A common question among both new and seasoned investors is “How do I build my real estate empire?” Today, I’ll give you my six-step action plan to achieve that dream.
First, however, I’d like to offer a short anecdote about my journey and what I’ve seen work and not work over the years.
When I first started investing in real estate, all I wanted was a few rental properties giving me passive income to supplement the salary from my job. That was about eight years ago.
Once I got a taste of what was possible, all I could think about was how to scale as fast as humanly possible. The rental income from my real estate investments now funds the vast majority of my life and I am on a constant search for a better and more meaningful way to live.
I, like many other investors, started very traditionally with the purchase of a few single family rentals (SFRs). I figured that one rental with one tenant would be easier to manage as I learned the ropes of being a real estate investor.
Thankfully, I had a high earning W-2 and controlled my expenses as if it was my second job. I lived with roommates, tried to cook as often as possible, and didn’t take lavish vacations. I wanted to save as much money as I could so that I could keep acquiring new rental properties.
After I felt like I had a handle on purchasing and dealing with single family homes, I decided to purchase a duplex out of state since it had better cash flow potential than the SFRs. Then, I decided to purchase a triplex to continue growing my portfolio even faster. (Read here to learn more about the differences between single-family and multi-family, as well as the advantages of each.)
From there it was full steam ahead. I jumped head-first into the multi-family value-add space and haven’t looked back since. That was several years, and many units, ago.
Creating a real estate empire, in my humble opinion, is all about starting from and building on a solid foundation, much like building a structure.
If the base is weak, whatever is built on top of it will likely crumble.
So let’s start there….
Step 1: Build Your Foundation
Whether you’re just starting your real estate investing journey or are already a seasoned veteran with numerous deals under your belt, you’ll need a rock-solid education. The foundation of any real estate empire starts with education.
If you don’t have a solid grasp on how real estate as a whole works, you won’t be able to make educated and informed decisions. This is likely to lead to a lot of headaches and potentially some very costly mistakes.
Part of getting educated is learning about the various strategies for real estate investing and finding one that suits you. These can be:
If you’re just starting your real estate investing journey, it’s probably overwhelming to think about getting your first deal done -- let alone what 20 deals down the road looks like -- so coming up with a road map of your real estate empire can be difficult. That’s OK.
Find an investment strategy that sounds interesting to you and go from there.
For example, Roofstock's very own Tom Schneider (Director of Investor Education) recently recorded this video detailing a plan he created to get to $100K in passive income using a buy and hold strategy:
I’ve heard real estate investing compared to climbing a mountain. You may not be able to see the top yet, or even what’s up ahead, but as long as you keep putting one foot in front of the other, you’re making progress. There are bound to be some bumps, bruises and skinned knees along the way to the top, but as long as it doesn’t kill you, you’re doing it right.
If you need some extra help here, check out this list of awesome real estate investing courses.
Step 2: Start Small, But Get Started
In order for a train to get moving, it takes a ton of energy and, at first, it appears nothing is happening. The same can be said for getting started in real estate.
You learn and absorb knowledge and it FEELS like you’re making progress, but at the end of the day, there are no actual results to show for it.
Once you have built a solid foundation, you need to start applying what you’ve learned. You need to go from the simulator to the real world. Start to look for deals that meet your specific investing criteria.
I started small with an SFR and I’m so thankful I did because it wasn’t too overwhelming. I understood SFRs because I had lived in them as a tenant and growing up. I had educated myself about financial terms like cap rates, NOI, and capex, so for a single family residence, this all made perfect sense. Had I needed to extrapolate these numbers on a multi-family deal at the beginning, I think my head would have spun.
As you go through the motions of your first few deals, make sure to reflect on what you’ve learned and how you could do things better. Great investors try to never make the same mistakes twice.
Step 3: Save, Save, Save
Investing in real estate typically requires capital. Since new investors don’t yet have a proven track record, they often are forced to go the traditional route and use traditional financing. The good news is, this is perfectly fine!
If you’re using traditional financing, this means that you’ll need to come up with at least 20% for a down payment. This means you’ll likely need to put together a budget where you can create a monthly savings goal for investing in additional real estate. In addition, you can start to save the monthly cash flow from your previous deals.
The cash flow from your previous deals may not seem like much on a monthly basis, but over time, it starts to add up and, along with your monthly savings, you’ll be pleasantly surprised at how fast you can snowball save another 20% for a down payment.
Step 4: Build Your Mountain Climbing Team
Anyone who has climbed a major mountain probably didn’t do it alone -- they assembled a team to help them along the way.
Real estate investing is no different. You’ll want to start amassing a rock star team of people to help you get things done. Some core players are:
- Real estate agent
- Lender or financier
- Property manager
Thankfully, Roofstock has already done much of the heavy lifting for you so they can connect you with vetted and approved agents, property managers, and insurance carriers.
Like any team sport or event, having backups is always a good idea. If someone lets you down or can’t keep up with the team, cut them and bring in their replacement. As you’re getting started in real estate investing, you’ll start to pick up team members almost organically if you’re looking for them.
Reach out to different folks and start asking questions. Get your name out there as someone who is hungry for deals and is in need of a great [Fill in the Blank] (agent, property manager, CPA, etc.)
Once you get a few deals under your belt, you’ll likely start to attract some impressive talent. That will allow you to start screening teammates with more confidence and scrutiny because you’ll have experience and will be taken more seriously.
Step 5: Get Into Advanced Strategies
Now that you’ve probably done a few deals and are a cash saving machine, you can look to expand your horizons with regard to strategies in order to scale.
If you’ve come to the conclusion that saving cash for your next deal is taking too long, why not look to do a BRRRR? You can purchase a property for significantly less and add a ton of value. You can then tap into that value with a refinance and recycle the same (and possibly more) cash into the next deal.
BRRRR investing is something that’s covered here and is something that really encompasses all aspects of real estate investing. Thus, I wouldn’t recommend someone try this as their first introduction into real estate investing. However, for someone who is looking to grow their real estate empire, it could very easily be another tool in the tool belt.
Step 6: Keep Up The Momentum
Once you have a few deals under your belt, you’ll likely look in the rear view mirror and think to yourself “If I knew then what I know now, I would have done X, Y and Z differently.”
That’s awesome! This means you’re learning. Take the lessons you’ve learned from each subsequent deal to do better deals going forward. Also, network with other investors and learn from their mistakes, so you can avoid making your own.
The fastest way I’ve seen people scale their empire quickly is by adding value to properties. Taking advantage of organic appreciation is great and a good way to increase your net worth. Forcing appreciation by adding value is even better, and usually faster.
If you can force appreciation in a property either by utilizing the BRRRR method or by purchasing a value-add property and fixing it up, you can start to reap the benefits of your hard work in the form of significant equity. If you take that equity out of the property with a refinance or with a sale, you can then trade up into a larger property.
Continue to do this leap frog style until you have built yourself a nice little real estate empire.
Remember, you likely won’t be able to get there alone, so recruit a solid team to help you throughout your journey -- and don’t forget where you came from. Reward those who helped you and help others along their journey, as well.