This post was inspired by a REIA (Real Estate Investor Association) panel topic called “Can you make a million dollars in real estate starting from scratch?” It went on to ask how you could do this in two years from today. This got us thinking about what we would do if we had to start over from zero. We quickly realized that there are a lot of questions that we needed to have answered to even begin the conversation. For instance, do we still have our house and do we still have credit etc. in this hypothetical situation?
Let’s start with some common assumptions for this fictitious scenario. Let’s assume that we had to sell off our portfolio and were at net worth zero. Let’s assume we didn’t ruin our credit and all of our equity satisfied all debts etc. Let’s also assume we have a small apartment to live in. We do have whatever experience in the industry that we already have in real life but we are starting without our current connections, private lenders or contractors.
I would start by taking inventory of what assets we have. In this hypothetical situation, our assets would not be monetary; they would be intellectual. We have experience in real estate investing and we have knowledge gained from thousands of hours of podcasts, conferences, classes and books. We have read extensively on the topic. This has given us confidence to create a plan and carry it out. As we started out we grew slowly because of not having much cash but also because we didn’t have much confidence. In this scenario, we would lack the cash again but we would start with greater confidence in ourselves which would remove a large stumbling block from our path.
When you are hungry you don’t do the same things you do when you are full. We would be hungry in this scenario and be back to grinding. We currently (in real life) have the luxury of moving at our preferred pace and having a good work/life balance. We live where we want to raise our kids, not where makes the most cash on cash return. In a situation where we found ourselves starting over we would definitely be back to doing what has to be done. We have hustled our entire lives to climb the ranks of our professions and we work with extreme focus in our business but we protect our evenings and weekends more at this stage of life. The ability and willingness to work hard is one of our biggest assets. It would be hard to outwork us when we are hungry for something.
Knowledge and willingness to work hard are more valuable than money in this scenario. We would then need a plan for our 1 million dollar goal and we would have to work to build our network immediately. Networking has been critical for our growth. We have met wholesalers, teachers, lenders and mentors by networking. I would look at meetup to find local groups that are real estate focused and some that are general business or even hobby related where I may be the only real estate investor. We would attend several networking events each week and we’d talk about what we are doing. We would speak with confidence and enthusiasm which would start further conversations with people we met. We would follow up with those who took interest in our business. Knowing what I know now, I know that I could develop a list of potential private lenders pretty quickly. We would offer to teach classes or present case studies for the groups – anything to build credibility and leverage our experience and knowledge.
From an investment perspective, to build net worth, we prefer to acquire as much real estate that cash flows as possible. The cash flow helps us eat and the ownership of assets gives us appreciation and debt pay-down to help us build wealth. When we started buying rentals it was for the cash flow but our net worth has been affected more dramatically by creating equity through renovations. The BRRRR strategy has helped us create our wealth far faster than we could have saved it. So for this scenario I would be focused on adding value to assets we could keep and only selling what I had to in order to survive.
We would have a strict budget to limit our living expenses and to maximize what we had to invest. We love the BRRRR strategy but it is harder and harder to do “perfect BRRRR” deals without leaving at least some money in the deal so we’d need some cash at times. Budgeting and generating cash from other projects would allow us the cash needed when the BRRRR isn’t perfect.
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If our income didn’t support traditional loans, we would turn to many of the more asset based lenders in the market as of late for our long-term financing. We would also make a concerted push to get seller financing on our acquisitions. We would be developing many private money lenders to loan us the capital to get started again.
For generating cash for the short term we would probably utilize several strategies. Veronica could use her real estate license to take on some traditional listings while still remaining in the real estate industry. This could be a secondary monetization of leads that don’t fit for the BRRRR strategy. We could do some flips (which we always regret selling but which provide good injections of cash at times). A side benefit to flips is it would allow us to pay off a private lender faster than we usually can with a BRRRR and the one thing that gets a lender excited about lending more is paying them off one time with high interest payments. Finally, we may even do some short term rentals to generate cash flow in the short term while we’re building our rental portfolio. All of these things generate “right now” money where rentals build the net worth goal we are aiming for in this scenario.
For lead generation, we would turn to what has worked for us in the past – networking and social media presence. We would probably attend several meetups a week and tell everyone what type of properties we were looking for. We would comment on investor groups where wholesalers post deals. If our leads were insufficient we would start our own marketing campaign.
If one million dollars is the goal, I would set lead measures to get there. If I BRRRR a 200,000 ARV house successfully, I have created 50,000 in equity. I would need about ten of these a year for two years to reach my net worth goal of 1 million in two years. I would set a goal slightly higher than that like eleven a year for two years knowing that plans change. I would make marketing my biggest focus. If the properties I found were 100K ARV, I’d adjust my goals accordingly – 22 houses per year. I didn’t say it would be easy.
Now this is a net worth goal but remember that it is cash flow that feeds us. You cannot eat equity until you convert it to cash flow by a sale, refinance or by rental income produced. A million dollars is not what it once was but it’s a great target to shoot for. I know we could produce it in two years but it would take some serious hustle. Maybe another time we’ll look at a cash flow goal and see how we’d accomplish that in the fastest way possible.
I hope this has been a helpful exercise of exploring ways to rebuild after a disaster or how to build from scratch. I would recommend inventorying your assets as you go forward from wherever you are. Maybe you have a great job with high income and by using some extreme frugality for two years, you could buy properties. Maybe you have flexibility in your work and can work fewer hours to dedicate more to your business. Maybe you have great lender relationships. Maybe you are an analysis guru and love spreadsheets. Maybe your reputation is of someone who always delivers and makes those around you better financially or otherwise. Maybe you have no kids or family and can just outwork everyone else. Maybe you are a masterful marketer that can find deals better than most. Maybe you are a great sales person and don’t even know it yet but when put in front of people you are trusted and make connections.
Most of these assets don’t have to do with how much money you possess but are about who you are and skills you have. If we started over we would all need to leverage these things that no one can take from us. We all have a unique “account of skills” we possess and strengths we can develop. Don’t underestimate your value!!
We started this exercise with one goal: A million dollars in wealth in two years. It’s doable. But remember that two years is two years of life. A million dollars is not worth two years of misery or overwork. Luckily most of us don’t have to get to that goal that fast but it’s a fun exercise to consider. If four years was the goal, it would seem pretty easy compared to what we just walked through. Consider this situation for your life and try to think about the niche that would be enjoyable for you to accomplish the same goal if you had to or wanted to. We think many strategies can work in real estate, we just choose rental property because we enjoy it and it works for us. What would you choose? In the real world, we are fans of balance and playing the long game. Maybe we grow a little slower than some but with long term real estate ownership it’s hard not to become wealthier over time. We hope you set big goals and accomplish big things but remember life is about way more than just money. So, as you may have heard before, we encourage you to continue to Keep the MAIN thing the MAIN thing. And that’s for only you to figure out.