All finance gurus share some common advice: “Save 10 percent of your paycheck, put it away in some slow growth stocks or mutual funds, wait 50 years, and you’ll be the richest person… in the cemetery.”
I don’t know about you, but I didn’t want the slow route. I wanted financial freedom. Faster.
That's why I chose real estate investing!
But building a real estate portfolio can take a long time, too. Buying one house every few years—saving up enough for the down payment each time—means 20 years could pass before you achieve the financial freedom you want.
So, if you want to build a portfolio fast, what should you do? Skip the long-term strategy and think short-term with a powerful strategy called “the stack.”
(I think you’re going to like this.)
First, let’s look at how most people build wealth through real estate.
The slow way toward building wealth
Most beginner real estate investors accumulate rental properties in a very slow, methodical way. First, they buy one house. Then maybe another house… then a few years later, another one. They are growing their portfolio linearly by adding assets gradually.
Nothing wrong with that. It’s just slow.
If you want to achieve faster growth, you’ve got to grow exponentially.
And that’s where the stack comes in.
How “the stack” grows wealth exponentially
Let’s say you buy one house this year. That’s it. Just one house.
That first transaction requires a lot of work—and the truth is, one deal doesn’t equal freedom. But it does provide knowledge and experience.
Once you've got that knowledge and experience (and a little equity to boot!), wait an entire year and buy two units. Maybe a duplex, maybe two single-family houses.
(Wondering where the money came from? I’ll explain that in a moment.)
The next year, can you double down again? After all, you already own three units. What’s another four? You add the experience and knowledge from the last deal, and now you buy a fourplex or maybe a pair of duplexes. The next year, you double again and buy eight units. Then 16… then 32.
Each year, you add experience and knowledge, dialing in your systems. In addition, your new network makes financing your properties simpler.
So, here we are in year six. You’ve got 63 rental units. If each unit averages $150 in profit after all expenses, that’s almost $10,000 in monthly cash flow. And we haven't even discussed the appreciation—at an average increase of two percent per year, you've gained significant equity. Need quick cash (or just ready to slim down your portfolio in a few years)? No problem. You've got plenty of options to sell.
What if you double again?
Stacking even faster in rental real estate
Now, if you wanted to do this faster, maybe you double your purchases each year. You might go from one unit to a fourplex to a 16-unit building to 64 units… and you’ve hit that $10,000 per month in rental income even faster.
The point is: If you grow exponentially, you can grow your portfolio fast. No one gets to hundreds or thousands of units by purchasing one unit at a time. They grow exponentially. And the really fascinating thing is that because you are starting small, you keep your risk small at the beginning. As your knowledge and experience grow, so does your portfolio. You aren’t jumping into a 100-unit for your first deal.
You scaled up smart, you scaled up fast, and you scaled up secure.
Of course, once you're at the peak of stacking, you'll need to take a few more things into consideration. Most notably: How will you manage all these units? That's when it becomes important to consider hiring a property manager. Yes, they will take a small bite from your monthly income, but you'll gain back an incredible amount of time. Plus, not everyone is cut out for being a full-time landlord. There's no shame if that's you—that's why property managers exist!
The importance of diversification
At this point, you've got a lot of money tied up in real estate. We don't think that's a bad thing—we think real estate is one of the most promising industries for wealth building. But that doesn't mean it's not important to diversify. What does that mean? It means protecting yourself from an economic downturn by investing in different types of real estate.
You may be interested in investing in the stock market, crypto, or other forms of investment. That’s okay. But you don’t have to leave real estate to diversify your portfolio. A real estate investment portfolio can be incredibly diversified by making smart buying choices.
For some, that might be retail, mobile homes, commercial, or even real estate investment trusts (REITs). Or maybe you really love investing in residential—that’s okay! Consider looking at different asset classes. Having a spread of units across Class A, Class B, and Class C neighborhoods helps protect your investments.
How to finance your stack
What about funding?
Well, there are a ton of ways to finance deals, and in fact, I wrote an entire book about it. You can always start with a traditional mortgage for your first investment property—although you'll quickly find conventional loans a less-than-ideal method. For one, they're more cumbersome. And second: They're slower. When you're growing quickly, hard money and private lenders can help you offer and close quickly. That speed is essential to the stack.
But my favorite strategy, and one that works really well with the stack, is known as BRRRR investing.
It’s where you:
Buy a fixer upper (with short-term money, like a hard money loan, line of credit, or partner)
Rehab it by making any essential repairs—and making it look oh so cute!
Rent it out (to great tenants who are thrilled to have a remodeled home—and pay top dollar!), and then
Refinance it and leverage all the money you put into it (which gives you your cash back, so you can then…)
Repeat the process again and again. Each time, you add more and more passive income to your net worth.
By Brandon Turner, Bigger Pockets