This week we had the pleasure of speaking to a local experienced investor about how he started what is now a large real estate portfolio that replaces his need for a full time job. Many people ask what it takes to be able to be a real estate investor full time. Troy Zsofka has been an investor for a little over 10 years and started his journey in single family home investing including flipping and rental properties. Selling off his single family properties to buy large commercial property.Â Without further ado here is the conversation we had with Troy about his experiences.
Question:Â What does your portfolio consist of to be able to sustain you full time?
Troy: Started with a combination of flips and holds. Flipped as necessary to replenish capital; held as much as possible. Reached just under 40 units (mostly SFR, but 2 duplexes), and started selling them off to reinvest into private equity. Currently down to 26 with 1 under contract to be sold, 2 others listed, and 3 more to be listed in the coming weeks. Increasing holdings in CRE private equity as they sell.
Question: How did you find your investments?Â
Troy: Finding them was easy after the crash. The MLS was ripe with bank-owned. Even once the amount of investors went up and the inventory went down, we just went for the ones that needed a ton of work and that most investors didn’t want to touch. Most flippers look for something they can paint and turn without actually fixing anything. We had the know-how and willingness to perform significant renovations and a full-time in-house crew with which to do it, so we had no problem taking on houses that needed a ton of work, and we were able to get great deals on them because the competition was less abundant. We bought some that needed less work as well, but the ones on which we made the most spread needed quite a lot. These days it’s become more and more difficult to find deals on the MLS given the dwindled inventory and the abundance of inexperienced investors who watch too much hyped up HGTV, have some cash, and think they’re gonna get a great deal on a bank-owned no matter how much they pay for it. It’s imperative to objectively run the metrics and never let emotional excitement influence your business decisions.
Question: How did you fund all of these purchases?
Troy: As far as funding, I brought in some capital that I had saved up while working as a commercial banker, and I was fortunate enough to be able to go into business with and borrow the rest from family, and then flip some here and there to replenish. The terms I got were pretty rugged, having to pay interest plus a 50% equity kicker (in other words, I gave up 50% ownership in exchange for the funding), but it was an opportunity to get started, and giving up half was better than going at a snail’s pace trying to build up with only my own funds.
You know the old adage: “half of something is better than all of nothing”. Furthermore, we set it up as a partnership, so even though I put in the lion’s share of the time and effort, I was able to tap into family construction and business experience to advise me along the way.
Question: Why single families?
Troy: We chose SFR for a number of reasons. For starters, there’s plenty of equity spread to be realized through renovation. It’s commonplace that we would buy a house for $50K, put $40K into it, and have it be worth over $150K after we were done. Rent it out for several years in the right market cycle, and now that house is worth close to or above $200K. Also, with houses, the tenants are higher quality, take care of the lawn and snow, take better care of the property, and stay longer (our average tenancy is over 5 years). Lastly, SFR is more liquid than any other real estate asset class. The potential buyer pool is much larger because you’re not only selling to other investors. In fact, I sell a house or two each year to the tenants who live in them. All that said, there are efficiencies and economies of scale to be realized through large multi-families and other commercial real estate; which is why I am reinvesting proceeds from the sales of the SFR’s into multi-million dollar limited partnership private equity deals in multifamily, hospitality, self storage, manufactured housing communities, etc. In my opinion, I would rather be in SFR than in 4-, 6-, 10-, or 20-unit apartment buildings, but I would rather be in a 100+ unit apartment complex than a portfolio of SFR.
That said, SFR was a great way to get started and to build wealth.
Troy successfully found his start and wealth in real estate in SFR. Now he focuses on majorly up scaling his holdings into large commercial real estate. To highlight some of the things we learned from this; there are many ways to make money in real estate, single family homes can be just as profitable if not more than multi families, and your network plays a key role in your business.Â Â
What do you think of single family investments? How do you want to create wealth in real estate? We are always interested in hearing other investors stories. Please help us inform others and bring experience and knowledge to as many people as possible. Reach out to us here on the website or at directly firstname.lastname@example.org.