27 Mar

 Building a Million Dollar Real Estate Portfolio

In previous articles we discussed flipping properties for short term income. This is great, but there will be a point in time when you’ll need to reinvest some of the money earned into building a real estate portfolio.  In this article were going to show you how to build a large property portfolio using unique strategies enabling you to control 20, 30 or 50+ residential properties. This model will allow you to bring in thousands of monthly cash flow plus build massive instant equity.

Let’s establish some general numbers for example purposes

1. Average Property Price: $200,000

2. Average Monthly Cash Flow: $350

3. Built in Equity: 25% or $50,000

4. Down Payment: $7,500

At Fortress Investments we sell cash flow properties with a tenant in place that has 25% built in equity for only $7,500 down; this will allow you to achieve the numbers above.

Financing Guidelines

We work within the conventional lending guidelines established by Fannie Mae and Freddie Mac. They require an investor to have:

1. 680 Credit Score or Higher

2. Documented Income with a W-2 and/or Tax Returns

3. Number of Financed Properties Maximum of 10

Fannie Mae and Freddie Mac are the largest buyers of mortgages in the Untied States. The majority of banks sell their loans to these two firms so most conventional lenders will follow their guidelines.

Two Unique Strategies for Building a Million Dollar Property 

1. Leveraging Your Credit

2. Leveraging Other Peoples Credit (OPC)

1. Leveraging Your Credit

If you meet the qualifications above then you’re able to build a portfolio using your own credit, (if youre married your spouse may be able to qualify for additional properties that can put into your mutual portfolio)

Let’s assume you own a primary residence and no financed investment properties. This will give you the ability to finance 9 more properties using youre credit. In the example below your able to build a $1.8 million dollar real estate portfolio with $450,000 of equity and $3,150 cash flow.  The total out of pocket would be roughly $67,500.

As a husband and wife team the numbers get interesting, your equity is almost $1 million dollars and cash flow is $75,000+ a year. So how do you do this, you ask?

Visit FortressInvestor.com for more information on how to find these types of properties.

2. Leveraging Other Peoples Credit (OPC)

Now let’s say you have bad or insufficent  credit or you want to expand beyond the 9 properties. Then using OPC (Other Peoples Credit) is the way to go.   Well be using an option agreement and a lease agreement to build 20, 30 or even 50+ properties.

Step 1. Write a list of friends, family or co-workers that you would like to include in your business.  They must qualify under the financing guidelines mentioned above.

Step 2. Share with them the Fortress Gold Program. where they can buy cash flow properties for $7,500 down.

Step 3. Have your credit partner purchase a property from Fortress for the $7,500 down.

Step 4.  Purchase an Option on the subject property for say $10,000. Using our example numbers,the option price would be $150,000 or 75% of the property value. In the option agreement you’ll agree to split the profits of the future sale 50% – 50%. Make the option expire 3–5 years.  Durning this period, you will be leasing the property with an option to purchase some time in the future, and your credit partner will be holding the financing and paying his/her mortgage.  The great thing about this is your credit partner will receive $7,500 down payment back along with a $2,500 profit, and you can generate cash flow from the lease of the property and participate in the profits by exercising your option and selling the property at a higher price in the future.  You can purchase an option for any amount it’s up to you, we’ve paid options as high as $15,000 and as little as $3,000.

Step 5. Lease the property from the credit partner for the total monthly mortgage amount. Make sure the lease agreement specifically states that you’re able to “sub lease” the property.

Step 6. Now collect the rent by either hiring a property management company or by managing it yourself. Pay the lease amount to your credit partner to cover his or her mortgage, and pocket the difference between that amount and the rents that you collect.

Result: Now you control a $200,000 property that has $50,000 of equity and is cash flowing $350 a month. Your credit partner has no money out of pocket, has his mortgage payment is covered by you and the tenant.   He’s also made $2,500 in profitnot a bad deal.  Depending on the amount of activity in the deal the credit partners has there might be some tax benefits as well; both parties should consult a tax accountant for details.

This strategy will allow you to control as many properties as you are comfortable with. It will take some time and effort but the result can be amazing.  Imagine controlling 50 properties that have $50,000 of equity each and cash flow $350 a month, the result would be $2,500,000 in equity and $17,500 cash flow a month!

I know this is a BIG goal but it’s achievable, don’t think it cannot be done. In 2003 to late 2004 Mike and I built a multi-million dollar property portfolio using this type of method, then when the market appreciated greatly durning 2005 we were able to sell the entire portfolio from May to November of that year, and it was an amazing experience.  Since then we have slowly built a $12,000,000+ portfolio.  When the market turns and the buyers flood the market, we’ll be selling again.

If you’re worried about how you’re going to manage all of these properties, in the next segment I’ll be discussing How to Manage Your Business .  Make sure you subscribe to the RSS feed so you don’t miss a post.

Can you see yourself building a portfolio like this? Let us know your thoughts by leaving a comment below.

Happy Investing!

Tags: Million+Dollar+Real+Estate+Portfolio