How to Build a Multifamily Portfolio Part Time from Scratch

Discover how to build a multifamily portfolio part time from scratch. You’ll learn how one of our protégés, Dave, built a $6MM, 45 unit multifamily portfolio, part time, starting from scratch while he drove a truck full time and it now generates $600,000 in annual rental income. Find out how he did it and how you can too!

Building Multifamily Investing from Scratch

Dave built his multifamily investment portfolio from scratch. He was a hard working family man, in the transportation industry for almost thirty years as a truck driver and most recently driving a fuel truck. He was looking to pension out early but realized he was going to come up well short of being able to retire. This led Dave to begin researching ways to supplement his income and secure a stable retirement that could keep pace with inflation. His dad had experienced invested in residential real estate a little bit so that led Dave to investigate real estate investing as well. After discovering how much more productive commercial multifamily investing could be for building wealth and producing cash flow, he began watching Commercial Property Advisors videos on YouTube. Dave applied and was accepted into our Protégé Program. You can learn more details about how Dave and his wife Andrea got started in an interview we had with them here: Finding Great Multifamily Apartment Investments in HOT Markets. Even though Dave was brand new to commercial real estate, working full time driving a truck and busy with family commitments, through our mentorship, he was able to build a $6 million multifamily portfolio in Northern California. How did he do it?

Multiplying a Multifamily Portfolio with Strategic Financing

Dave multiplied his portfolio by strategically applying several financing techniques. In five years, as a part time investor, he was able to purchase 7 multifamily properties totaling 45 units and they now produce a yearly income of $600,000! Here are the specific financing strategies he employed to build his portfolio:

• Local Bank Loan: Dave financed his first two multifamily deals, a 6 unit and 5 unit, with a local bank loan. Dave started out investing in small apartments because the down payment was lower and it was easier for him to get a loan. For these two deals Dave used his own savings for the required 25% down payment.
• HELOC: To finance the purchase of his third multifamily deal, at the suggestion of the local bank that he already had a relationship with, Dave used a personal HELOC. He technically paid cash for the property and was able to negotiate a better deal with the seller.
• Cash Out Refinance: Within a year of paying cash for his third multifamily property using his HELOC, Dave this did a cash out refinance and completely paid back his HELOC so he could use it again on the next deal.
• Line of Credit: Dave followed the value add strategies we taught him; he stabilized the three properties, raised the rents, increased the NOI and therefore the value. Thanks to the equity in his three multifamily properties and his new net worth, Dave qualified for a business line of credit from a new lender. He then used this line of credit along with his HELOC, to fund the down payments for his next four deals. And because the apartments Dave invests in are C-class, value-add properties in need of repairs, having the line of credit gave him the flexibility he needed when qualifying for bank financing. Using his line of credit, he purchased a 5 unit, a 9 unit, 6 -unit and finally a 7 unit.

3 Keys to Building a Multifamily Portfolio

Key #1: Building Industry Relationships

One of the keys to Dave’s success is building industry relationships. I say repeatedly in my trainings that commercial real estate is a relationship business. Dave really focused on this aspect of the business and is committed to building relationships that are genuine and have integrity. He says that the people you are working with, whether it’s a seller, broker, lender or property manager, need to know that you will pull through and that you value their time.
An example of this principle in practice is when Dave was looking for a tenant for his seventh multifamily property. It’s a six unit with a 2,000 square foot warehouse. The warehouse was vacant when Dave purchased the property but through his relationship with a broker, he was able to find a tenant for the space. The broker had closed a deal on an industrial property and the tenant was looking for storage to rent. Dave is renting the warehouse for $700/month, and the rent will increase $100/month each year until it reaches $1000/month. And that goes direct to the bottom line increasing cashflow and value of the property.

Key #2: Mentorship

The second key to Dave’s success is mentorship and following a proven commercial real estate investing formula. He said it this way,

“If it ain’t broke, don’t fix it. What I’m referring to is your system. Just be coachable and follow the system. That’s basically what we did. We know real estate is good and it always perseveres even through the little dips, it’s just a matter of how to use that. I think that’s where your mentorship comes in… whether it’s the mindset video, your team, you have already gone through the ups and downs, your experience to put that together, which I think probably saved us five to 10 years of potential mistakes. Your program is, in my opinion, I’m not biased, just through experience, is spot on. You just follow the principles that you have, you and your team put in place. There’s no reason to overanalyze it, just follow Peter’s coachable steps and his team and he’ll direct you.”

Dave learned a lot through our mentorship, and a technique we stress is having an exit strategy. One of the keys in scaling for Dave was being able to determine the exit strategy, see the potential and plan accordingly. Case in point was how he structured his third apartment deal. He refinanced, paid off the HELOC, then reused it and moved on to another multifamily investment.

Key #3: Good Property Management

Finding a good property manager is key to scaling multifamily successfully. It is crucial to build a relationship of trust with your property management. This is extremely practical because Dave is busy with a full time job and does not live the same area that he has built his multifamily portfolio. It’s vital he has a someone to help manage his properties so he can continue to focus on scaling and do other things. As he has continued to acquire more properties, he has realized that time is valuable and using your team and finances is key. Dave has a fantastic property manager named Nicole and these are the qualities that make her stand out.

Qualities of a Good Property Manager

• Effective Communicator: Dave has a clear understanding of what Nicole is thinking because she is an effective communicator. Dave is not left in the dark nor does he have to make guesses about what’s going on. She keeps him up to date.
• Knows the Market by the Block: Dave’s property manager can tell him what the rents are within blocks because she was born and raised in that area. She is also interested in real estate investing so she understands the mindset, which helps her put more value into Dave’s properties.
• Responsive: Even if it’s the weekend, your property manager needs to be available for unexpected situations. Dave gave the example of a landscaping pipe that burst, and when the landscaper called, Nicole was on it right away. She is responsive, even on the weekends.

Building a Multifamily Portfolio Part Time from Scratch

Within five years Dave has built a portfolio worth $6 million: seven properties, 45 units, producing $600,000 a year in rental income. Investing in multifamily real estate has given him a stable retirement income that continues to increase in value. And with the help of a mentor, you can build a multifamily portfolio just like Dave. Get your mentor here: Commercial Property Advisors Protege Program