Strategies for Building a 25+ Unit Rental Property Portfolio
Homeownership is dwindling, and renters are on the rise. In fact, new rental households have grown by 777,000 a year since 2004. This means it is a prime to build an extensive real estate rental portfolio. While most people can figure out how to acquire one or two rental properties, few know how to build a portfolio of 25 properties or more. If you utilize the right strategies, you can grow your portfolio by leaps and bounds. You will then make the money you need to enjoy your retirement.
Strategies for Building a 25+ Unit Rental Property Portfolio
STRATEGIES FOR BUILDING A
25+ UNIT RENTAL PROPERTY
Buy Multi-Family Units 3
The Snowball Method 4
Start with a Partnership and Then Branch Off 5
Use the C-B-A Strategy 6
Get Rid of Your Problem Properties 7
Use an Agent Broker 8
Diversify Your Investments 9
Asset Class 9
Risk Profile 9
Core Assets 9
Value-Added Rental Properties 10
Opportunistic Rental Properties 10
Don’t Be Afraid of Different Markets 11
Build Your Portfolio with a Lower Risk 12
BUILDING A 25+ UNIT
Homeownership is dwindling, and renters are on the rise.
In fact, new rental households have grown by 770,000 a
year since 2004. This means it is a prime time to build an
extensive real estate rental portfolio.
Homeownership is dwindling, and renters are on the rise. In fact, new rental
households have grown by 770,000 a year since 2004.1 This means it is a prime time
to build an extensive real estate rental portfolio. While most people can figure out
how to acquire one or two rental properties, few know how to build a portfolio of 25
properties or more. If you utilize the right strategies, you can grow your portfolio by
leaps and bounds. You will then make the money you need to enjoy your retirement.
Buy Multi-Family Units
Successful real estate investor Grant Cardone recommends sticking with multi-family
real estate if you want to build a vast portfolio.2
Cardone owns over 4,000 apartments,
and they have made him a wealthy man. He states that a simple internet search allows
him to find 49-property units that are priced at $35,000 per unit. These units come with
an 8 percent cap. That means he can buy the entire 49-unit property for $1,750,000
and net a nice profit each year. If he were to make a cash deal for that rental property,
he would earn $140,000 each year after paying for his expenses.
You probably don’t have that much cash on your hand, but you would need to
put some money down. Let’s say that you have $450,000 to put down. Maybe you
have a retirement account to pull from or you are using a self-directed IRA for your
investments. You also might pull from your home’s equity or use one of the other
countless financing options available.
You put the $450,000 down and finance $1,300,000. That means you would earn
$62,000 a year after expenses.
You cannot possibly get this type of return with a house and you also can’t possibly
acquire so many rental properties so quickly unless you go with this type of a strategy.
Of course, jumping into the multi-family rental property game full force might be a
little bit intimidating. You want to acquire over 25 properties, but you might not want
close to 50 immediately. Cardone recommenders starting with 16 units to get your feet
wet. These units should be multi-units that are all at the same address. Then, continue
to add to your portfolio with additional multi-unit properties, and you will be up over
25 properties in no time at all. at the same time, you will maximize your profits while
minimizing your risk. That is what is so great about multi-unit properties.
The Snowball Method
Warren Buffett is known as one of the most successful investors of all time, and a lot of
his success comes down to the snowball method. This method is almost embarrassingly
simple. More embarrassingly, though, people tend to ignore it and don’t use it. If more
people used this simple method, more people would have large investment portfolios.
That means more people would be raking in the money.
In order to understand this method, you must first understand how you make a
snowball. You take a little bit of snow and roll it into a ball. It is very small at first, but
you continue to roll it and it gets bigger and bigger. If you were to continue to roll that
ball of snow, it would soon be large enough to make a snowman. In fact, you could roll
it up into a ball that is larger than your entire house if you had the means to do so.
The same is true with investing. If you roll your investments into each other, they will
grow. This is called the snowball method.3
In order to understand this process, look at an example.
You have purchased your first rental property, and you are extremely excited. It is a
small property that nets you $500 each month. That means you will make $6,000 each
year from that property after you pay your expenses. It might not be a lot, but it is a
Now, let’s say that you’re interested in buying a new property that requires a $25,000
down payment. You are making $6,000 a year from your current property, so it will take
you just over four years to save the money you need for that property.
The four years pass, and you finally have the money for a down payment on your next
property. You put the money down, and you net $500 a month from this property.
Now, instead of making $500 a month from a single property, you are making $1,000
combined from two properties. That means you are earning $12,000 a year from your
Now, instead of needing over four years to come up with the $25,000 down payment
for a new rental property, you can come up with the money in 25 months. When the
25-month mark hits, you buy a third rental property. Now, you make $3,000 a month.
As you can see, as long as you save the money you earn from the rental property, you
can cut down on the time that you need to wait between acquisitions. Soon, you will
be able to buy a new property every few months. This is a great way to fast track the
process and acquire more than 25 rental properties.
If you are not sure if you can go without touching the income, look at getting a self-
directed IRA so you have to put the money back in the account. Then, it will be easy for
you to direct the IRA to purchase a new rental property when it is time.
Start with a Partnership and Then Branch Off
Coming up with the capital necessary for owning 25 or more units can be a daunting
task. Banks are tight-fisted with money, especially for people who already have multiple
mortgages with them. You can have perfect credit, but the banks will stop loaning
you money after you have several mortgages. That makes it almost impossible for the
single person to build up a nice portfolio.
Fortunately, there is a way around this problem. You can form a partnership to acquire
real estate. Then, after you become successful, you can branch out and start doing your
During the partnership, you and your partner can pool resources to buy properties.
Then, you can sell the properties for a profit, dissolve the partnership, and start
investing on your own. This might take several years or even a decade to accomplish,
but you will be making money that entire time. As long as you have money going into
the bank, you aren’t wasting your time. You’re just building your assets and getting to
the point of taking control of your investment portfolio.
You have to be very careful about how you do this, though. Some people get burned
because they don’t know how to properly form a partnership.4
Many enter into general partnerships, which are basically handshake deals. The
partnership is established without paperwork. It’s an automatic partnership that
forms when the two people start doing business together. While you can formalize it
with a document, it doesn’t have all of the protections you will get with some other
partnerships. You could end up losing your personal and business assets based on the
actions of your partner. You will not have the protection you need while doing business.
If someone wants to enter a general partnership with you, walk away. You need to
have a legal document in place that will protect your assets. Otherwise, you could lose
everything even if you go into business with someone that you trust.
A corporation is a different story. If you incorporate, you will have some protection if
anything goes wrong. The corporation will be separate your income from your personal
finances. It will be like a fictitious person that holds onto all of the assets.
When you incorporate, you limit your liability if anything goes wrong. That means if
something happens and your corporation gets sued, the person doing the suing can
go after the corporation’s assets but not your own. You can only lose what you have
invested and nothing more.
There is one issue with forming a corporation, though. Let’s say that one of your
shareholders gets sued for something that doesn’t have anything to do with the
corporation. It could be a different business dealing entirely. The creditor could
still take the shareholder’s shares. These are considered the shareholder’s personal
property, so they are up for grabs even during an unrelated lawsuit. That could hurt
your corporation a great deal. In fact, you could end up going bankrupt and losing
your business if this happens.
That is why many real estate partners choose to form an LLC. This is a less formal type
of partnership, but it offers a great deal of protection. Your liability will be limited, and
you will be protected from creditors. That means if a judgment is issued against one of
your partners, the creditor can’t seize anything from the business. The creditor can take
your partner’s personal assets, but he or she cannot touch your personal or business
This also has a less complicated tax model than the corporation does. You will file
your taxes as a partnership, and the partners will receive K-1s. Your business income
will pass through to your own personal taxes, so while you will file the business taxes,
you won’t pay taxes as a business. You can also deduct real estate losses with the LLC,
which you can’t do when you file as a corporation. That can save you quite a bit of
Use the C-B-A Strategy
The C-B-A Strategy is an excellent option if you want to grow your investment portfolio
First, it is important to understand that investors often use the letters C, B, and A when
describing rental properties.
A Class C property is a property that is old and needs renovations. This property might
be in a bad neighborhood, but that isn’t always the case. Sometimes, it is in a good
or decent neighborhood but just needs a facelift. However, the facelift it requires is
typically pretty major. You will have to go beyond putting in new floors with this type of
property. It typically lacks many of the amenities that renters want.
Class B properties are well maintained, but they aren’t top-notch. They have the basic
amenities, but the amenities might not be the newest and greatest. These are still nice
properties, though, and they will make lots of renters happy.
The top-notch properties are the Class A properties. They are new with the best
amenities, and they are in the nice neighborhoods. As a landlord, there isn’t really
anything you will need to do with these properties. You can purchase them and put
them directly on the market.
You might want to acquire all Class A properties to rent, but that is a rookie mistake.
You aren’t going to make as much money or be able to acquire as many properties if
you go with Class A properties. It’s not that you shouldn’t buy any of them, but if that is
all that you have, your profit margins will be tiny and you will have a hard time building
your portfolio up to 25 or more properties.
You also need to be careful with building your portfolio with Class B properties.
This is the sweet spot for most real estate investors, so it is the place with the most
competition. That hurts your profit margins and makes it harder to acquire as many
properties. You will end up paying top price to outbid other investors, and that will
crush your bottom line.
Instead, you need to spend much of your time going after Class C properties. The
competition is really low for these properties, so you can get them at a real steal. Then,
you can upgrade the property to a B property and make a lot of money on the rental.
You do need to do your research before jumping into a Class C property. The cap rates
can be much higher with these properties, but only if you know exactly what you’re
getting yourself into with each purchase.
Begin by looking at the upgrades that you will need to do. Think about everything
that will go into upgrading this to a Class B property. If you don’t know much about
upgrading a property, you need to work with someone who does. Have the person go
with you to look at the property ahead of time. He or she can give you a quote on what
it will take to get the property up to Class B standards.
Once you calculate all of the expenses, make your offer. Make your offer lower than the
asking price based on the amount of upgrades that you need to do. You can often buy
properties at 25 to 50 percent off the MLS price based on the needed repairs. Since
these properties don’t have a great deal of interest, low bids are often selected.
After you purchase the property, you need to begin the repair process. Do all of
the necessary upgrades to turn it into a Class B property. This might include adding
amenities such as a washing machine, a dryer, and stainless steel appliances. Don’t
be surprised if you also need to upgrade the flooring and other items as well. People
expect quite a bit out of a Class B property, so don’t hold back.
If you follow this strategy, you will be able to acquire a lot of properties at a low price.
After you do your upgrades, you can get the same rental price you would get for a
Class B property, meaning that the return on your investment will be high. Then, you
can use that money to buy even more properties. It won’t be long before you have
more than 25 properties in your rental portfolio.
Get Rid of Your Problem Properties
Babe Ruth is arguably the best baseball player of all time. He hit 714 home runs and
had an all-time batting average of .342. While those numbers are impressive, that
means that he failed more than 6 out of every 10 times he came up to bat.
That’s a lot of failure for someone who is regarded as the greatest of all time.
The point is that even the greats fail, and sometimes, those failures come in bulk. You
will hit some home runs with your rental properties, but you will also swing and miss
a few times. At times, you might find great tenants that pay their rent on-time every
month and at other times you might let a tenant slip through the tenant background
check cracks. If you hold onto your poor performing properties, it will hurt your rental
income and make it difficult for you to acquire more.
The key is to know when to hold onto a problem property and when to unload it. There
are some things you should consider when determining what to do with your property.6
First, you need to look at the whole financial picture of the property. Write down how
much you earn from the property when it is rented out. Then, write down how much
you lose when it isn’t rented and come up with the number you have made or lost
since you’ve owned the property. When you take emotion out of the equation and
look at the raw numbers, you will get a much better idea of how the property is truly
performing. After doing this, some people are surprised by how much they are losing,
while others are pleasantly surprised to see that they are making more than they
You also need to consider the real estate market for the property’s location. This will
help you determine if the property will gain or lose value in the coming years. It is
harder to part with a property that is going to grow in value. You might want to hang
onto it until the market shifts and then sell it when you can make more. However, if
the market isn’t solid where the property is located and it looks like it is going to get
worse, the time to unload it might be now. If you don’t rid of it soon, you will end up
It’s important to understand that you cannot grow an investment property portfolio if
you are holding onto dead weight. Get out from under the property and move forward
with properties that will perform better.
Use an Agent Broker
While many real estate investors choose to go it alone, there is actually a benefit to
going with a real estate agent and a wholesale brokerage firm. If you try to handle all
of the deals on your own, you will be overwhelmed. It will be difficult to build your
portfolio because you will have so many deals to sift through. You can increase the
number of deals analyzed by going with a company. This will help you close more
You need to be smart about this. Don’t go with one basic agent and broker. Instead,
you need to find agents and brokers that specialize in each of your markets. That
means you will likely need to get more than one.
Diversify Your Investments
As with any investment, putting all of your eggs into a single basket comes with a risk.
Real estate markets fluctuate, and if you have all of your investments in one type of
real estate or one market, you will get hit hard when the market drops. However, if
you diversify your investments, your high-performing investments will cover you when
the market drops for some of your other investments. This will allow you to grow your
investment portfolio much faster. When you have properties from various segments
making money, you can take that money and buy more properties quickly.
First, you need to analyze the different risk categories. 8
Location is the first category. Let’s say that you live in Missouri, and the St. Louis real
estate market is hot. You can buy apartment buildings in the inner city, improve them,
and rent them out. You are making a ton of money, but what happens if that market
goes bust? If all of your property is in downtown St. Louis, you are going to be in real
trouble. Avoid this problem by branching out. You can buy some property in St. Louis
and some across the river in Illinois. You can also buy some property in the suburbs of
St. Louis. Don’t just move over a street or two. Diversify your portfolio’s geography so
you will reap the most rewards.
Asset class is next on the list. This refers to the type of property that you purchase.
Property types are varied. You can get retail, industrial, senior housing, multifamily,
single family, and other types of real estate. The real estate market doesn’t always
move as a whole, which is why it is so important that you diversify by asset class.
Sometimes, the entire market goes up or down, but other times, a single asset class
is impacted by a change. For instance, retail real estate might go strong while single-
family homes take a nose dive. While many investors put all of their money into a single
asset class, it is wise to invest across asset classes so you can continue to make a strong
income year after year. Then, you can ride out the various cycles that the asset classes
go through. Your portfolio will remain strong and healthy so you can take on new
The risk profile is also a risk category. There are four risk categories ranking from low
risk to high risk.9
You want to diversify across these risk profiles when building your
Core assets are low-risk and your safest bet. These are typically your Class A properties.
It is easy to fill the properties with renters, and those renters usually have high credit
scores so they are likely to make their payments on time. In addition, they are less likely
to bail out on the property. However, because these properties are already in perfect
condition, you cannot add any additional value to them, so your return is low. They do
have a major benefit, though. They rarely lose tenants during an economic downturn.
The rest of your properties might be empty, but your core assets should stay full. That
makes them worth purchasing, even though you might receive meager single digit
returns each year. Still, those returns will help you make mortgage payments, which is
critical if you’re going to have a portfolio of 25 or more properties. Consider adding a
few core assets to your portfolio so you can enjoy the security they provide.
Core-plus is the next step on the risk assessment ladder. These are very similar to Class
A properties, but they have something that creates an additional risk. Think of these as
A- or B+ properties. The risk might be due to the property’s location or the age of the
property. Unlike a Class A property, you can add an additional value to this property,
but the value is small. That makes your returns higher than you will get with a core
asset, but the returns still aren’t as high as you will get with a riskier investment. You
can expect to get a 10 to 14 percent return from these properties.
Value-Added Rental Properties
That brings you to value-added rental properties. You can increase the value of this
type of property by fixing a problem. For instance, these properties are often in need
of a renovation. You can usually pick a value-added property up for below the market
value, fix the problems, and rent it for more. Because you can add so much value to
one of these properties, you can expect to make a return of around 19 percent a year.
However, since these properties are often in bad areas, you might have some trouble
with your tenants. It is critical that you screen your tenants so you aren’t left holding
the bag if they leave. VerticalRent offers a tenant screening service that will prove very
valuable with these types of investments.
Opportunistic Rental Properties
Finally, there are opportunistic rental properties. These properties can reap quite the
reward, but they come with some serious risk. If all goes well, you can expect to earn
a return of over 20 percent a year, but you have to overcome some serious issues. You
might have to deal with structural issues in a home or a serious vacancy problem with a
commercial property. You need to know how to deal with these properties in order to
get a return on investment.
You need to diversify your risk profile, but that does not mean that you need to pick up
opportunistic rental properties. If you have the level of expertise required, you can dip
your toes in the water. If not, stick with core, core-plus, and value-added properties.
This will let you attract different renters in different markets, providing you with some
security as the market changes, along with a nice reward when everything goes well.
Don’t Be Afraid of Different Markets
When you first begin your career as a real estate investor, you need to buy local. Stick
with property around your own home so you won’t have to register an LLC in different
states and get to know property managers both far and wide. You also won’t be stuck
filling taxes in multiple states, which can be a real headache.10
Start small by entering into a few local markets. However, when you branch out to 25 or
more rentals, you can make it your full-time job. At that point, don’t be afraid to enter
into markets in different states. This can help you take advantage of attractive markets
that are located elsewhere.
In fact, this is becoming a growing trend.11
Landlords note that the risks are the same
when they own property in other states. They still might deal with vacancies or market
collapses, but they can use property management services to take care of everything.
Property management fees usually run around 7 to 10 percent for the management
and are typically around 3 percent for acquisition.
If you decide to do this, start by choosing your market. Look at the state laws, since
some states have tenant-friendly laws and some favor the landlords.12
If you choose a
state with tenant-friendly laws, you could end up paying the price. You might have a hard time
evicting a non-paying tenant in such a state, so be careful.
You also need to analyze the market’s trends. This is especially true in regard to the
population. A growing population speaks of good things to come. However, if the
population is decreasing, you can expect jobs and businesses to leave as well. That can
hurt your chances of getting and keeping renters.
The price-to-rent ratios are also important to consider. Keep in mind that what a home
rents for in your state might not be the same in another state.
The Jackson, Mississippi market is a great example of this. A 3 bedroom 2 bath home
might net you over $2,000 where you live, but if you want to make money in the
Jackson, Mississippi market, you will need to cap your rent around $750. Otherwise,
you will have a hard time keeping renters in the property. However, the property is
really cheap, so you will still have a nice price-to-rent ratio. Do your due diligence
before you buy a property so you know what the ratio will be in the area.
After you choose your market, you have to find property. If you want to limit your risk
and your workload, you can go with a turnkey property that already has tenants in it.
However, this will be more expensive to purchase and have a lower rate of return.
If you are interested in boosting your return, look for some Class B or C properties in
other states. You will pay less to acquire the property and get a higher rate of turn.
However, you will have to find a trusted company to go in and take care of the property
for you so you can get it on the rental market.
1. Dionne Searcey. “More Americans Are Renting, and Paying More, as Homeownership Falls,” NY-
Times.com, June 24, 2015, https://www.nytimes.com/2015/06/24/business/economy/more-ameri-
2. Grant Cardone. “An Investor Who Owns 4,000 Apartments Explains Why Multi-Family Real Estate
is the Best Investment He’s Made,” BusinessInsider.com, August 16, 2016, http://www.businessin-
3. Majdal Sobeh. “The Snowball Method in Real Estate Investing,” Mashvisor.com, October 19, 2016,
4. Attorney William Bronchick. “Beyond the Handshake-How to Invest in Real Estate with a Partner,”
5. Jimmy Moncrief. “2 Easy Steps for Growing Your Real Estate Portfolio,” Landlordology.com, Last
updated on December 9, 2016, https://www.landlordology.com/income-generating-strategies/.
6. Ilyce Glink and Samuel J. Tamkin. “How to Determine Whether to Sell Money-Losing Rental Proper-
ty,” WashingtonPost.com, https://www.washingtonpost.com/news/where-we-live/wp/2017/03/20/
7. “How to Build a Real Estate Porfolio,” FoxBusiness.com, May 10, 2012, http://www.foxbusiness.
8. Ian Formigle, “How to Build a Diversified Real Estate Portfolio,” LinkedIn.com, May 16, 2016,
9. Ian Formigle. “Real Estate Investment Strategy: Four Categories of Risk and Reward,” Crowdstreet.
com, April 20, 2016, https://www.crowdstreet.com/education/article/real-estate-investment-strate-
10. Mark J. Kohler. “Buy a Rental Property Before Year-End: Why and How,” Entrepreneaur.com, Octo-
ber 4, 2016, https://www.entrepreneur.com/article/283025.
11. “Absentee Landlords Investing in Cheap Rentals Out-of-State,” Newsweek.com, October 9, 2016,
12. Ali Boone. “Out-of-State Real Estate Investing 101,” BiggerPockets.com, https://www.biggerpock-
Build Your Portfolio with a Lower Risk
You are ready to start building your portfolio, but before you begin, it’s important to
understand that you can lower your risk with the help of VerticalRent. With tenant
screening that includes credit reports and background checks, you can fill your rental
properties with responsible renters. This will cut down on evictions and ensure that you
receive your monthly rental checks. As those properties fill up, this will become more
and more important, so check out VerticalRent today.
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