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There are two ways to grow a rental portfolio: occasionally, or continuously. As Thoughtful Real Estate Entrepreneurs, we want to grow our rental portfolios on a continuous basis—not in sporadic fits and starts. But the mainstream “powers that be” have designed the system to prevent you from this continuous growth; to force you into moderate growth by their standards of what is safe and acceptable. So if you want to grow your rental portfolio continuously, you have to have three key things in place that allow you to operate outside the traditional system: Deal Flow, Loans and Cash.
In this episode, Jeff discusses these three critical categories and how to create continuous access to each.
Episode Transcript
Hey, super quick, before we dive into this episode, I want to share with you a belief that I have. I want to see if you share this belief with me. You see, I believe that we, as real estate entrepreneurs, should get to grow our real estate portfolios or rental portfolios at the rate that we want to not at the rate that a bank or the marketplace tells us that we can see when I talk to real estate entrepreneurs, which I have the privilege of doing so often. Really, there’s three problems that come up when I asked them, what are they encountering when they try to scale and they say there’s three things: number one is, they have to have access to deals that actually make sense. And they’re having trouble doing that. Number two, they’re having trouble getting access to enough loans to be able to buy those properties. And then even if they had both the access to deals and the loans, they don’t feel like they have enough access to cash. And those three reasons are why I created a new program called deals. So here’s the deal with deals pun intended. Yes, absolutely. Of course, I would do that. This is a group coaching program, with a structured curriculum that is all about leading you through the linear process of creating an off-market acquisition system for seller financing deals, so that you’re not limited by what the market has to offer. You’re not limited by what the banks will give you and shows you also some new fresh alternative ways you can generate cash to do the deals you need.
Now, look, I know that deals is not for everybody. And that’s totally okay. So if you think the deals program is the right fit to help you get where you’re trying to go in your portfolio, go to www.thoughtfulre.com/deals. And on that page, you’ll see a little description of the program. And if you are interested, just hit the button where you can start a conversation, I would definitely want to personally ask you a few questions and make sure that you are a fit because I know it’s not for everybody and that is a-okay. So head on over to www.thoughtfulre.com/deals to find out about this group coaching program to help you slay those three problems that we have when we try to scale access to deals access to the right loans, and access to cash. All right on with today’s episode.
How fast should you build your rental portfolio? Well, I don’t really think there’s a right answer or a wrong answer. I think it’s unique to you. But here is the word that I think about when I think of what I hope will be the case for you. And that word is continuous. I would love to see you are building your rental portfolio on a continuous basis. And in today’s episode, we’re going to talk about what does it mean to build that portfolio continuously. But more importantly, what things do you need in order to not experience a start, stop, START STOP type of path, but to be able to build continuously. So let’s cue up that theme song and we’ll jump right into this.
Welcome to Racking Up Rentals, a show about how regular people those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans nor are we posting We Buy Houses signs are just looking for quote “motivated sellers” to make lowball offers to. You see, we are people-oriented dealmakers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from The Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Thank you for joining me for another episode of racking up rentals. Show notes for this episode can be found at www.thoughtfulre.com/e90. Please do us a big favor by hitting the subscribe button in your podcast app, I would so appreciate that it really helps send a message back to the platforms that they should be sharing our show with other fellow thoughtful real estate entrepreneurs like you and me. Onward with today’s episode.
In today’s episode, we’re gonna talk about what it means to grow your portfolio continuously. Now, you may have heard me say this before, and I’m going to say it again because I think it’s really important. I have a belief. My belief is that you me, all of us together, we should have the ability to grow our rental portfolios at the pace and the rate that we want to not the pace or the rate or the path that the powers that be say we can or we should I want to see you do what’s right for you. But oftentimes we feel like we don’t have ultimate control over that, that we can’t build our portfolio faster than the system will really allow us to. So I’ve been thinking a lot lately about like, well, what how would I explain what it is I hope that people have that I have strived for myself in my own business and the word is continuous. Continuous means that you’re always making progress; you don’t have to stop and pause, or rest unless you want to. If you want to stop, pause or rest, that’s completely fine. But if you would like to be making constant progress, whether that progress is fast and aggressive, or if that progress is slower, and more methodical, that you’re constantly making progress.
I was talking with a coaching client about this the other day, and I sort of used the simple analogy of, you know, is it a marathon? Or is it a series of sprints and rests, and in many ways, the system, you know, the man so to speak, but just, you know, the establishment way of doing things in the way that we are often taught by default by a lot of real estate, educators that are in the mainstream is that it has to be more of a sprint and rest kind of thing. So we save up our money, we go out and we start this sprint and we find a deal, and we get the loan. And we close the deal, and then we have to rest because we have to rebuild our reserves. And we don’t qualify again, and the seasoning and all this kind of stuff like that. But I like the idea of it being more of a marathon. Now, if you want to try to run that marathon in eight hours, and have a slower pace, that’s great. If you want to run that and try to run that marathon and win the Boston, whatever that is two hours or something like that, that’s completely fine as well, or anything in between. But as long as you’re continuously making progress to me, that’s what’s important.
And that’s what we are going to focus on today. Because the system doesn’t really want you to do this. You know, the system is designed to tell you how you should grow your portfolio if you want to grow it, how fast is too fast, how much money you need to have saved up and how many, how much reserves and how good of a credit score. So it’s telling you how the game works, rather than you telling it how the game works. And I don’t really want to be playing somebody else’s game, I want to be playing my own game. And I want you to be playing your own game, as well. So what we’re going to talk about today are the three ingredients that we need to have in place to have continuous growth or continuous progress towards growing our rental portfolios. And again, just to reiterate, if you want to buy 20 rental properties a year, that’s fine. If you want to buy three rental properties a year, that’s completely fine. But either way, we’d like to be making continuous progress every day, every week without feeling like we have to stop because some outside force has told us that we have to stop or pause. So here are the three ingredients that we need for continuous growth.
Number one is we need properties that we can buy — properties that make sense as deals. You might call this deal flow. Number two, we need the next two things are actually forms of capital. Number two is we need access to loans, we need access to the right type of debt, or other people’s money that we might utilize. And then number three, the second form of capital is we need liquid cash, so that we have the funds available to do things like make earnest money payments and make down payments and repair our properties or conduct a renovation on a property that we just bought as part of our vision for why this deal makes sense. So let’s just break these things down at one at a time and take a look at each one individually. And certainly you’re going to notice that as we look at each of these individually, we are looking for the non-mainstream ways of doing things, the ways of doing things that get outside the traditional system. Because when we follow the traditional system, which I by that I mean would be like buying properties that are listed with realtors on the multiple listing service. And getting loans from banks when we do that, we can only go as fast as those systems will allow us as those powers that be will allow us so we’re going to focus on how we get outside of that with each of these categories.
So first and foremost, we’re going to talk about deal flow. First, we have to have properties that we can buy that actually make sense. So in order to get out of the mainstream system, we are going to be looking for off market leads we’re going to be looking for leads that are not listed. These are sellers who have not raise their hand standing over on the side of the road saying hello see my hand raised this means I want to sell please bring your offers because I’m entertaining offers right now. We’re looking for people who are not in that category, and one of the things that we really want to accomplish is, we want to have a lot less competition, because if you, you might ask yourself, well, what’s the problem with buying properties that are listed. And I would say there are several problems with buying properties that are listed. But one of the problems that we’re going to focus on today is the idea that those markets are very competitive, especially at the time that we’re recording this. And, frankly, much of the last decade or so, those markets have been very, very competitive. And when the markets are competitive, we have to compete, we have to do things that we might not normally want to do, we might have to follow a different process, we might have to have different types of conversations, we might have to stretch ourselves financially to buy properties, because that’s the game that the system is dictating that we play. But we don’t want that competition, we want to be one of the only if not the absolute only person at the table with the seller that we can speak to.
Secondly, on this similar note, we also want to not have to conduct our business through third parties, we believe that it’s going to be much more likely for us to create deals that make sense for both parties, the seller and the buyer us if we are able to speak directly to the other party without needing to go through outside third-party intermediaries like realtors. So one of the things I talk about, in my programs and with my coaching clients a ton, is the idea that marketing for off market leads is like planting seeds. And when we plant seeds, we know that some of those seeds will sprout pretty quickly. We know some of those seeds will never sprout at all. And some of them will sprout over any number of timelines, right. So I’d like you to literally envision yourself with a handful of seeds, and you’re walking through a dirt field. And you’re just sort of gently sprinkling those seeds out of your hand and into the dirt. And we know then that if we’re planting seeds all of the time, right, if you do this planting of seeds activity every week, and every week, some of them will sprout quickly, every week, some will start a two-week cycle of sprouting every week, some will start a four weeks cycle of sprouting every week, some will start a six-month cycle of sprouting. If you are walking through that field, sprinkling those seeds every week, at least a few seeds every week. Pretty soon, you will find that every week, something is starting to sprout, because you’ve been sprinkling them consistently continuously. And you have been planting seeds that all have different timelines. And so pretty soon you see, Gosh, every few days, if not every day, my phone is ringing, because I’ve now been continuously planting these seeds. But planting seeds by itself is great. However, what’s the next thing we often need to do with our seeds? I just planted some grass seed in my yard to try to patch a couple spots that didn’t survive the winter very well. So what am I doing after I put the seed down? Well, I’m watering and watering the seed and watering it on a pretty frequent basis. So what is watering the seeds like in this case, it means that we are nurturing our leads, it means that we are coming back through it’s a seed that we planted. Previously, a letter that we sent to somebody, maybe three or four months later, we’re sending them another letter to say hello, I don’t know if you remember, maybe I sent you this letter a few months ago, I just want to check back with you, I hope you’re doing well hope your spring is off to a great start. Just wanted to reiterate that I’m sincerely interested in your real estate, if you’d ever be interested in chatting with me about selling it to me, etc.
So we’re constantly planting seeds. And we’re constantly watering seeds. And we’re doing all of this in our approach is not for real estate entrepreneurs. We’re doing all this with a very relational or relationship-oriented approach. It’s it is a numbers game in the sense that we are doing a lot of it, we are doing it consistently. But it’s really more of a relationship game in the sense that we are trying to help the seller see that they should feel very comfortable with us from our letter. And if they decide to call us back that it’s going to be a nice comfortable experience. So if we want to have continuous growth in our portfolio, first and foremost, we need to have continuous deal flow as well. And we do that by always planting seeds and always watering those seeds with a very relational approach. Secondly, we’re going to need to have as we move on to the topic of money or two categories, we’re going to need to have continuous access to loans. And if we want to have continuous access to loans, it’s probably a good idea that we have more than one source for those.
Now, if you if you create a great relationship with a lender, and it’s sort of like a well, and you can go back to that well over and over again, that’s fantastic. But it’s always a good idea to diversify the sources that you could go for those types of loans, those types of lender relationships. And again, it is very much a relationship type thing, you they get comfortable with you, you get comfortable with them, you become mutually familiar with how the other one works. And it’s good to have multiple sources of this. But there’s some really important hallmarks about these types of lenders that are different than the types of lenders in the more traditional path where you can’t grow continuously. With these lenders we’re seeking, we need to find lenders who don’t really care how recently we just bought something else. In fact, they might actually like the fact that we bought another great property a month ago, because that shows them that we know what we’re doing. And that we are action takers, and that we are making progress and that we are solidifying our financial position. But traditional lenders will look at that and say, Oh, you just bought a property a month ago, we want lenders who either say, Oh, awesome, you bought a property a month ago, or we don’t care how recently you bought your most recent property, we care that this deal makes sense. Now, these lenders are people that we want to be flexible with us, they don’t look at us the same way a bank looks at us, they look at us in the way that makes sense to them. And in many cases, these lenders are not looking very much at us at all. But they’re really looking much more at the property, which will become the collateral for their loan. So they’re looking at the property saying, Well, I don’t know what I feel comfortable loaning that amount of money secured by that piece of property, which takes the focus off of us. And when it takes the focus off of us, that means we don’t need to be as worried about things like our debt-to-income ratio, our credit score, our cash reserves in the bank, our ability to show, you know, several months of bank statements, and W-2, income, pay stubs, and all that kind of stuff. So we’ve got lenders, who are looking at different types of things.
Now, it will be probably no surprise to you, for me to say that in our approach, the best lenders that we work with are the sellers themselves. And we talk about, you know, these lenders should be from multiple sources, well, you probably will buy multiple properties from a couple sellers. But generally speaking, multiple deals will come from multiple sellers, and that’s now diversifying your lending sources, they’re very much as well, let’s not forget to the incredible efficiency of when you can buy a property and the financing all at once. You know, that’s one stop shopping as they say, like when you can go to go to a store and get both, you know, a piece of furniture and something to you know, fix something in the hardware department as well as get the milk and eggs. That’s a pretty convenient setup. So one stop shopping for a real estate entrepreneur like us is loan and property from the same source. That’s great. Now, if we’re not getting a loan from the sellers themselves, our second preference is private individuals. You know, when I say the word private lenders, people think, oh, hard money lenders, well, I guess that could certainly be in that category. But I’m talking about regular people. I’m talking about people without a website, people without a fixed program that says, Well, let me send you a PDF and show you what our points and rates and ltvs and draw schedules and all that kind of stuff are regular people who have liquid resources that they need to put to work. That’s our approach. Our second-best thing next to sellers is them.
And then third, we also really want to have a good stable of other asset-based lenders that as you might call them, lenders, who again, are in the professional lending business, but they’re looking less at you and more at the property itself. These might be considered hard money lenders, some of them might be considered a little bit softer than hard money lenders, but they do know what they’re doing. And it’s good to have a stable of relationships for those people, as well. So now at this point, we’ve got continuous deal flow. And now we’ve also got continuous access to loans. Let’s talk about our third and final thing that we need to have continuous access to. And our second thing that falls under the category of capital, and that is, of course, cash. Now, what do the sort of regular real estate investors do who learn, you know, the kind of conventional real estate investing path? Well, they save up some money, and then they use that money as a down payment and repair costs oftentimes, and as soon as they buy something, then those resources are depleted. Their balance goes back to zero and they have to start saving again and again. And then every time they buy something, this process happens over and over again. And that by its very nature, of course, it creates the opposite of continuous growth. It creates, peaks and valleys it creates starts and stops, it creates the rests that happened between the sprints. But we decided here, we don’t want sprints, we want a continuous, slow marathon where we’re always moving towards our goal. So what do we need to do in order to have access to cash all the time? Well, a couple things.
One is we need to be expertly managing our equity. And what that means is that we need to have a good handle on all the tools that are at our disposal to tap into the existing equity and cash flow we have in our current properties. Now, to the normal sort of real estate investor. That means I go to the bank or the credit union, and I asked for a home equity loan or home equity line of credit. And that’s great in certain cases, but those people often quickly find out that those products are not quite as available for non-owner-occupied properties. So they think, well, if I want to get the equity out of this property, I either have to sell it or have to do a complete cash out refinance, which then replaces all of the existing first position debt with a bigger loan. But when we have mastery over the tools of creative real estate entrepreneurship, we know that there are other ways to tap into the existing equity and cash flow we have in our other property. So we need to have a mastery of those tools. Because if you buy a property, let’s say for 300,000, and you make your repairs and improvements, and you’re managing the property better, and now it’s worth 500,000, you need to be able to have ways to extricate the equity that you have just created the delta between that 300,500 1000 so that you can get those resources back into your hands in a more useful format.
So you can continue to continuously grow your real estate portfolio, we also need to find new sources of revolving debt, we need to find new places that we can turn for loans and lines of credit. Some of these will be secured loans, either secured by potentially our real estate or other things that we own. But in many cases, they will also be unsecured loans, right. A simple example of this would be a credit card, or a personal line of credit at your bank, these are bits of revolving debt that we need to have access to, we need to know how to get access to them and optimize that access. So that those funds are available to us if we want to use those funds for that stuff. And lastly, we also need to know how we can turn the opportunities that come to us sometimes into other types of deals. Okay, so we’re constantly planting seeds. And we’re constantly planting the type of seeds that we want to see bloom, right. And these are rental properties in in almost all cases. But if we are actively continuously planting those seeds and nurturing those seeds, watering those seeds, you know what’s gonna pop up sometimes a deal, an opportunity that might not fit perfectly as a rental, but it might fit really well in a different deal structure. And some of those different deal structures can be super helpful for helping us gather cash, a very simple example would be a deal comes to you and you think this isn’t a great rental property and the financing doesn’t really facilitate that. But Gosh, I could do a quick, easy flip on this, I could buy this for $200,000, I could put $15,000 into it, and quickly resell it for 325. Well, there’s a great win. And that deal structure allows you then to create a nice big cash win, that you can put back into your business to have the resources available to buy the next rental property.
Or let’s say maybe you have a real estate license, and you are doing your marketing looking for rental properties you can buy for your own portfolio. And a seller calls you and as you talk to the seller, you think Gosh, I guess I could buy their property. But I think they’d be better served by just listing this on the open market. And I think I might be better served by just getting a quick, easy commission, rather than actually buying their property. So now you pivot that conversation towards saying, you know, Miss seller, I think actually you we might be able to create a better situation for you by simply listing this property on the open market. And I would love to help you with that. That could create, you know, 10 $20,000 Commission, that could be very, very helpful to you in your overall business by providing that type of cash.
So if you want to grow your portfolio continuously, and I hope that you do, I hope that if you’re listening to this show, it’s because you’re the kind of person who wants to see continuous growth, whether it’s, you know, by your standards fast or slow. None of that really matters. What matters is that every day every week you are moving — moving towards the goal of the portfolio that you want to have in the financial results and benefits that you want to have from that portfolio. And so if you learn these three skills, these three arts the art of creating off market deal flow, the art of creating non-bank financing loans, especially from sellers and the art of always generating new liquid cash through your portfolio and through other means, then you will have what it takes to continuously grow your portfolio at the rate you want to and that is my hope for you.
So that is it for today’s episode of Racking Up Rentals. Again, Show Notes for this episode are at www.thoughtfulre.com/e90. Please do us a huge favor by hitting that subscribe button in the podcast app and take just a second to rate and review the show. I would so appreciate that.
Did you know that we have a Facebook group for thoughtful real estate entrepreneurs also? It’s called a Rental Portfolio Wealth Builders and you should be in it. I would love to have you there! Please come and join us there if you’re not part of the group already. You can of course search Rental Portfolio Wealth Builders in Facebook, or just go to group.thoughtfulre.com and the magic of the internet will take you right to that page and you can join.
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Hey, I’ll see you in the next episode. Thanks for listening! Until then, this is Jeff from The Thoughtful Real Estate Entrepreneur, signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being a win-win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.
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