From Sales to Real Estate Investing with The Real Fi Podcast

Buying your first investment property can seem daunting, but with the right mindset and strategy, it is very achievable. In this post, I'll be sharing the inspiring real estate investing journey of Patrick McGrath, an investor who went from 15 years in sales to building a $5 million rental portfolio in just 3 years.

Along with his investing partner James Rippeon, Patrick hosts The Real Fi podcast where they break down practical strategies for achieving financial freedom through real estate. We recently had the pleasure of interviewing them as a part of our Thought Leader Spotlight Series - here are some of the key lessons from our conversation.

Patrick's Origin Story

Patrick bought his first home in 2013 as a foreclosure, fixed it up over 2 years, and used a home equity line of credit (HELOC) to purchase his first rental property just 10 houses down in 2017.

After renting that first investment property for a year and adding over $100k in value, Patrick moved into it and rented out his original house. Using another HELOC on the new rental, Patrick bought his next primary residence.

The area had lots of small multifamily properties, so Patrick used the same HELOC to purchase a 3-unit building. He renovated it using the BRRRR method - Buy, Rehab, Rent, Refinance, Repeat. After refinancing, he got all his capital back to buy a 4-unit and another single-family rental.

Patrick continued recycling capital from that first HELOC into new deals. In 2020 he acquired a 10-unit apartment building by selling his first 2 rentals and doing a 1031 exchange to use as the down payment.

After a year of renovations, the 10-unit appraised for $1.75 million and Patrick pulled $500k out through refinancing. He then used those funds to acquire a 6-unit and 7-unit property off-market.

In just 3 years, Patrick accumulated a 35-unit, $5M portfolio netting $15k/month in cash flow!

Using HELOCs to Fund Deals

HELOCs can be extremely useful for funding down payments on investment properties. Here are some key points about how they work:

• A HELOC is like a credit card on your home. You only pay interest on the amount you actually use.
• With a home equity loan, the lender deposits the full amount upfront and you immediately start paying interest.
• A HELOC lets you access funds as needed for up to 10 years and pay back over 10 years. This flexibility is very valuable.
• To qualify, you need sufficient equity in your home. Lenders will go up to 80-85% loan-to-value on a primary residence HELOC.
• For investment properties, the maximum loan-to-value is lower, around 70-75%.

By using a HELOC for the down payment on his first few small multifamily deals, Patrick was able to recycle the same capital into more and more properties. This strategy allowed him to scale his portfolio rapidly.

Making the Jump from Sales to Investing

Many people who want to get into real estate investing have a 9-5 sales job. We asked Patrick how his sales experience prepared him for investing success:

"My sales career definitely set me up for real estate investing, not only for the actual sales experience, but also the follow up. You have to follow up and it has to be genuine...each of these off-market deals has taken me over a year from that initial contact to actually closing."

The key traits Patrick developed in sales were:

• Persistence and follow-up skills
• Ability to build relationships and close deals
• Generating commissions to save for down payments

He notes that even if real estate is your end goal, a sales job can actually facilitate that transition by building valuable skills and capital.

Seller Financing Deals

With rising interest rates tightening lending standards, we asked Patrick about using seller financing as a way to creatively fund real estate deals. Some tips he shared:

• Target older properties/landlords close to being paid off where selling would trigger big tax bills
• Understand motivations from the seller's perspective - why would financing benefit them?
• For example, if the seller owes $300k on a $1M property. Ask them to finance $200k of the purchase price for 2-3 years rather than selling outright.
• This allows you to minimize the required down payment capital and use those funds for renovations instead.
• Build relationships over time to create the trust needed for the seller to finance. Patrick's off-market deals take 1yr+ from initial outreach to close.
• Get creative - ask sellers to finance just the down payment portion rather than the whole amount.

The key is solving the seller's problem creatively rather than just maximizing your own advantage. Building trust through consistency over time allows you to negotiate win-win terms.

Making the Leap to Investing

James emphasized the importance of surrounding yourself with mentors and like-minded peers:

"What's more important is that people surround themselves with the knowledge and the mentorship and the people that are really just crushing it and then gravitate towards that."

He suggests starting a real estate peer group or mastermind that meets consistently and keeps you accountable. Being around others who have already achieved what you're aiming for will put you on the fast track to success.

Patrick also advised attending local real estate meetups:

"If you're having analysis paralysis, go to a local meetup and present your deal to some other investors...you might go to one of those guys and ask a partner, bring them the deal, go in 50/50 on it and have them show you the way."

Rather than let fear hold you back, partner with others and take action on your first deal. Gain the knowledge and support needed to overcome initial hurdles.

Managing Your Properties

Once you start accumulating rentals, determining whether to self-manage rentals or hire a property manager is crucial. James outlined some key considerations:

• Third-party managers will not care for your assets like you would. However, self-managing takes more time/effort.
• Managing yourself allows you to form contractor relationships and be more judicious about repair costs.
• Self-managing can add ~10% to your margins. Helpful if your market has compressed cap rates.
• Do you want to own thousands of units passively or a smaller portfolio you manage hands-on? Clarify your goals.
• Consider your personality - some investors enjoy doing manual labor and repairs themselves.

Patrick manages his entire 35-unit portfolio and highlights the cost savings:

"If I were to hire a property management company, it's going to cost me somewhere between $5,000-$6,000 a month...I'm not getting $5,000 a month worth of headache calls every month. It's really not that hard."

He recommends starting out self-managing 1-2 properties to gain experience. This allows you to evaluate third-party managers better later. Key tips:

• Use digital payment systems and thoroughly vet tenants
• Problems are amplified online - 95% of the time properties run smoothly
• Managing yourself keeps you closely connected to your assets

The hands-on experience gives you the systems and knowledge to scale your portfolio over time.

Conclusion

Patrick and James' story demonstrates how you can transition from a sales career into building a thriving real estate business in just a few short years. By consistently taking action, leveraging creative financing strategies, and surrounding himself with mentors, he was able to accumulate a large portfolio quickly despite having a full-time job initially.