TBT: 7 Strategies to Expand Your Real Estate Portfolio

Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.

This is going to be another Ask Marco episode. I was going through the questions submitted from you, our listeners, and found one I thought was short, sweet, and actually a great question. And that is really the question of how can I expand my real estate portfolio.

So today, Pravin, I think is how you pronounce the name Pravin, and asked me a basic question of – How can I expand my real estate portfolio?

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Throwback Thursday Episode (The episode originally took place in the year 2024)

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So the question was, hi there, first of all, thanks for the podcast for real estate. I currently have a couple of rental properties, but I want to expand my real estate portfolio, so I need some advice. I have one property in California and one in Alabama. Well, congratulations on your two properties and hopefully you will keep growing that portfolio. And so let’s answer your question about strategies to expand your real estate portfolio. So I was kind of considering, you know, how I should answer this question and I just kind of broke it down and wrote myself a few bullet points here. There are some major strategies, not worth talking much about what I’ll call minor strategies. They’re really just focused on improving cash flows, expanding geographically, optimizing your property management, increasing the properties value through value add, you know, just networking with other people, focusing on maybe some off market properties rather than MLS listed properties.

These are, you know, these are just all ways for you to find out about more deals or increase your cash flows, which can be reinvested. So, you know, I mean that I think is a given, I almost wanna say it’s common sense, but I want to talk about the major strategies, the things that provide the biggest leverage points, the greatest amount of movement. So let’s talk about seven of them.

So the first one is what I call Maximizing Your Leverage. And I’m gonna break this down into a couple of different categories. So what I mean by maximizing your leverage is how do you get the most out of the least of your investment capital so you can acquire more property with the least amount of capital while still preserving your cash flow, and of course, keeping that equity. And that’s what mortgage financing is all about. But let’s let’s look at that first.

So Mortgage Financing is really just maximizing other people’s money, which in this case is the lender or a lender of some kind with the highest but the right amount of financing. So rather than spend a hundred percent of your investible capital in acquiring property, why not take that same capital and purchase two properties or three, or possibly even four, maybe five. So you can leverage your investment capital as much as five to one because you can get mortgage financing that goes up to 80% loan to value LTV. And if you can get 80% or up to 80% loan to value, you’re able to leverage your investment dollars and buy more property with less down. Now of course you don’t want to go crazy with this, you don’t want your cashflow to be negative, at least in most cases, at least not for any prolonged period of time.

You wanna minimize the negative cashflow, but try and avoid it if you, if you can, because you want your property to carry itself to pay for itself and have left over net cashflow, which is real spendable money. Not that I’m suggesting you spend it, you should bank it, bank it for reserves and bank it for additional investment capital. But the beautiful thing is, is you can get all kinds of loan products and there are many, many great loan products. Some of them are very aggressive, but you can get up to 30 even 40 year fixed rate mortgages, even interest only mortgages that allow you to acquire real estate income producing real estate with relatively speaking low down payments and own and control that property, have all the benefits of that property, a hundred percent of it while borrowing other people’s money, which is the lender. So that’s mortgage financing. It maximizes your ability to grow your portfolio with the least amount of investment capital.

The second major leverage point, if you will, is leveraging equity. You can use the equity in your existing properties to secure loans for new purchases. If you have significant equity in the property or two or more, you can consider refinancing or taking out a, a home equity line of credit, also known as a HELOC, H-E-L-O-C to finance, additional real estate purchases, additional properties. Now you don’t always wanna do this, you don’t want to over-leverage yourself because if your debt service is higher than the ability for you to service that debt with that property, then you’re essentially in a negative cash flow situation and you don’t want to be in that situation ideally at all. But sometimes it does make sense for a short period of time to actually have negative cash flow because it allows you to take what I’ll call a small step backwards, the negative cash flow for a short period of time to take a big step forward or several steps forward in acquiring new rental properties that will allow you to service that debt through its cash flow and or gain equity at a fast enough pace that makes up for the negative cash flow you’re paying.

So if I’m paying a hundred dollars a month negative cash flow, 1200 a year, but I’m gaining on a property that’s gaining an equity, let’s say 10, 20, $30,000 a year, even though it’s an unrealized gain, it’s not in liquid form, it’s not cash today, I’m actually making more in terms of the return on that equity than I am in the loss, quote unquote on the cash flow, negative cash flow on the initial property. So it’s just kind of a creative way of financing and acquiring more assets by taking a small step backwards. And that’s usually often if you do it right, translates to a huge gain in the future. Now you have to do your homework and you have to run the math and you have to make a few assumptions, but if you do this properly, you will see that in many cases you can actually make significant gains by taking small call it losses in terms of cash flow on the front end.

So again, along the theme of maximizing leverage, the last concept there is leveraging OPM- Other People’s Money. So if you want, and this is a topic, an entirely separate topic, but if you want to seek out partners and have a partnership or private lenders or even a syndication opportunity to expand your portfolio without using your own capital, you can do that by leveraging other people’s money. Essentially, you’re a partner, maybe you’re doing a lot of the legwork, but working with a partnership or with a private lender or in a syndicated like a a group investment opportunity, you can leverage other people’s money and gain in growing your real estate portfolio. The whole concept of syndications, meaning group investments and partnerships is really a topic by itself, and I’ve talked about that in previous episodes. So you can go back in our catalog and take a look at, you know, what we have in terms of syndications and whatnot.

And I do talk about it on and off in various episodes, but it’s something to consider in terms of the theme of maximizing leverage. Alright, so mortgage financing, leveraging equity and leveraging other people’s money, those are basically the three concepts under maximizing leverage strategy.

Moving on, let’s just touch on the 1031 Exchange. I’ve talked about this a lot on the show and I’ve got dedicated episodes on it, but the 1031 exchange is similar to what I was just talking about in terms of leveraging equity. Essentially a 1031 exchange is a tax deferred growth strategy and a 1031 exchange is part of the IRS tax code. It allows you to sell a property and reinvest the proceeds of that property or that sale in new property without paying capital gains tax. So essentially you’re taking advantage of a hundred percent of the net proceeds from that sale.

And what’s great about this, what’s cool about this is it can accelerate your portfolio’s growth by keeping more of that money from the sale of the previous property to reinvest. You’re not paying tax on it as long as you follow the rules. There’s three major rules for that 1031 exchange. And as long as you’re doing it properly and you’re using a 1031 accommodator to allow you to do this properly, so you don’t actually quote unquote touch the the money, the proceeds from the sale, then you can do this. It’s a tax deferred exchange. It’s pretty powerful and it’s definitely worth looking into if you’ve got one or more properties that either have lots of equity that can be reinvested or you are looking to just move your equity from one location, one market into another. This is the way you would do it is using a 1031 exchange.

Now the third strategy is to scale using Multifamily Properties. So I talk about single family homes quite a, quite a lot on the show. It’s, it’s kind of a, our favorite unit or building block for housing, for building a real estate portfolio. It’s a great place to start. Everybody’s familiar with single family homes, it’s very abundant. I’d say 80% of our investors purchase single family homes, or I should rephrase that. I’d say of all the investor clients at Nora real estate investments that we work with to help them invest in real estate and build their real estate portfolio, I’d say 80% of the properties invested or purchased are single family homes. The other 20% are made up of duplexes, triplexes, and fourplexes. So when it comes to those types of multifamily properties, duplexes, triplexes, fourplexes, these properties allow you to generate multiple rental incomes from a single investment.

It’s one transaction, one loan, but you have two, three or four units in that transaction, in that property with that one loan and one transaction. And this can help you scale faster on a unit basis compared to single family homes. So it’s not that one is better than the other, it’s not that it’s better or or more advantageous to focus on a duplex or a triplex or fourplex, but if it makes sense and you want a multi-unit, then this is the way to do it. You still qualify for residential mortgage financing as long as you don’t go over four units per property, otherwise you’re now in the commercial world, commercial lending, commercial loans. But you can scale your portfolio and your unit size by going a little bigger. The duplex, triplex, fourplex route, the financing is the same, the transaction is same, everything’s exactly the same. It’s just you’re dealing with multiple doors on the property instead of a single door with a single family unit.

Now taking that a step further, you can also scale with apartment buildings. This is not for everybody, it is a slightly different animal. It is residential, but you’re dealing with commercial loans. But there are different mechanicals and different factors and different ways to evaluate these properties. There’s a different method for valuation, for appraisal, for, you know, the way it’s managed. Depending on the size of that property, how many units are we talking 30 or 300 units. But if it makes sense to you, you can consider moving into larger scale residential properties like small apartment buildings. These can generate higher cash flows and there are economies of scale in focusing on apartment buildings. And you know, of course you have to have the right property management. Sometimes if it’s large enough you’ll have an onsite manager in addition to a management company. It really is a different animal. But you know, some people, and I would say it’s a very small percentage of people who invest in residential properties, single family homes, duplexes, triplex, fourplexes. It’s really a relatively speaking small percentage of that group that branch out and want to grow through scaling with larger properties, meaning apartment buildings. So, but again, it is a way to scale. So it’s something to consider.

The next strategy is more of an active, not a passive approach, but it’s worth mentioning. It’s referred to in, you know, loosely as the BRRRR Strategy, the B-R-R-R-R strategy and B-R-R-R-R is an acronym that stands for Buy, Rehab, Rent, Refinance, and Repeat. This strategy involves purchasing distressed properties at a discount, renovating them to increase its value, renting them out, then refinancing it based on the new appraised value from the renovation that you’ve done. And then using the refinance proceeds to buy the next property, an additional property and doing it all over again. That’s kind of the repeat factor in that last R. And this allows you if done right and if the numbers work out favorably for you, it allows you to continuously grow your portfolio with a relatively small amount of initial capital and you would be rolling that capital from one property to the next after you do the refinance and to the next and to the next.

If things work out favorably, like real favorably, you won’t need to add any additional capital. You can keep doing this, enrolling your capital over and over and over again. Maybe sometimes you have access and you’ll have some leftover, sometimes you have to add a little bit more, but essentially you’re just rinsing and repeating, reusing that initial capital that you use to purchase the distressed property at a discount. Of course. Otherwise it this, this strategy, this method doesn’t work. But again, I want to emphasize this involves different skill sets and a team of people and you know, strong organizational skills and scheduling skills. You’re basically acting as your own general contractor or essentially the manager to a general contractor. But it is a much more active approach. You’re not buying a rent ready turnkey property like what we, you know, offer and sell through Norada Real Estate Investments.

This is definitely an active approach. You’re maybe not picking up the hammer and and doing the work, but you are definitely going to be overseeing and managing the entire process and doing all the analysis. So it is a strategy that you can use to expand your real estate portfolio, but it is definitely not for everybody.

And now a few others here, just something referred to as House Hacking. You know, this is where you live in one unit and you rent the other unit. So if you’re still in the early stages of your portfolio building, house hacking can be a way for you to live in one unit while you rent out the other. For example, if you have a duplex or triplex, you can invest in a multi-unit property. That way you live in one unit, this reduces your personal housing costs and increases your rental income through the property itself.

So you’re basically buying and having the property pay for itself as an investment while you live essentially rent free in one of the units. And this is how some people get started investing, is they, they house hack, they go for the multi-unit, live in one rent free and turn that into their investment property. And then this is definitely not for everybody, but a single family home with rentable rooms is a way for you to turn your primary residence into an extra income generating property that ultimately can be used to acquire more properties if you make enough money from renting out the rooms and banking it. And I was actually talking to someone not too long ago about this and they suggested, you know that I try it, I don’t think I’m gonna do that. I really don’t want anybody living in my house. But for some people, you know, it would make sense if you, especially if you have a lot of bedrooms, I was actually pretty surprised at how much you could rent a single bedroom for with, you know, the other areas of the house being common area. It was actually quite surprising to me. So that is one way to consider generating some extra cash flow that you can bank to create down payments for additional properties.

The next strategy is Creative Financing. You can use creative financing to acquire properties from sellers or private individuals to build your portfolio without necessarily going and getting mortgage financing. And this is great, especially if you don’t qualify for mortgage financing or you’re tapped out in that area. But there are solutions for that too. There’s what we call DSCR loans or non QM loans and we can help you with that as well. Just let us know. You can contact Kathy and she can talk to you about these more specialized mortgage loans, portfolio loans if you will, that can help you out if you have trouble qualifying or if you’re tapped out on your conventional loans or if you’ve got a unique situation.

Essentially it’s the property that’s qualifying for the financing. It’ll look at your credit score, but you don’t necessarily have to have income or assets that need to be documented in order for you to qualify. So it is a form of creative finance if you wanna look at it that way, but you know, the interest rate’s a little higher, but as long as the numbers work and makes a whole heck of a lot of sense anyway regarding creative financing, you know, with seller financing you can negotiate with a seller of a property to finance part or the majority of the purchase, which can reduce the need for you to use traditional banks. It reduces the amount of investment capital that you need on the down payment potentially just depends on what you negotiate with the seller. But using creative financing as a way for you to acquire more property from someone who’s willing to sell and provide, you know, the terms for you, be the bank for you.

Also, private lenders are another form of creative financing. You can seek out private lenders of any kind or real estate investment groups to fund your acquisitions. That allows you to expand even faster. And there are private lenders out there that have all kinds of creative loan products. Now they’re not necessarily 30 year fixed rate mortgages, but they might be a much shorter term, you know, one to five years that allows you to acquire a property and then work towards refinancing that, getting rid of the private lender. And then of course hard money loans, which are typically used for renovating distressed properties and then refinancing out. But if you’re purchasing a property that needs significant renovation, a hard money loan could provide you the short-term financing you need until you can refinance that property with a more traditional loan of some kind. But this allows you to acquire unique situations, distressed situations or opportunities that come up and build and scale your real estate portfolio. Just another way to expand.

And last but not least, the seventh way to expand your real estate portfolio is to take existing properties that you have or maybe newly acquired as well, but take any property and turn it into a Short Term Rental. Now this doesn’t necessarily add to the number of units you have or expand your real estate portfolio in terms of, you know, the unit size. But the reason you would do an Airbnb or VRBO type shortterm rental is if local regulations allow or permit you to do so, you can convert one or more of your properties into a short term rental, especially if it’s in a tourist heavy or highly desirable area. And the short-term rental can offer you much higher returns than traditional long-term leases. It’s a little bit more complicated, there’s more in and out. You need a different type of property manager.

So you’re, you have much more frequent turns where people are checking in, checking out. It’s kind of like running a small hotel, you know, with a single family home. But the advantage of doing that, why would you wanna, you know, complicate things and you know, have more turnover and different property manager to run it like a hotel, a small hotel, single unit hotel. And that is this, it can generate a lot more cashflow. It can be a very cashflow rich investment property. And if that’s the case, if you’re able to bank 10, 20, 30, $40,000 more per year and you know, it’s really location specific that will allow you to take that extra saving from the investment, the 20 – 30,000 plus and use that as down payment capital for the next property and the next property and so on and so on. So that’s just another way for you to grow and scale your existing real estate portfolio.

So those are seven strategies that you can, you know, certainly use and think about to expand your real estate portfolio. It’s a great question that Pravin sent in and I think it applies to everybody, but you know, this is basically how you do it. So hopefully that was helpful and you know, I’ll keep looking at your questions. So if you have a question about real estate or investing or finance, don’t you know, hesitate to send them over to me. Go to our website at passiverealestateinvesting.com and you can just submit that at the Ask Marco link or button that’s there. Also, don’t forget, work with any of our investment counselors if you’re looking to expand your real estate investment portfolio. That’s what we do here at Norada Real Estate Investments.

I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. . I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco.  Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.

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