equity boosts by doing a renovation. You still get all the tax benefits of doing value add, unlike flipping. And so there's a lot of really effective strategies at play here just within the BRRRR method. And I you might hear people say BRRR is dead. I think that's super silly. I see people doing it successfully all the time. I'll explain in a minute why some people are saying that and why I don't believe that. But even if you've heard that, just bear with me for a minute because BRRRR absolutely still works and can help you get five deals in five years for sure. Let's just go to an example to help explain this. So let's just say we're going into a cheap market and we're gonna buy it for 250. 00. And and I'm saying 250 because remember, this is a property that's going to need a rehab. It's not going to be rent ready, it's not going to be in perfect shape, we need to get it up to our highest and best use. Let's say, because we are not going to be living in this place, we're going to put 20% down. That's 50K. And then you're going to need another 50K to renovate. So that comes out to $100,000 that you're going to need for this deal. And you definitely could do it cheaper. Like if you want to combine this with a house hack and do an owner occupied, awesome. That is an even better way to do this. You can partner for this too, because not everyone has $100,000 just laying around. But for this example, we're just going to assume that you take all of this on yourself. I should also mention, like, there's ways to borrow the 50k for a renovation. Whether that's hard money or a 203k loan. All of these things are possible. Just. But for the simplicity of our example here, I don't want to make it too complicated. We're just going to say that you have 100 grand and you're putting that into this $50,000 renovation. So let's say you put in this 50K to renovate the property. That boosts your value of your property up to, let's call it 350 grand. That would be a great return. Totally doable return, by the way. This isn't some like pie in the sky number. That is a doable return on a brrrr. And then you want to refinance it because you've driven up the value of this property, but you have all this equity sitting in there. So yeah, you want to hold on to this property, but you need to extract some of the value that you've created to go on and buy your next property. So the way you do a refinance on something like this is you get a new mortgage, right? You had that conventional mortgage, but you have to get a new one. That's what a refinance is. And on this new mortgage, you got to keep 20% in. That's going to be 70K. And then you need to pay off your original mortgage, right? You have that first loan and you're going to need to put in 200k. So that comes out to a total of $270,000. But your property is worth 350. So that means you can actually take out $80,000 on this deal. So you put in 100k. Remember, 50k for the down payment, 50k for the renovation. But now you can recycle $80,000 of that. This isn't what is known as a perfect brrrr. And that's why people say that brrrr is dead. A lot of people assume that if you're doing a brrrr you need to be able to extract 100% of the money that you put in after you refinance. And that's great. If you can do that, that's amazing. But it's not that common. There were some years in real estate where it was possible, but even if you can extract 50% of your value, that's amazing. That means that you can really scale up how quickly you can acquire new properties because you don't have all the money that you saved up sitting in that first property. You're taking some of it out and applying it to the next deal. So maybe you do this and you have 80 grand to go invest. Maybe you buy a single family residence. Maybe you are able to save up a little bit more money while you're doing the burges from your normal W2 job and you buy a next property with 80k plus a little bit more. Maybe you do the exact same thing over and over again. Maybe you find a partner. The point is this strategy of BRRRR allows you to keep recycling a lot of your capital so that you can realistically deal every single year for the first five years of your investing career. And hopefully you see how this works because of course this is just a very, very simple example, but it is an amazing way to build wealth to scale and build a portfolio. And there are some trade offs here, right? Because you do need to be more hands on than just doing sort of the turnkey type of house hack that I was talking about before because that was just kind of moving in, renting things out. And that's great. You have to do the value add here. Doing a BRRRR takes work. You have to figure out how to do a successful renovation. So if you are just getting started, I do recommend starting with a real cosmetic rehab. I only did cosmetic rehabs for the first, I don't even know 12 years of my investing career. So you could go a long way just doing these types of simpler renovations. And if you're just getting started, I really recommend you start there. And then if you want to scale up to those more complex renovations, more risk, higher opportunity for returns though for sure if you want to take that on. So this is our second option. Our first one was house hacking owner occupied strategy. Second option. Here is the BRRRR strategy. We're going to talk about our third option for buying five properties in five years right after this break. Landlords. You can simplify and streamline your rental business with availability, managing everything effortlessly from setting a competitive price for your rental and advertising it online to receiving applications and screening prospective tenants with TransUnion reports you need a lease. Avail offers lawyer reviewed state specific templates that are ready for secure online signatures, saving you time and ensuring legal compliance. And what about collecting rent? It's a breeze with multiple payment options designed to fit your tenants preferences. 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- [22:04]
Nomad
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- [22:33]
Dave Meyer
You looking to level up your investing game? Bam Capital can be a game changer for investors seeking reliable returns with a proven track record of success. They've distributed over $215 million to date thanks to their hands on management approach and deep market expertise. BAM Capital specializes in carefully managing your investments, ensuring they are handled with precision and care to maximize growth potential and mitigate risk. Whether you're new to investing or looking to diversify your portfolio, BAM Capital offers the tools and expertise you need to reach your financial goals. So take the first step towards savvier Investing today. Visit biggerpockets.com BAM to learn more and get started. That's biggerpockets.com BAM when rents late, it's.
- [23:13]
Nomad
Not just annoying, it wrecks your whole month. Your mortgage is still due and it's time for an awkward conversation with Nomad. Landlords avoid headaches and get peace of mind. Nomad is the digital property management platform that backs every lease with guaranteed rent for just 4% of monthly rent. Here's how it works. Nomad publishes your listing to 30 plus sites so you can start cash flowing f they provide 24. 7 repair, triage and a vendor network to make management a breeze. And you get paid on the 5th of every month even if the tenant doesn't pay. Plus, Nomad can even advance you 6 months of rent. To learn more, head to nomadlease.com BP that's n o m a d lease.com BP.
- [23:53]
Dave Meyer
Welcome back to the BiggerPockets podcast. We're here talking about how you can can scale to five properties in just five years. The first two of the three strategies that I'm going to be sharing today were house hacking and the brrrr method. Option three here is pretty simple. Be rich. And I know that's a little bit ridiculous, I'm kind of joking, but you actually don't need to be that rich. I'm sort of just talking about people who have access to income or savings. So if you make make 150 grand a year as a household, you can very realistically just go out and use that income to buy a rental property every year. Or maybe you aren't able to save that much, but over the course of 10 or 20 years of your life, you maybe you and a partner have been able to save a couple hundred grand, then you realistically can go out and buy properties every single year as well. I think this is important for people to take into account because if you think about, okay, I want to go buy five properties in five years because a lot of people might assume that you need a million dollars to go do that or you need $2 million to do that and that's not really the case. Right? Let's just say you have access to $250,000 lying around. Maybe that's in a self directed IRA, maybe it's just in a savings account, maybe it's in bonds or the stock market. Whatever it is, if you had 250k, you could realistically go out and buy a nice pretty turnkey single family home in the Midwest every year for the next five years just by putting 20, 25% down. That is a very realistic way to achieve five properties in five years. And I really like this approach if you're in this beneficial sort of favorable financial position because it kind of allows you to do the dollar cost averaging approach where you just kind of put it, set it and forget it. I buy one single family rental every single year. I'm going to do that until I am financially free. I talk to people on this podcast all the time that do that. You could do that if you have savings. I should also say like a lot of people who have excess income every year could do this as well. So whether you're single or operating in a household with a partner and dual incomes, if you can save, you know, 40, $50,000 a year. You can apply that to real estate and buy it every year. And again, I know not everyone can do that. That is not the most common solution. But I do think it's worth worth mentioning that this is possible because there's sort of this spectrum in real estate investing where some of the most beneficial, most profitable options just take more time. They take a little bit more hustle. You see that with the house hack, which doesn't have to be hard, but you have to move every year, which really is what, two annoying days of your life every year. I think it's worth it. Or a brrrr. Where you have to take on a value add project, which is time. Those are great ways of earning returns. But for some people who have a decent amount of money, you might want to do that hustling. Maybe your life is comfortable and you want to just go buy a single family home every year. That's absolutely still a great option for anyone who can afford that. So those are our three options. Again, they're house hacking brrrr. And just have access to income or savings. But I should also mention that these three different approaches don't have to be treated independently and differently. You can actually combine these together, right? You can house ha with a brrrr. That is absolutely something that you can do. You can partner with a friend who has some capital to go out and do the rich person approach of just buying turnkey single family rentals every single year. You can get creative. These things don't exist in a vacuum. You can absolutely adjust them to suit your individual preferences, your risk tolerance, your needs, your financial situation. Absolutely can get get creative. This is really honestly how real estate works. I think a lot of new folks think that, okay, I need to own 100% of a deal, or maybe I'll just hustle into this first deal and then once I get that first deal, I'll just be able to buy properties super easily after that. That's not really what happens for almost everyone I know, even really experienced investors. People are always partnering, they're always coming up with creative ways to use financing, to recycle their capital to scale at an appropriate pace for them. And so I encourage you guys to do that. These are three really good foundations that you can use to buy five properties in five years. But if they don't feel exactly right to you, that's fine. You can just use some of the other tactics and approaches that we talk about on this show all the time to tailor it to your specific situation. All right. Hopefully this was helpful. That's what I got for you guys today. These are three great ways to give you some ideas to get to five properties in five years. If you have any questions about this, feel free to hit me up. If you're watching it on YouTube in the comments or if you're listening to this on audio, you can always find me on biggerpockets.com or on Instagram where I'm at the Data Deli. Thank you all so much for listening. We'll see you next time. Thank you all for listening to the BiggerPockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com.
- [29:28]
BiggerPockets
The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.