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 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!
HELOCs can be extremely useful for funding down payments on investment properties. Here are some key points about how they work:
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.
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:
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.
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:
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.
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.
Once you start accumulating rentals, determining whether to self-manage rentals or hire a property manager is crucial. James outlined some key considerations:
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:
The hands-on experience gives you the systems and knowledge to scale your portfolio over time.
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.